Bernanke Move May Not be Enough

Well, that was unexpected. Just when you thought the markets couldn't act any nuttier, Bernanke turns around and lops off 0.75 points. In contrast, Friday's Commitments of Traders report was fairly subdued, offering only a couple of new signals, though plenty of renewed ones. (See my table on the Latest Signals page for the full details.) Some highlights:

- More signs that the bottom is nigh for plummeting Treasuries yields. My five-year Treasury trading setup - based on the COTs data issued weekly by U.S. Commodity Futures Trading Commission - has now flipped to bearish (meaning it's calling for the yield to rise). This setup works with no trade delay (i.e., execution on the open of trading this week). Well, look at that. The yield opened down over 5 percent from the previous close.

- Same for my 13-week T-Bill setup. It's also flipped to bearish. As you'll see from my Latest Signals table, my 10-year Treasury setup had already flipped to bearish with the Nov. 10 COTs report. This leaves only the two setups at both extremes of the yield curve - the 30-year bond and 30-day Fed Funds contract - still bullish.

- Amazingly, the S&P 500 small traders - the "dumb money" whom I fade in my setup for this index - are still highly bullish in last Friday's data. These poor folks, the fodder of the markets, are just 10 percent below the signal line I use to trigger a bearish signal in this setup. Of course, the setup is already on a bearish signal, but this is an indication of how wrongway this crowd still is - and that the selling pressure could remain strong, regardless of what Bernanke does.

- Similar for the NASDAQ 100 small traders. These guys are at 57 percent of the signal line for triggering a renewed bearish signal. Bad signs for the bulls.

- In the Dow Jones industrials data, the "dumb money" large speculators have actually been significantly reducing their net short position for the past two weeks - likely a bearish development. Last Friday, their net position was neutral by historic standards.

- Same for the Russell 2000 large specs. They've been increasing their net long position as a percentage of the total open interest for three weeks.

- My COTs Agriculture Composite Index, based on my setups for sugar, wheat, corn and soybeans, has dropped again to -2.13 from last week's -1.92. The setup is now giving its fifth straight bearish signal. A -1 reading means all four setups have just given a bearish signal for execution on next week's open of trading. This is the lowest the index has seen since May 2000 when it fell to -2.18.

- So what about crude oil and bullion? Is the commodity bull market really dead? My crude oil setup seems to think not. Based on fading the large specs, the setup shows the "dumb money" is still far from being excessively bullish and thus triggering a bearish signal. In fact, the last COTs report finds their net position far, far below the level that would mean they're overly bullish. As for bullion, I've just done a separate report that should be up soon on Kitco.com. I'll post a link when that happens. Good luck this week!