Bull Market a Goner?

Rock 'n roll. Quite the end to quite a day to end quite a week! I hope you managed okay. Where to begin... Oh yes, the fresh new Commitments of Traders data issued today to help us figure out what the big boys are doing in the markets. Thanks, Commodity Futures Trading Commission. What does this data have to say this week?

Looks like another very mixed bag. I've updated the table on my Latest Signals page with, you guessed it, the latest signals I got in my trading setups based on the COTs data. They include two new signals for platinum and wheat, both flipping to bearish. In the case of platinum, be aware that my setup goes to cash during bearish signals (rather than selling platinum short). The new signal for wheat means all five of my agriculture setups are now in the sell column, as is my COTs Agriculture Composite Index.

As for the beleaguered equities, my newly revised setup for the S&P 500 is giving a second straight bearish signal after flipping negatory with last week's COTs report. This setup works with a price filter based on the slope of the 50-week simple moving average of the S&P 500. During uptrends, instead of going short, the setup doesn't fight the trend and merely goes to cash. My new NASDAQ 100 setup is also flashing another bearish signal, its third since flipping to bearish in the Dec. 18 COTs report. Both these setups are based on fading the small traders, who for some bizarre reason have just hit optimistic extremes in their net futures and options positioning.

My Dow Jones industrials setup, however, isn't confirming all this contrarian gloom and, in fact, is supremely bullish. This setup is based on the "smart money" commercial traders, who've just put on their largest net long futures and options position since March 2004, a position that's hit 150 percent above the signal line I use for this setup. As well, my COTs U.S. Composite Equity Index, which combines the data from my setups for the S&P 500, Russell 2000, Dow Jones industrials and NASDAQ 100, has recovered somewhat from last week's dip into the negative column at -0.22 to this week's simply neutral 0.03. More importantly, the index also remains on its long-term bullish signal.

So what does it all mean? Perhaps money is rotating to big caps and, so far at least, the five-year bull market is still breathing. Check back here next week for more analysis of the latest COTs data and new trading setups. Have a good weekend!