Eurodollars Positioning Bearish for Banks

Just included a cool new trading setup in my Latest Signals table results. It's for bank stocks. How's that? you ask. Bank stocks aren't in the Commitments of Traders reports, which I use as the basis for all the setups on that list. Right you are, my friend. But I tested the Eurodollars contract positioning against the KBW Bank Index (BKX) and, lo and behold, so was born one of the best setups I've seen in any market, second only to my silver setup. Who would have thought that boring old banks would be so profitable historically?

The setup trades on the same side as the large speculators in the Eurodollar contract. (Btw, Eurodollars have nothing to do with Euros. They're based on U.S.-denominated deposits in banks outside the U.S., and they trade depending on credit conditions. See Wikipedia's entry for some basic details.) What's striking for me isn't so much the straight profit numbers of this new setup, but the measures of statistical robustness. See the columns near the right-hand edge of that table for the confidence intervals, which are really good. This setup has a Sharpe ratio of 4.3 (compared to 4.5 for my silver setup and 3.4 for my S&P 500 setup, my previous top two). For you stats enthusiasts, the regressed annual return (RAR%) of the BKX setup is 31% and the Robust Sharpe ratio (using RAR% instead of the compound annual growth rate) is 5.3, which is pretty sweet.

So what's the setup saying right now? It's been working overtime of late, flipping between bullish and bearish signals every week or two (or four) since October. The setup gave a new bearish signal from last Friday's COTs report, which with the one-week trade delay it uses means for execution on the open Monday, Feb. 25.