Yikes. Another nutso week. Same old, same old. Doncha love it? Some really interesting movement in the trader positioning to report this week, too. I've just updated my Latest Signals table with this week's calls from my trading setups based on the Commitments of Traders data from this afternoon. Here are some highlights:
- First, the question of the day. Will the Fed pause, raise or lower? Trader positioning in the 30-day Fed Funds futures contract is quite stunning on this score. Contrary to recent expectations of a harder line from Bernanke & Co., the data strongly points to a lower Fed Funds rate. The large speculators, who have accurately called past turns in this market with remarkable consistently, are now more net long as a percentage of the total interest than at any time since the dog days of Nov. 2003. (Being long means they think rates will fall.) In fact, their positioning hasn't been as bullish as today since the dot-com bust-up back in Jan. 2001, when compared to to the moving average I use for my Fed Funds setup. Back then, they hit a peak of 3.7 standard deviations above my moving average. Today, they have gotten steadily more bullish since the end of April and now sit 2.8 standard deviations above the average. That's down from 2.9 standard deviations away last Friday, but still pretty close to the seven-year high. I'd say that means interest-rate expectations have completely overshot.
- Equities saw some grim news this week, but there's an interesting development in positioning in the Dow Jones industrial average futures and options. The large speculators, whom I fade in this market, haven't been this bearish relative to my moving average line since early Sept. 2006, as markets shrugged off a four-month selloff and broke out into a huge advance. My NASDAQ 100 setup is signaling caution (it just went to cash for next Monday's open), but perhaps the Dow data is telling us this breakdown below the March lows is overdone.
- Similar news from the data for the Russell 2000. The "smart money" commercial traders in this market suddenly did a massive about-face and have flipped to their most bullish position since Nov. 2004 relative to their recent positioning.
Have a good weekend, and be sure to tune in next week for my portfolio update based on my new signals for Monday's open (including my Nikkei bearish signal). Good luck next week!
TAGS: Commitments of Traders, COT, Dow Jones industrial average, NASDAQ 100, NDX, Russell 2000, Nikkei, Federal Funds, Fed Funds, Commodity Futures Trading Commission, CFTC, Bernanke
11 comments:
Alex,
very interesting approach you have indeed for someone who is not a full time trader. I understand that one of the main ideas is to keep time spent on research down to the bare minimum.
As a disadvantage, especially in BEAR market where market moves are sudden and fast, such method might lead to losses in a very short period of time if used on a standalone basis.
I've been observing your system for quite a while now ( not following, just observing), find it very interesting in context you are using it, but...
Not even in hindsight, but in real life NASDAQ100 buy signal on June23rd was 80% loosing trade even without applying complex analysis, but just by looking at simple support levels
I spent a lot of time in downtown Manhattan ( you know what that means) and "big commercial traders" nowadays getting in/out of positions as fast as day traders and it is not really done by "smart" or"dumb" traders - program trading takes care of it.
I think your approach has great potential, but it might greatly benefit from even primitive technical analysis.
Information wise your work is priceless for someone who wants to know what COT is saying, but does not have time/knowledge to go over all details.
Thank you
DavidDT
Hi DaveDT,
Thanks for your comment. I'd just like to correct one error you make: the NASDAQ 100 trade of June 23 has lost 4%, not 80% (as of Friday's close).
Thanks,
Alex
Alex, sorry I had to be more clear - I did not imply that that trade "lost 80%", what I meant to say was "that was a dangerous long trade with 80% probability for losses" (English is my "second language" - the first one is Russian :)
Hi again DaveDT,
I'm not sure where you're getting that figure. The NASDAQ setup has a win/loss ratio of 74/32, for a past probability of a winning trade of 70%. This, however, doesn't mean future trading would have the same probability of wins or losses. This measure is actually far less important for me than other ones like the measures of robustness on my Latest Signals table.
Regards,
Alex
Alex - Is there some where on your site that shows actual performance numbers?
Thanks! dws
Hi DWS,
Have you seen the portfolio page? Those are for current and recent trades.
Regards,
Alex
Alex
I think what David Means is that the trade f 6/23 has a 80% probability of losing based on basic technical analysis. He is not referring to your whole strategy over the whole tested period.
You certainly have done an excellent job on COT analysis. I really appreciate that you are sharing your knowledge here.
For the same set of data, many people can interpret in different ways too. I developed my own COT strategies independently and I sometimes get different signals from yours. My last nasdaq buy signal was 3/28/08. Once a position is initiated, I watch COT data for all 3 indexes (Dow, SP500 and Nasdaq) for clear exit signal. SP500 got a clear sell signal on 5/16/08. So position was closed.
GL
Thanks for your comment, GL. I'd be curious to hear more details about how you established your signals.
Regards,
Alex
Hi again GL,
Just took a quick look at the NASDAQ 100 chart and am afraid I don't see the support levels you're and/or David DT were talking about. At that time, there was good support at the early-June low, which NDX had yet to violate and where NDX did indeed bounce around for a few days before breaking down. I'm not saying I would have bought on June 23 purely for technical reasons, just that support at that point was still good at that level.
Regards,
Alex
ALex
I really didn't check what David said about the support and technical analysis. I just thought that might be what he meant.
For my COT analysis, surprisingly, we are using very very similar approach. You are trying different averaging periods to optimize your results. I am trying to identify the latest cycles of money flow (in and out) based on report to establish my averaging period. I take entry signal mechanically. But the exit signal can be a sell signal from any of the three indexes. I use trailing stop once market is moving in my favor for a predefined number of points. Sometimes, I take profit for half of my positions at the next resistance/support and let the remaining half running with a generous trailing stop.
Regards,
GL
Hi GL,
Thanks for the info. That's interesting. How specifically do you identify "the latest cycles of money flow (in and out) based on report to establish my averaging period" for your mechanical entries? As well, how do you determine your sell signal from the three indexes together? Are you also using technical information for entries and/or exits?
Regards,
Alex
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