Gruesome days for financials. But the light has just appeared at the end of the tunnel. My trading setup for the U.S. BKX Bank Index has just gone bullish. This setup works with a one-week delay, so that could still spell a little more trouble for bank bulls - and more happy times for us shorts. (See my newly updated portfolio page for the results of that and other current trades based on my COTs Timer trading strategy.) I've also updated my Latest Signals page table with calls from yesterday's holiday-delayed Commitments of Traders report, as interpreted by my setups.
Does this mean the equity bust-up is over? That's much less clear. My new combination S&P 500 trading setup will be going to cash for next Monday's open, July 14. The two signals that make up that setup must both agree, or the setup goes to cash. Those two signals also work with a three-week trade delay, so I can know what they'll be saying a few weeks in advance. I can say the setup will remain in cash for at least the next three weeks. Perhaps this is an indication of a range-bound, indecisive market.
As well, my NASDAQ 100 signal has gone from cash to bearish for this week's open. This signal is based on a combination of fading the sudden excessive bullishness of the small traders and trading alongside the commercial traders, the latter with a five-week trade delay (meaning they got really bearish in the May 27 COT report). I should note, however, that this bearish signal is only going to be in force for the current week. That's because the commercial traders flipped back to bullish with the June 3 COT report, so this setup will be going either to cash or long on next week's open of trading.
Some other highlights:
- My silver trading setup has gone to bearish after a significant increase in the commercial trader net short position as a percentage of the total open interest. The "smart money" in this market is now 1.5 standard deviations below the moving average I use to study the futures and options data in this market, as reported in the weekly COT report. That's well beyond my signal line for a bearish signal. I sold my long position on the open of today's trading.
- My gold bullion and gold stocks setups remain bullish, however. With silver going bearish, four of my six highly correlated commodities markets still remain long (copper, platinum, crude oil and gold), while apart from silver, heating oil is also short. That means I will ignore my silver bearish signal as, according to my risk-control rule, a majority of setups in highly correlated markets must be aligned in the same direction to take the trade. (See more on that rule on my How It Works and Glossary pages.)
- With the soaring price of gas, you might be wondering what the COT data says about crude oil. The news isn't good, unless you happen to be long crude like I am. Despite the end of the favourable seasonable sweet spot for crude, this market is still bubbling. My crude setup works by fading - or trading opposite to - the large speculators when their futures and options net position as a percentage of the total open interest hits specific levels that have suggested good-probability trades in past testing. The large specs are anything but excessively bullish at this point. In fact, their net long position has been gradually trending downward since mid-April and they now have a decidedly bearish tilt in comparison to their recent positioning.
- My Nikkei setup is now back to bullish, based on a signal given in early May. This setup works with an eight-week trade delay, so that signal was to be acted on only this week.
One extra portfolio note: Because I last updated my portfolio page yesterday evening, it doesn't reflect a few trades that took effect this morning: sale of my silver long position and purchase of a 200-percent leveraged inverse NASDAQ 100 position.
TAGS: COT, Commitments of Traders, COTs, BKX, banks, financials, silver, gold, gold stocks, crude oil, Nikkei, CFTC, Commodity Futures Trading Commission, S&P 500, NASDAQ 100, market timing, investing
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