Love this Commitments of Traders stuff. It always fascinates me to see what this data will pull out of its touque. Speaking of which, I gotta dig mine out soon! The nights are getting chilly up here in the mountains of Quebec. Maybe that coyote we saw the other day could make a nice hat. But I digress. My trading setups based on the COT data have given a few interesting new signals from today's update on trader positioning in derivatives markets. (See all the signals at the table linked at the top of my latest signals page.)
My long-standing bullish signal for the 10-year Treasury note has just gone bearish (meaning it's calling for the yield to rise). I posted a note last week on the divergence between the 10-year data and my still-quite-bullish setup for the three-month Fed Funds contract (see here). If the trend-setting yield does indeed rise, that wouldn't be a good sign for hopes of economic recovery. By the by, my 10-year setup has a trade delay of four weeks, so I'll sell my long position on the open of Sept. 29.
My setup for natural gas has also gone bullish. After the nutso week that market just had, I'm hoping it's now made a good base. But I'm still prepared for a wild ride. Gas is like that. Explosive! (This setup has no trade delay, meaning execution on the open after the weekend.)
My S&P 500 setup has gone to cash. But this signal isn't too relevant for my purposes since I had ignored it due to my risk-control rule. (See more on why in this post and more on this rule here.)
A couple of other interesting developments:
- Commercial traders in U.S. dollar index futures now have their sixth-most bearish net short position since 1992.
- Gold small traders haven't had such a small net long percentage-of-open-interest position since Sept. 2006 in comparison to the past data. That's when gold was basing below $600. Last week, their position was the second-most bearish it's ever been in comparison with the average I use for my setup for the HUI Gold Bugs Index and XGD Canadian Gold iShares.
Hope you have a good long weekend, and be sure to tune in early next week for my portfolio page update and perhaps, finally, some more news on a new copper setup.
TAGS: S&P 500, natural gas, gold, U.S. dollar, HUI, Gold Bugs, XGD, iShares, Treasuries, 10-year Treasury, interest rates, Fed Funds, COT, Commitments of Traders, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer
14 comments:
so gold is still bearish this week? why do you follow the small traders?
Hi Alex:
What vehicle do you use to trade the Natural Gas setup?
Thanks,
Brian
there are rumors circulating that the short position on gold of commercial traders is due to three large u.s. banks, which are this way trying to push the gold price down. what are your thoughts on this? gold has been oversold when it was trading under $800 two weeks ago, and other precious metals in related markets have net long positions of commercial traders, so there is no logic that gold should be bearish.
Hi Alex,
Since the COTS is based on data as of Aug.26 - does your system factor in some account or another for the Oil and Gas inventories released a day and two afterward? Last week's Nat.Gas inventory seems very bearish, as a huge over supply awaits. Then the storm was not a factor...So wouldn't this week's COT report be a better indicator?
Thanks,
Pete.
Hi Pete,
Might be an interesting idea, but how would you figure out which news events to include and which not? As well, the more rules you have in a trading system, the more curve-fitting it has and, ergo, less predictive value.
Regards,
Alex
Hi Brian,
I am using a 200% leveraged fund, HNU, trading in Toronto.
Regards,
Alex
Hi Anonymous,
The small traders give the most profitable, statistically robust trading setup I've been able to find so far. Combining signals from two groups of traders may yield a still-better setup, but so far haven't had the chance to do the testing.
Regards,
Alex
Hi Alex,
Did you execute your Nat.Gas or other signals yesterday or waiting until this week's COTs? I just can't seem to beat this Nat.Gas trade...been on the wrong side too many times of this down trend :(
Rgds.
Peter
Hi Pete,
I hear you. I did execute the buy on Tuesday's open, which took effect after the massive gap down, so it's not too badly under water right now. This market is certainly one of the most volatile I've looked at and has blown up lots of traders. The equity curve for my setup is very volatile too, so I trade it with the expectation that it will often disappoint - and with an appropriate position size. Also, I console myself with memories of the fantastic natgas move up in the first half of the year.
Regards,
Alex
My wishful thinking is that I hope the people that are holding those Nat.Gas (UNG) $60 & $70 calls for April.2009 are much smarter than everyone... On the contrary they could just be hedging their short positions...
I'm curious what the COTs will show in the coming weeks as we approach Oct... Market emotion and psychology is more negative. But since it's an election year, would "they" let a crash happen?
Rgds.
Pete
Hi Pete,
For natgas, looks like there might be support around here on the chart from last fall 2007, when there were rallies from around these levels in Sept./Oct. and Dec. 2007.
The Stock Trader's Almanac folks say a weak September and October could forecast a loss for the incumbent party, followed by a strong November. If the reverse happens, maybe it means McCain has the edge. Don't know how statistically robust that kind of prediction is though!
Regards,
Alex
Hi Alex,
Interesting that Nat.Gas is up a bit just now, when the DOW is down -330 points! Is this a head fake or it's simply oversold? I guess tomorrow's inventory will set the direction.
BTW: Do you think this is it or the DOW is in a trading range of 11,200 to 11,700? It's been selling off every time it re-tracks up.
Rgds.
Pete
Hi Pete,
I don't know if I'd call it a trading range. It's more trying to find a bottom. It's well above the bottom from earlier this summer. That would be important support. If it fails decisively, that would be very bearish indeed.
Regards,
Alex
Hi Anonymous from Sept. 1,
I don't trade on rumours, much less solid news widely reported in every paper. If gold is subject to a conspiracy that supercedes all other market dynamics, why would anyone trade it? In fact, I've found gold acts like any other market, both in how it responds to the COT data and in how it trades technically.
Net long positions by the commercials are mostly irrelevant to whether gold is bearish. The net position has to be compared to recent positioning, in my opinion.
Regards,
Alex
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