Thank God that's over. Stephen Vita put it well just now on his Alchemy of Trading site: "I'm exhausted, and I'm sure you are too. In the great scheme of things this bounce doesn't mean much at all, but I'm going to pray that the nightmare has at least stabilized and we can get back to the business of trading without a gun to the head. People have been shattered by these markets, and I feel for them. This weekend maybe things will be clearer."
So where do things stand now with the Commitments of Traders data? I'm almost scared to look. Indeed, there's more bad news from this afternoon's weekly data on trader positioning in the major derivatives markets. I've just updated my latest signals table with the signals from my trading setups based on this data. Not pretty. Here are some highlights:
- My S&P 500 setup has given a bearish signal for next week's open. This is a signal that will last only one week, then goes back to cash next week. What this setup looks for is bullish and bearish extremes of positioning from the "smart money" commercial hedgers combined with extremes in the total open interest among the "dumb money" small traders - who are faded, or traded opposite to. The setup has a three-week trade delay. The sell signal for next week reflects a sharp spike in the small trader open interest in mid-September, which gave a bearish signal. After that, the small traders go back to a bullish signal. But with the exception of a single week, the commercial hedgers have been on a bearish signal since the end of June.
- My Nikkei setup has given a bearish signal for next week after being in cash for six weeks. The bearish signal will last two weeks before it goes back to cash.
- My setup for crude oil has gone to bearish as well after being stopped out on a bullish signal earlier this week. This new bearish signal will last a single week before going to cash or bullish. Don't know which right now. However, I will ignore the crude bearish signal due to my risk-control rule that says I'll take a new trade only if the majority of my highly correlated commodities setups are leaning in that direction, which they aren't. As of Monday, gold and silver are bullish, while copper and platinum are in cash.
Hope you have a relaxing weekend, and good luck next week to us all.
TAGS: S&P 500, Nikkei, crude oil, COT, Commitments of Traders, derivatives, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, out-of-sample testing, walk-around testing
6 comments:
how come you are going bearish on Nikkei and S&P 500 next week, based on the last COT report. i thought these setups had a few weeks delay. are you changing the rules now?
Hi Anonymous,
Rules remain unchanged. Those signals are adjusted for the trade delays in those setups.
Regards,
Alex
hi again,
i still don't understand how is it possible for the 7-Oct-08 COT report to give a bearish signal for Nikkei and S&P 500 to be executed on 13-Oct, if the trade delay is 8/6 weeks for Nikkei and 3 weeks for S&P 500. aren't you supposed to go short S&P 500 on 3-Nov, after 3 weeks have passed since the COT report that gave the signal? please explain.
Hi Anonymous,
The confusion comes from the way my spreadsheets are set up for the new combined signals that rely on two groups of traders. Because the two trader signals usually operate on different trade delays, my setup's signal column is adjusted in order to give a new signal in the week immediately preceding the date when the trade is supposed to take effect.
So the data for the latest SPX signal came from the Sept. 16 COT report, while for Nikkei it came from the Aug. 12 and 26 COT reports. But my spreadsheets just gave those signals this past week. If you look at the sample SPX spreadsheet on my DIY page, you will understand how it works.
I realize the date issue can be confusing, so what I might start doing is just reporting the entry date for the current trade.
Regards,
Alex
yeah, i'd rather you post the signal as soon as it's available, rather than just before the trade is supposed to take place. this is useful information and it's good to have it in advance.
I'll consider that too.
Thanks,
Alex
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