Holiday Delay

This week's Commitments of Traders report was delayed until Monday because of the holiday week. I'll be back Monday afternoon or evening with my next updated signals. Hope American readers had a good holiday and hope you have a good weekend.

System Development Update

I just found some time to take a closer look at David Aronson's excellent book Evidence-Based Technical Analysis and found some important things to consider about my trading setups based on the weekly Commitments of Traders reports. One is testing the setups based on detrended price data. My results and choice of best setups are based on the raw price data, but it's clear from Aronson's book that detrending the data is an important step. I tried that last night on the best few dozen setups I've found for the S&P 500 and can report that most of them still produce excellent results - on balance, even better than on the raw data. The problem is the results are different from the ones I used to choose my best setup for trading. So I need to look back at all of them to find the one I like best. Same for all the markets I'm trading.

The second major step Aronson talks about is a bootstrap or Monte Carlo test in order to verify if the setup was obtained by luck. Aronson offers code for a variation of the Monte Carlo test on his website here. I think he makes an excellent argument for the importance of this kind of testing, and I plan to do that too.

The question is where does all this leave my existing setups. Until I've done all this testing, I don't think I have much choice but to include a bit of discretionary technical analysis in the picture when I'm trading these signals. I might, for example, consider trading some signals with a tight stop - for example, a two-percent drawdown stop. Trading the system until now the way I've done has been an important education on the value and challenges of mechanical trading - more so than any paper trading could have been. And I think the signals still have great value in guiding trading decisions. But until I go through the important processes above, I feel like I'm taking on too much risk. On the other hand, the tests above will hopefully lead me to a super-robust trading system. Until then, I will still post the signals weekly and give my take on what the data is saying, as well as give updates on my system development progress. See you later today or sometime this weekend with an update on this afternoon's COT data.

Banks Bounce?

Quite a day. Quite a week. Quite a decade! Nice bounce back above the 2002 lows for the S&P 500. Could this be the bottom? Don't know, but you can bet there are a bunch more surprises awaiting. The three-month T-Bill chart still looks like a horror show. Just updated my latest signals table based on this afternoon's Commitments of Traders data. A lot of new signals this week (bullish copper and banks - the latter with a one-week trade delay - cash for crude oil and bearish for the 5-Year Treasury). I'll be ignoring the copper signal because of my Highly Correlated Markets Rule. (See more on that here.) I'll post a lengthier update early next week. Have a relaxing weekend.

Woah

Yikes. SPX today closed two percent below its 2002 intraday low of 768. Not good.

Going Long Nikkei

Just updated my portfolio page with my Nikkei long position that I took on this morning's open. See more on that signal in Friday's post. Good luck this week!

Japan Turning Up? And Maybe Gold Too

A few interesting new signals from this afternoon's Commitments of Traders data for my trading setups: long Nikkei and gold, short copper and cash for the BKX U.S. Bank Index. All those signals are for execution on Monday's open, except for gold, which setup works with a two-week trade delay, so execution is for Dec. 1. Check my latest signals page for all the details. The new copper signal I will ignore because of my Highly Correlated Markets Rule, which says I'll take a new signal in a group of correlated markets if the majority is giving the same signal. In the case of copper, that's not the case. My system is long crude and silver but short gold, while platinum is in cash. Also, as of Monday, my Black Swan Rule expires, which means I am back to trading new signals. Confused? See more about how all this works at my intro page and glossary page and more on my risk-control rules at my how it works page. Have a great weekend. Also tune in next week for an update to my S&P 500 trading setup. I've been tweaking my evaluation method for choosing best setups and am starting with a new, improved one for SPX.

TAGS: Nikkei, gold, BKX, Bank Index, copper, S&P 500, SPX, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, out-of-sample testing, walk-around testing

Triple Your Losses!

Tom Bulkowski blogs about a bunch of new triple-leveraged ETFs now available. Read more here.

Natural Gas: Nice Patch of Resistance

Hope you had a good weekend. Just noticed this morning that natural gas jumped right up to resistance at the earlier highs of Oct. 20, Nov. 4 and Nov. 5 and at the Tom DeMark sell line on the 15-minute chart. Now it's selling off again. Wow - nice patch of resistance around $31.25. If it breaks out, I'll consider a short-term trade.

Natural Gas Bullish

I've been watching natural gas closely in the past few days for a possible technical trade while my Black Swan Alert remains in place for one more week for my COTs Timer trading system. Natural gas has tested resistance around the Oct. 20 and Nov. 4 and 5 highs and is forming a possible base after its huge selloff. There's also a nice seasonal sweet spot for Alberta natural gas from July to December, and that could finally kick in late this year. (See more on that here.) Turns out this afternoon's Commitments of Traders data has given my natural gas trading setup a bullish signal for execution on next Monday's open - the only new signal from today's data. (See my updated latest signals table here.) I won't trade the COT signal due to my Black Swan Rule. (See more on that rule here.) But I might consider a short-term trade based on price action if there's a nice breakout. The recent highs also happen to coincide with breakout levels based on the Tom DeMark system, about which you can read more here. Have a relaxing weekend.

TAGS: natural gas, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, out-of-sample testing, walk-around testing