Wow - miserable week in the markets. What says the Commitments of Traders report from this afternoon? This, as habitués of this blog know, is the Commodity Futures Trading Commission's free weekly report on major positions in the main futures and options markets. It tells us how the big boys are positioned - and perhaps even some inkling of what lies in store for market prices. At least that's the theory. My two newly revised trading setups based on this data - for the S&P 500 and gold - remain on their existing signals for one week longer. And then everything changes.
The S&P 500 setup goes to cash on the open of Monday, Feb. 9. This is because of a sudden spike in the small trader open interest - typically a bullish sign. Alas, that spike lasted all of one week (the week of Jan. 20). Call it the Obama Spike. Today's data shows the small trader open interest falling enough to give a bearish signal. My S&P 500 setup is based on that open interest plus on the commercial trader net position as a percentage of the total open interest. The "smart money" commercials are bearish. In fact, they've been that way since the week of June 24, with the exception of a single week. So the setup will stay in cash for the week of Feb. 9, then go back to bearish. Yikes. Either the setup is wrong, or we are super screwed. I'm frankly rooting for the setup to be wrong. This is getting scary.
In gold, we've got one more week of bullishness, then on Feb. 9 the signal goes to cash or bearish. (Sorry for incorrect information last week saying that signal changes on Feb. 2. It's actually Feb. 9. I misread my spreadsheet.) This setup will then remain in cash or bearish for at least the next seven weeks. A warning sign: Friday's data shows the large trader open interest spiking sharply to 1.5 standard deviations above the moving average - well above the signal line to turn this particular signal bearish. I fade the "dumb money" large specs when their open interest hits bullish or bearish extremes - with a certain trade delay before executing my signal. The large spec total long and short positioning is now 46 percent above what it was the week of Dec. 9. So gold may be going to $3,000 someday soon, but don't expect a straight line. Hope you have a relaxing weekend, and see you early next week with my portfolio update and hopefully other announcements about existing or new setups. Thanks for tuning in, and good luck to us all.
TAGS: S&P 500, SPX, gold, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, Monte Carlo, out-of-sample testing, walk-around testing
Friday, 30 January 2009
Friday, 23 January 2009
S&P 500 Still Slumping, Gold Good to Go... For Now
Phew, what a week. That rally in December is now but a vague memory. I keep waiting for the bounce that never follows through. Nice breakouts, however, in gold bullion, gold stocks and possibly silver, too. Hope you did okay this week. This afternoon's Commitments of Traders report has given me no new signals for next week for the two setups that I'm trading with my COT Timer trading system: the S&P 500 and gold. But there are new signals further out on the horizon. (My other setups are under construction while undergoing extra testing. See more on that here.)
In my S&P 500 setup, the data remains bearish for two more weeks and then gives me a cash signal for execution on the open of Monday, Feb. 9. The reason: small traders have just increased their total open interest (long plus short positioning in S&P 500 futures and options) to a bullish level. Historically, the best signals I've found for this market come when the small trader total open interest is at a relatively high level and the commercial traders have a high net position as a percentage of the total open interest. At this stage, the commercials are still pretty bearish - though they have reduced their net short position for the past two weeks. They now stand 0.65 standard deviations below the moving average I use for their signal. So they're still on a bearish signal, while the small trader open interest has given me a bullish signal for two weeks out. Thus, my S&P 500 setup goes to cash in two weeks since the two signals don't agree.
In my gold setup, the two signals don't agree, either. But the signals work with varying delays before they take effect. This setup will remain bullish for two more weeks, then goes to either cash or bearish for a minimum of six weeks. This, because the large trader total open interest hit an excessively bullish extreme in mid-December. Past testing shows this is a bearish development and tends to coincide with downward pressure on the gold price. However, my other signal within my gold setup remains bullish. This one is based on fading the large trader net position. Large traders have yet to hit any excessively exuberant net positioning, so that signal remains in bullish mode. Thus, the two signals I use to trade gold won't be in agreement as of Monday, Feb. 9, and I will go to cash or bearish.
Have a good weekend, and tune in early next week for my portfolio update.
TAGS: S&P 500, SPX, gold, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, Monte Carlo, out-of-sample testing, walk-around testing
In my S&P 500 setup, the data remains bearish for two more weeks and then gives me a cash signal for execution on the open of Monday, Feb. 9. The reason: small traders have just increased their total open interest (long plus short positioning in S&P 500 futures and options) to a bullish level. Historically, the best signals I've found for this market come when the small trader total open interest is at a relatively high level and the commercial traders have a high net position as a percentage of the total open interest. At this stage, the commercials are still pretty bearish - though they have reduced their net short position for the past two weeks. They now stand 0.65 standard deviations below the moving average I use for their signal. So they're still on a bearish signal, while the small trader open interest has given me a bullish signal for two weeks out. Thus, my S&P 500 setup goes to cash in two weeks since the two signals don't agree.
In my gold setup, the two signals don't agree, either. But the signals work with varying delays before they take effect. This setup will remain bullish for two more weeks, then goes to either cash or bearish for a minimum of six weeks. This, because the large trader total open interest hit an excessively bullish extreme in mid-December. Past testing shows this is a bearish development and tends to coincide with downward pressure on the gold price. However, my other signal within my gold setup remains bullish. This one is based on fading the large trader net position. Large traders have yet to hit any excessively exuberant net positioning, so that signal remains in bullish mode. Thus, the two signals I use to trade gold won't be in agreement as of Monday, Feb. 9, and I will go to cash or bearish.
Have a good weekend, and tune in early next week for my portfolio update.
TAGS: S&P 500, SPX, gold, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, Monte Carlo, out-of-sample testing, walk-around testing
Friday, 16 January 2009
Gold Glitters While S&P 500 Sags
Some volatility this week. The fun continues. The Commitments of Traders report this afternoon doesn't have much good news for the bulls. My trading setup for the S&P 500 is still in the bearish column. With the trade delays for the signals that make up that setup, it now will remain bearish until Feb. 9 at the soonest.
The commercial traders in S&P 500 futures and options are heavily net short, with a position 1.23 standard deviations below the moving average I use for their signal - though that's a slight improvement from the week before, when they were 1.74 standard deviations below the average. On the other hand, the small trader total open interest (long plus short positioning) has fallen from 0.61 to 0.79 standard deviations below the moving average - which is bearish. You typically want to see the small trader open interest go up for S&P 500 prices to rise. Think of it as rising market volume.
In gold, the other market I'm trading based on the COT data, my setup has gone to bullish this afternoon after three weeks in cash. I execute the signal on next week's open of trading. This signal is based on a combination of fading the large speculator net position (which last hit an overly bearish extreme in Aug. 2007 and has been on a bullish signal since then) and fading the large spec total open interest, the latter with a seven-week trade delay. The large spec total open interest gave a bullish signal with the Nov. 25 COT report and stayed bullish for three weeks, then went back to bearish, which it has remained since. So barring any change in the large spec net position, this signal will remain bullish for three weeks, then go back to cash.
I've temporarily stopped updating my other setups on my latest signals table because, as I've mentioned before, I'm retesting all my setups using detrended price data and Monte Carlo testing. I've completed this retesting for S&P 500 and gold so far and have two setups there I feel confident trading. I'm still doing a little more testing on gold to see if I can find an even better setup and should have some results to announce soon. Then I'll turn to the other setups. Thanks for your patience. Hope you survived the week and have a great weekend. Happy Ukrainian New Year to any fellow Ukes out there. See you early next week with a portfolio update.
TAGS: S&P 500, SPX, gold, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, Monte Carlo, out-of-sample testing, walk-around testing
The commercial traders in S&P 500 futures and options are heavily net short, with a position 1.23 standard deviations below the moving average I use for their signal - though that's a slight improvement from the week before, when they were 1.74 standard deviations below the average. On the other hand, the small trader total open interest (long plus short positioning) has fallen from 0.61 to 0.79 standard deviations below the moving average - which is bearish. You typically want to see the small trader open interest go up for S&P 500 prices to rise. Think of it as rising market volume.
In gold, the other market I'm trading based on the COT data, my setup has gone to bullish this afternoon after three weeks in cash. I execute the signal on next week's open of trading. This signal is based on a combination of fading the large speculator net position (which last hit an overly bearish extreme in Aug. 2007 and has been on a bullish signal since then) and fading the large spec total open interest, the latter with a seven-week trade delay. The large spec total open interest gave a bullish signal with the Nov. 25 COT report and stayed bullish for three weeks, then went back to bearish, which it has remained since. So barring any change in the large spec net position, this signal will remain bullish for three weeks, then go back to cash.
I've temporarily stopped updating my other setups on my latest signals table because, as I've mentioned before, I'm retesting all my setups using detrended price data and Monte Carlo testing. I've completed this retesting for S&P 500 and gold so far and have two setups there I feel confident trading. I'm still doing a little more testing on gold to see if I can find an even better setup and should have some results to announce soon. Then I'll turn to the other setups. Thanks for your patience. Hope you survived the week and have a great weekend. Happy Ukrainian New Year to any fellow Ukes out there. See you early next week with a portfolio update.
TAGS: S&P 500, SPX, gold, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, Monte Carlo, out-of-sample testing, walk-around testing
Monday, 12 January 2009
Stop Levels Tweaked
I've made a change in how I calculate my stops for my trading setups based on the Commitments of Traders reports. My existing method of basing the stops on the largest past drawdown in the backtesting seemed a little unsatisfying - besides leading to the potential of huge losses, which never makes me comfortable, even if the position size is commesurately small. Instead, I'll be now using a stop based on the setup's average profit of all the trades minus two standard deviations of the trades results. The stop levels for the two new setups I've developed so far are posted on my latest signals page. (You'll notice all the other setups have no stop levels or portfolio allocations. That's because I'm not trading them right now as I'm retesting all my setups with detrended price data and the Monte Carlo test.) My maximum portfolio allocations will be adjusted to these new stop levels (i.e., never risking a loss of more than two percent of total assets in any single trade). Also, I may sometimes scale into positions by starting off with half of the maximum allocation on the entry date, then purchasing the second half one week later if the trade is profitable. Good luck this week.
Friday, 9 January 2009
S&P 500 Heading Lower: Data
Does it feel like a major coil is about to spring in the markets, or is it just me? A lot of markets have been in a tightening trading range since late November. Which way will they go? I get the feeling that the sentiment out there is for equities to start to really rally. But that's not what I'm getting from this afternoon's Commitments of Traders data. I've just updated my latest signals table with the new signals from my trading setups based on this weekly derivatives data. Some highlights:
- My S&P 500 trading setup has gone back from cash to bearish for the start of next week's trading. And at this point, the setup will remain bearish until the end of the month. Small trader open interest (long plus short positioning) remains deflated - typically a bearish sign in my past testing.
I should note, however, that the latest reading places the small trader total open interest at 0.608 standard deviations below the moving average I use for this setup - up slightly from 0.680 standard deviations below the average the week before. The signal line is 0.6 standard deviations below the average. So that means the open interest has built to just shy of the point where it would trigger a bullish signal. Mind you, this signal operates with a three-week trade delay, so the earliest any new signal could take effect is the week of Feb. 2.
The second setup I use to get my signal for the S&P 500 is based on the small trader net position as a percentage of the total open interest. This second signal is definitely bearish - falling to 1.74 standard deviations below the average, down from 1.47 standard deviations last week. So not a good sign for the equity market.
- My trading setup for gold is in cash for the third week in a row. Large speculator net positioning has climbed gradually since it collapsed in August, when a bullish signal was triggered. It hasn't yet climbed to what my setup considers any kind of bullish extreme. But the other signal I use for this setup - based on the large speculator total open interest - has been on a bearish signal for the past four weeks. This is owing to a 31-percent increase in the large spec total open interest in the past month - typically a sign of downward pressure on the price of gold. So since the two signals don't agree, the overall setup is in cash.
- My BKX U.S. Bank Index setup has gone to bullish for next week's open of trading, after three weeks in cash. I will not be trading this signal because I'm temporarily retesting all my setups using detrended price data and Monte Carlo testing, as I've explained in previous posts. (The same is true for all the setups I'm talking about in this post, except for gold and the S&P 500, which I've finished testing. See more on all this here.) I'll take the new signal under advisement, however. In my non-COTs trading, I am long Canadian financials. But I'd never buy BKX at this point if I was strictly trading it short-term off the charts (as of Friday's close that is; who knows what Monday brings). Looks terrible. In fact, it's not far from a possible short candidate based strictly on the short-term technicals.
- The NASDAQ 100 data has left my trading setup for this index in cash for another week - the fourth in a row - but breaking down the data shows an unpretty picture. The commercial net position has collapsed to a nearly-two-year low as a percentage of the total interest. Meanwhile, the wrong-way small trader crowd is still ridiculously bullish. After hitting more than three standard deviations above their moving average three weeks ago, their relative position has climbed down somewhat, but this week it was still 1.73 standard deviations above the mean.
- My crude oil setup is in cash for the sixth week running. Nice fakeout this week caught lots of folks in a sucker move, but crude didn't crash this long and this hard without some surprises remaining. The COT data seems pretty ambivalent about crude, too.
Have a relaxing weekend and see you here next week with more updates.
TAGS: S&P 500, SPX, gold, crude oil, NDX, NASDAQ 100, BKX, Bank Index, 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
- My S&P 500 trading setup has gone back from cash to bearish for the start of next week's trading. And at this point, the setup will remain bearish until the end of the month. Small trader open interest (long plus short positioning) remains deflated - typically a bearish sign in my past testing.
I should note, however, that the latest reading places the small trader total open interest at 0.608 standard deviations below the moving average I use for this setup - up slightly from 0.680 standard deviations below the average the week before. The signal line is 0.6 standard deviations below the average. So that means the open interest has built to just shy of the point where it would trigger a bullish signal. Mind you, this signal operates with a three-week trade delay, so the earliest any new signal could take effect is the week of Feb. 2.
The second setup I use to get my signal for the S&P 500 is based on the small trader net position as a percentage of the total open interest. This second signal is definitely bearish - falling to 1.74 standard deviations below the average, down from 1.47 standard deviations last week. So not a good sign for the equity market.
- My trading setup for gold is in cash for the third week in a row. Large speculator net positioning has climbed gradually since it collapsed in August, when a bullish signal was triggered. It hasn't yet climbed to what my setup considers any kind of bullish extreme. But the other signal I use for this setup - based on the large speculator total open interest - has been on a bearish signal for the past four weeks. This is owing to a 31-percent increase in the large spec total open interest in the past month - typically a sign of downward pressure on the price of gold. So since the two signals don't agree, the overall setup is in cash.
- My BKX U.S. Bank Index setup has gone to bullish for next week's open of trading, after three weeks in cash. I will not be trading this signal because I'm temporarily retesting all my setups using detrended price data and Monte Carlo testing, as I've explained in previous posts. (The same is true for all the setups I'm talking about in this post, except for gold and the S&P 500, which I've finished testing. See more on all this here.) I'll take the new signal under advisement, however. In my non-COTs trading, I am long Canadian financials. But I'd never buy BKX at this point if I was strictly trading it short-term off the charts (as of Friday's close that is; who knows what Monday brings). Looks terrible. In fact, it's not far from a possible short candidate based strictly on the short-term technicals.
- The NASDAQ 100 data has left my trading setup for this index in cash for another week - the fourth in a row - but breaking down the data shows an unpretty picture. The commercial net position has collapsed to a nearly-two-year low as a percentage of the total interest. Meanwhile, the wrong-way small trader crowd is still ridiculously bullish. After hitting more than three standard deviations above their moving average three weeks ago, their relative position has climbed down somewhat, but this week it was still 1.73 standard deviations above the mean.
- My crude oil setup is in cash for the sixth week running. Nice fakeout this week caught lots of folks in a sucker move, but crude didn't crash this long and this hard without some surprises remaining. The COT data seems pretty ambivalent about crude, too.
Have a relaxing weekend and see you here next week with more updates.
TAGS: S&P 500, SPX, gold, crude oil, NDX, NASDAQ 100, BKX, Bank Index, 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
Tuesday, 6 January 2009
S&P 500, Gold in Cash
I updated my latest signals table this morning based on yesterday's holiday-delayed Commitments of Traders data. Some highlights:
- My new S&P 500 setup is in cash this week for a single week. It then goes back to bearish for at least the next two weeks starting the open of trading Monday, Jan. 12. The downer signal is based on: (1) the commercial traders, who have sat at extremes of bearish net positioning since the end of November (they're highly dubious about the current rally, with their net position at 1.47 standard deviations below the moving average for this setup) and (2) a sudden drop in the small trader total open futures and options positioning in the past two weeks.
- My new gold trading setup is in cash for a second week. In this market, the large speculator total open interest has hit exuberant extremes for the past three weeks, suggesting the recent rally was a little overbought.
Disclaimer messages: Anyone who has taken a look at my new or past spreadsheets for my S&P 500 trading setup - as well as all other readers of this blog - should be sure to read the disclaimer messages I've posted more prominently on the page where the spreadsheet is posted and on every other webpage on this site. That disclaimer was already posted on every page, but I've now made it more prominent because I don't want any mistakes about the risks I'm taking when trading my signals and the fact that these aren't recommendations to readers to buy or sell anything. I'm not a certified financial advisor and created this blog as a way to track my own system development, share information about the COT data and learn from readers. The last part has actually been the best surprise from all this - meeting other people with similar interests and learning from them. Thanks to all and best wishes in 2009!
TAGS: S&P 500, SPX, gold, 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
- My new S&P 500 setup is in cash this week for a single week. It then goes back to bearish for at least the next two weeks starting the open of trading Monday, Jan. 12. The downer signal is based on: (1) the commercial traders, who have sat at extremes of bearish net positioning since the end of November (they're highly dubious about the current rally, with their net position at 1.47 standard deviations below the moving average for this setup) and (2) a sudden drop in the small trader total open futures and options positioning in the past two weeks.
- My new gold trading setup is in cash for a second week. In this market, the large speculator total open interest has hit exuberant extremes for the past three weeks, suggesting the recent rally was a little overbought.
Disclaimer messages: Anyone who has taken a look at my new or past spreadsheets for my S&P 500 trading setup - as well as all other readers of this blog - should be sure to read the disclaimer messages I've posted more prominently on the page where the spreadsheet is posted and on every other webpage on this site. That disclaimer was already posted on every page, but I've now made it more prominent because I don't want any mistakes about the risks I'm taking when trading my signals and the fact that these aren't recommendations to readers to buy or sell anything. I'm not a certified financial advisor and created this blog as a way to track my own system development, share information about the COT data and learn from readers. The last part has actually been the best surprise from all this - meeting other people with similar interests and learning from them. Thanks to all and best wishes in 2009!
TAGS: S&P 500, SPX, gold, 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
Friday, 2 January 2009
Holiday Delay
Happy New Year! Holiday delay again this week for the Commitments of Traders report. It'll be released Monday at 3:30 p.m. EST. I'll be back here Monday with an update on what my signals said. Have a good weekend, and best wishes in 2009!
Subscribe to:
Posts (Atom)