Nikkei Joins Banks, Crude and Bullion in Buy Column

Banks, crude oil and gold are still a buy. And now, so is Japan's Nikkei Average. That's the latest word from my trading system built around the derivatives data found in the weekly Commitments of Traders reports issued by the U.S. Commodity Futures Trading Commission.

I've just updated my latest signals table based on this afternoon's latest COT report. Check out those signals and the new numbers here. Here's more on how the markets are shaking based on this nifty data:

- S&P 500: The "smart money" commercial traders are still non-believers when it comes to the market rally - as they've been since the end of March. The recent market pause has seen them slightly reduce their large net short position in the past two weeks.

But as you'll see from the numbers on my latest signals table, they're still decidedly bearish in their futures and options positioning. And they've got a long way to go before their signal turns bullish. My SP500 setup is in cash a second week in a row and will remain so for at least the next three weeks.

- Banks: My setup for the BKX U.S. Bank Index - a basket of the major financial players - is bullish a third week in a row. If the SP500 setup is ambivalent, this one is real bullish. One possible warning sign: the large speculator total open interest has fallen fairly sharply this week. That's potentially bearish.

On the other hand, the small trader total open interest - which my setup trades alongside - has shot up to one of the most bullish levels in the entire history of this data. The small traders haven't been this bullish in comparison with recent data since the end of Jan. 2005. That was when BKX started a major breakout after a year-long trading range - and ultimately the beginning of a two-year bull run.

- Nikkei: My setup for Japan's Nikkei Average goes bullish for next Monday's open. It will remain bullish for the next eight weeks at least. (Beyond that, can't say. The powers of this setup go only so far!)

- Crude oil: This setup will remain bullish for two more weeks, then go to cash for three weeks. That move to cash is because of disagreement between the two signals that make up the setup and the time lags they use before a trade is executed. The commercial traders got historically bearish three weeks ago in their crude futures and options positioning - hitting an astonishing 2.51 standard deviations below the moving average. Bad sign! So the overall setup will go to cash on the open of June 22.

- Gold: Two more weeks for my long position in bullion. The wrong-way large speculators have once again this week increased their net long positioning in gold futures and options. That's four weeks of increasing bullishness in a row. Still, they now stand at a middling 1.39 standard deviations above the average - well short of the 1.9 standard deviations needed to flip their signal to bearish.

But my other signal making up this setup - based on the large spec total open interest - has been bearish for six weeks now. It works with a seven-week trade delay, so it has yet to take effect. But it will do so the week of June 22, when this setup will either go to cash or bearish - depending on what the first signal (based on the large spec net position) does. Stay tuned. So far, so good.

Overall, I've been pretty happy with how my newly revamped setups are performing this year. I'm hoping to create a new table somewhere on the site to keep track of my real-time trading results. I'm also working on a new setup for natural gas, which I hope to finish up next week. Thanks for tuning in, and I hope you fared well this week. Be sure to check in early next week when I update my portfolio page. Have a good weekend.

TAGS: SPX, S&P 500, gold, BKX, Bank Index, Nikkei, crude oil, 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