Banks Keep on Trucking, S&P 500 Misses Going Long by a Hair

The wrong-way small traders were selling this rally in the past two weeks, and that's probably a good thing for market bulls. But they didn't sell them quite enough to help resolve the market's near-term direction. That's one of the revelations from the latest weekly Commitments of Traders reports issued this afternoon by the Commodity Futures Trading Commission. I've just updated my latest signals table with my read of the data via the prism of my trading setups based on these mysterious and magical numbers. Some highlights:

- S&P 500: The small traders got bearish in Friday afternoon's data, but still not quite enough to trigger my S&P 500 trading setup to go bullish. (It's now in cash.) Astute readers may recall the retail crowd got supremely net long in its futures and options positioning as a portion of the total open interest at the end of July. That flipped their signal over to bearish. But the commercial hedgers, the so-called smart money in this market, have been ridiculously bullish since early July. And they remain so this week, too, as you'll see from the updated numbers on my signals table. So the setup remains in cash.

- BKX U.S. Bank Index: My trading setup for U.S. banks remains long for the fourth consecutive week. That's no easy feat considering it's based on three different groups of traders, all of whom must be positioned in the same direction in the same timeframe for me to take a trade in this market. The setup has been in cash 74 percent of the time since 1995, and the last time it was in the market for four weeks was four years ago. Ride the lightning.

None of the traders in the setup are even close to the signal lines that would reverse the trade. This week, the large speculators in three-month Eurodollars, whom I'm trading alongside in this market, have gotten a bit less net long, but not nearly enough to put my setup back in cash. Their net position as a percentage of the total open interest this week is 5.5. But they've got to boost that back up above about 5.7 next week in order for their signal not to go short.

- Natural gas: It's been a wild ride, and it's coming to an end at next week's open of trading. With all the ups and downs, it sure seems like a lot more than three weeks, but hey, that's what it's like to try to hang on in one of the most volatile markets under the sun. It's one of the reasons for my smaller position size in this market. The setup goes to cash next week after three weeks bullish.

- Crude: All on track for this setup to stay bullish for at least four weeks, starting the open of trading Monday, Aug. 10. The varying trade delays of the two signals in this setup mean it will remain long four weeks minimum... and counting. The commercials and small traders - both of whom I'd trading alongside in this market - remain comfortably far from their signal lines to reverse the trade.

- Nikkei: My setup for Japan's stock average goes briefly to cash the week of Aug. 10, then back to bullish for four weeks, and now, based on today's data, back to cash after that. The large speculators, whom I trade alongside in this market, have suddenly hit the brakes in their Nikkei futures and options positioning, flipping their signal to the short side. That move won't take effect, however, for six more weeks.

Hope you did okay this week. Please tune in early next week for a portfolio update. Have a fine weekend, and for Canadian readers, a hopefully-not-rain-soaked long weekend.

TAGS: SPX, S&P 500, gold, BKX, Bank Index, natural gas, Nikkei, crude oil, Treasury, bond, 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