COTs Timer

Ever wonder what the smart money is doing in the markets? You don’t need to pay big bucks to find out. Just read the Commodity Futures Trading Commission’s free weekly Commitments of Traders report. The CFTC’s COT data is a Holy Grail of market info, listing trillions of dollars in positions in 200+ markets – gold, crude oil, natural gas, silver, forex, equity indexes and lots more. My trading system, which I posted about here for seven years, gave weekly trading signals based on the COT data.

Friday, 13 November 2009

No End for Market Grind

The market sausage grinder kept churning this week. Hope you kept yourself intact. Unfortunately, the Commitments of Traders report this Friday doesn't really help to clarify which way things will break from this long trading range we're stuck in. I've just updated my latest signals table with some new numbers based on that COT report. Two new signals: bearish for natural gas with a week's delay (for the open of trading on Nov. 23) and cash for my 30-year Treasury bond setup on Monday's open (Nov. 16). Some other highlights:

- S&P 500: Not much to report here. This trading setup is in its third week of being bearish and shows no signs of changing course. The wrong-way small traders are still highly bullish in their net positioning as a percentage of the total open interest, while the "smart money" commercial hedgers are still seriously gothic.

- U.S. banks: My setup for the BKX U.S. Bank Index enters its second week of being bullish. The total open interest for the large speculators and small traders - both of which correlate well with BKX prices the following week - is down somewhat this week. But the change is small enough it's hard to know what to read into it. I haven't studied the correlation data enough to know how trade-worthy small or large changes week-to-week changes are. (It's on my massive to-do list!) What I do know is the trading setup - which does have robust backtested results - remains bullish, so that's the real key for me.

- Gold: My trading setup for gold goes into its third week of being bearish. As I mentioned in a post Wednesday, I got stopped out of this position that morning and was looking for a possible chance to put on a discretionary long trade. I didn't see anything worth jumping at. Gold stocks and silver aren't making new highs like bullion is, which is probably a cautionary sign. The gold data this week is also giving mixed signals. The large spec net position, which has a 62-percent correlation with gold prices, has dropped a fair bit, as you can see on my latest signals table. Meanwhile, the large spec total open interest, which has a 77-percent correlation with next week's gold price, has shot up. What does it mean? A good chance of more trading grind next week.

Have a good weekend, and be sure to check back in early next week for an update of my portfolio page. Apologies for missing my update this week. Bad cold. Oink. Anybody got some truffles?

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

7 comments:

In Debt We Trust said...: Btw, Barron's is pumping Exxon Mobil and Fedex in weekend article.

So, maybe those sectors will rise in the next week as a rush of retail (small money) traders try to plug the gap between valuation and advertising.

More importantly, as a journalist, what do you think of such front page stories? Isn't it a bit disingenuous of them to come out w/articles like that when their financial relationship is probably murky (e.g. essentially paid advertisement)?; 14 November 2009 at 20:16
Alex Roslin said...: Hi In Debt...,

I can't comment directly on this particular front page of Barron's, but I do know of traders who fade whatever Barron's recommends. As well - not speaking specifically about Barron's - in general, financial journalists can definitely have questionable conflict issues regarding stories.

I used to read Barron's pretty religiously, but I find it pretty useless for my personal trading at this point. At best, there's a small amount of entertainment value in a tiny fraction of their stories.

Regards,
Alex; 16 November 2009 at 09:25
jesuscheung said...: hi COTs Timer, your recent signals are working against you- bearish SP, bullish nekki. Maybe the trade delay is larger than expected?; 17 November 2009 at 03:26
Alex Roslin said...: Hi Jesuscheung,

Please see my FAQs page for discussion of this kind of situation.

Regards,
Alex; 17 November 2009 at 11:53
jesuscheung said...: hi Alex, i am sure your system works in the long run!
Have you think about maybe improving your system by taking into account this year's data? As I understand your system is based on data before 2007.
great blog!; 18 November 2009 at 05:47
Alex Roslin said...: Hi Jesuscheung,

Yes, I plan to start updating the setups in coming months with the new data. There was just under 13 years of data originally for most markets. That should provide good signals for one-eighth to one-quarter of that time going forward - 19 to 38 months. If the system is designed well, the current setups should still be among the top ones when they're retested on the new data.

Regards,
Alex; 18 November 2009 at 09:29
Alex Roslin said...: Just a small correction - the current setups were tested on data up to the end of 2007.

Regards,
Alex; 18 November 2009 at 09:36

About This Site

I am an active trader and award-winning investigative journalist based in Lac Brome in Quebec's Eastern Townships, just outside Montreal. I have written about investing and business for The Montreal Gazette, Investor's Digest of Canada, Technical Analysis of Stocks & Commodities, Futures & Options Trader, The Financial Post and others. I am not a certified financial advisor and am still refining my COTs Timer system. Please see more disclaimer information below. See my complete profile at the "Intro to COT" link above.

DISCLAIMER

I created this blog to record my personal, subjective observations about the markets, solely for my entertainment and that of interested readers and to foster research. Nothing on this blog should be construed as financial advice or an offer or recommendation to purchase or sell any security. I encourage anyone interested in the markets to do your own homework and/or consult a professional advisor. I am not a certified financial advisor and am still refining my trading system. I reserve the right to modify or stop publishing aspects of my system at any time or to delay updating my tables for whatever reason, or I may not do so in a timely manner. My system has resulted in very large drawdowns in some trades. Past backtested and real-time results are no guarantee of future performance. I will not be liable for any losses or damages of any kind that result from the content of this site. Although I consider the data, calculations and information on this blog to be reliable, I can't make any guarantees and won't be held liable or responsible for anything erroneous on this website. You are solely responsible for implementing safeguards of your data and system when you use this site and its content and links. It is up to the user of this site and content to protect yourself from worms, trojan horses, viruses and the like. I may hold positions in some of the securities mentioned in this blog.