Woah... Bullish Freight Train

In the market's grimmest hour, when all are ablaze with talk of doom, one lone voice calls out bullishly: the Commitments of Traders data. Yes, Friday's report on trader positioning is about as sunny as you can get if you're a bull. The data, which tells us weekly what the biggest trading institutions are packing in major global markets, has given me a broadside of new bullish signals for my trading setups based on this data.

This week's COT report appears to consolidate an important trend change in the data that started to appear two weeks ago, as I mentioned in this post. To get the full gist, you really have to check out the whack of new green signals all over my newly updated latest signals table. Some highlights:

- S&P 500: My trading setup for the S&P 500 has suddenly flipped to bullish after 13 weeks being bearish. The "smart money" commercial hedgers have made a dramatic move to reduce their net short futures and options position as a percentage of the total open interest. Meanwhile, the wrong-way small traders have also reversed course almost as massively - getting super-bearish on the market (which is actually a bullish development). Both groups of traders have given new signals at the same time. Historically, such a move has led to higher S&P 500 prices. Usually. Not always, but usually. Note that the setup works with a three-week trade delay, so my long position will take effect on the open of trading on Monday, Feb. 22.

- U.S. banks: My setup for the BKX U.S. Bank Index, a basket of the major financials, has also made the move into the bullish column after two weeks in cash. This new signal takes effect on next week's open of trading, Monday, Feb. 1.

- Gold: Large speculators in bullion futures and options - the wrong-way crowd in this market, who are usually poorly positioned at market turns - have finally capitulated. They've had enough of the losses, and in the last COT report they cut back on their total open interest big-time. Historically, that's meant gold tends to go up. (Not always, of course! That's why I use risk control techniques to limit potential losses when these signals are wrong - as they often are.) My bullish bullion signal also takes effect on Monday's open.

- Natural gas: My gassy setup goes from bearish the past three weeks to bullish as of next week's open. Never a dull moment in the natural gas market, that's for sure. One of my favourites.

- 30-year Treasury bond: The bond setup has been bullish for three weeks but goes to cash next week as the signals that make it up no longer agree.

Hope you did okay last week. It was a pretty grim one. See you back here early next week with an update of my portfolio page. Apologies for not updating that as often as I would have liked recently and for my somewhat curtailed posts lately. I've been otherwise heavily occupied, but I hope to return to my usual more garrulous ways. Good luck next week!

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

Nikkei Data Goes Bearish

Newly updated data and signals are now up on my latest signals page. New signal: bearish for the Nikkei. Many apologies for the late post! Hope you had a good weekend. I'll be back here later with some thoughts on Friday's Commitments of Traders data release and a portfolio update. Good luck this week!

Bullish Sea Change in Bank Data

Huge shift in some of the markets last week in the Commitments of Traders data. As you can see from my latest signals table, the data for my trading setup for the BKX U.S. Bank Index has moved dramatically to a bullish outlook. The two-week trade delay for one of the signals is the only reason the setup has moved to cash, rather than outright bullish. However, the jumps in the large spec and small trader total open interest are quite bullish as that data is well correlated with next-week BKX prices.

In the S&P 500 data, the small traders, the wrong-way money in this market, are a tiny hair away from getting so bearish that it would push their signal into the bullish column. Like the COT data for U.S. financials, there's some kind of sea change happening in this market, too. The "smart money" commercial hedgers are also gradually shifting positions to more bullish territory, though they're still a little dubious about being overly long.

Also a big shift taking place in the 30-year U.S. Treasury bond COT data, where the small trader total open interest has shot up. I fade this positioning, so this is actually potentially a bearish development for the bond. In gold, the large spec total open interest has made a dramatic move to the upside - again, a bearish turn of events. Meanwhile, in crude oil, the commercial traders, whom I trade alongside, have gotten mega-bearish. That setup has just gone to cash, which makes five of my setups in cash (out of seven). A lot of indecision out there, but it feels like some kind of major shift is partially under way. Good luck the rest of this week!

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

New Signals: Banks to Cash

Newly updated signals and data just up now on my latest signals table. Most notable: U.S. financials go to cash. I'll be back a little later for a full post on the new Commitments of Traders numbers. Sorry for the tardy update. Good luck today!

Gas Smells, Bond Bubbles, Gold Goes

Interesting new developments in the latest Commitments of Traders report released Friday. See my newly updated latest signals table for all the details. New signals for gold (cash), natural gas (bearish) and the 30-year Treasury bond (bullish). A few other highlights:

- S&P 500: Trader positioning has just made a major course change in S&P 500 futures and options, as that table of mine shows. Commercial hedgers (the smart money) are getting substantially less bearish, while small traders (the not-so-smart) are suddenly much more negatory. This, of course, overall could prove to be bullish. But not yet. My signal is still a leap and a jump away from flipping course and this week remains bearish. In fact, it can often be during this kind of trader repositioning that a big moves come.

- U.S. financials: The data still looks sad for the banks, although the large spec and small trader total open interest are both seriously less bearish this week. My setup is still bearish.

- Gold: My setup for bullion has suddenly had a major change of heart. It's going to cash after two weeks being bearish. The large spec (dumb money) net percentage of total open interest has seriously plummeted in the latest report. In fact, it has more or less steadily dropped for the past three months, but it's only this week that the signal based on this positioning has finally switched to bullish. (I fade the large speculators in this market.) It's a big move as this signal has been bearish since the beginning of August. The setup overall now goes to cash since both signals have to agree for me to take a position in this market.

But if the large spec net position signal remains bullish for three more weeks, which is very likely considering the long-term nature of that signal (it's based on a 33-week moving average), the setup will go bullish at that point.

Good luck this week, and be sure to tune back in within a day or two for an update of my portfolio page.

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

Setups Still Bearish for Financials, Gold and Crude

Mixed news this week from the holiday-delayed Commitments of Traders report, which was just released Monday afternoon. I've updated my latest signals table with the new data and market calls for my seven trading setups based on the COT reports. Here are some highlights:

- S&P 500: This setup remains bearish for a 10th consecutive week. However, as noted previously, my short position was stopped out on Dec. 23 after the index went against that signal in a way that indicated a powerful trend that went against historic norms. In the latest report, the "smart money" commercial hedgers have gotten more net short for the second week in a row, while ironically the "dumb money" small traders have also gotten more bearish. A bit of a mixed bag I guess.

- U.S. financials: My setup for the BKX U.S. Bank Index, based on the COT data for the three-month Eurodollar contract, is now bearish for a second week. The latest data is again somewhat mixed, however, with the large spec total open interest falling a smidgen while the small trader total open interest has risen. Both are strongly correlated with next week's BKX price.

- Gold: Also a second week of being bearish for my gold trading setup. As the latest signals table shows, the data is looking slightly gloomier this week for gold.

- Natural gas: My only new signal this week comes for natural gas: bearish, with a one-week delay. To be executed on the open Monday, Jan. 11.

- Crude oil: This setup is entering its 12th week being bearish. It will stay bearish this week and next and then go to cash on the open Monday, Jan. 18. The commercial hedgers still have a bearish tilt in this market, but the small traders, whom I also trade alongside in crude oil, got decisively bullish as of the Nov. 17 COT report, which pushed their signal into the long column. Unless both signals agree, the setup will remain in cash.

I hope you had a great holiday and New Year's celebration. Best wishes to all readers for a healthy and happy 2010. For those who follow the old calendar, Merry Christmas on Jan. 7, and Happy New Year on Jan. 14.

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