Woah. U.S. Financials Data Falls off a Cliff

Very choppy action this week in the markets. Is the selloff at an end? The Commitments of Traders data released Friday suggests it may not be. It's been warning of trouble for the last few weeks, and the latest COT report from the Commodity Futures Trading Commission is no different. Some highlights:

- U.S. financials: Woah. Take a look at the data on my latest signals table for the BKX U.S. Bank Index, the benchmark for large U.S. financial players. It's fallen off a cliff. The total open interest for both large speculators and small traders - which correlates moderately with BKX the following week - has been dropping steadily since May 1, just before the beginning of this correction. And Friday's numbers are definitely no exception. As I pointed out in my post last week, we're now well into the longest stretch of declining large spec total open interest since Jan. 2009.

- S&P 500: The COT data last week sent my signal for the S&P 500 to cash with a three-week delay, meaning it will take effect June 14. Now, the "smart money" commercial hedgers - who in past testing were usually correctly positioned at key market turns - have reversed course and have gotten significantly more bullish. That's pushed the setup back into the bullish column, again with a three-week delay, meaning the setup will stay in cash for just a week, then go back to being long the week of June 21.

- Gold: My trading setup for gold goes to cash on next week's open of trading after two weeks being bullish. But the data in the latest COT report seems fairly bullish for bullion. In particular, the large spec total open interest, which had a 77-percent correlation with next week's bullion prices between 1995 and 2007, has just skyrocketed.

Hope you have a good weekend. Please check back in early next week for an update to 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

Sombre Outlook for Next Week

What a freakishly nutty ride this week in the markets has been. I hope you fared okay. We may need to hold onto our hats a little longer. Things don't look much better for next week if today's Commitments of Traders report from the Commodity Futures Trading Commission is any indication. See my latest signals table for the sad details. Some highlights:

- U.S. financials: The data that gives me signals for the benchmark BKX U.S. Bank Index seems to have given good signals warning of the trouble we've seen lately. The latest COT report suggests more of the same. The large speculator and small trader total open interest in three-month Eurodollars has continued to decline significantly. As I've reported before, that data correlates moderately with BKX prices the following week. In fact, this week marks the fourth in a row of declining large spec total open interest. It's off 28 percent since the week of April 20. That's the longest stretch of declining total open interest for the large specs since the one that started in January 2009 as the market crash was accelerating.

- S&P 500: The "smart money" commercial hedgers have switched gears in a big way and reduced their net futures and options positions to the point where they have given me a bearish signal toward my S&P 500 trading setup. This setup has been in cash since February 22, and it takes a position when both the commercials and small traders give the same signal. The wrong-way small traders are still highly bearish, as they've been since the beginning of 2010, missing the entire rally. So this setup overall will now go to cash the week of June 14.

- Gold: My setup for bullion is bullish for a second week, then goes to cash or bearish on the open of trading the week of May 31. Note that the latest signals table shows the data going substantially more bearish in the last COT report. This suggests that next week could see more downward pressure on gold prices, as that data correlates moderately to strongly with bullion. If this bullish signal makes money, it will be in spite of trader positioning.

- Natural gas: My setup for gas remains in cash, but the latest COT data is highly bearish for gas. This data correlates moderately with gas prices.

- Crude oil: My setup remains bearish for a spell longer and goes to cash on the open of trading the week of June 14.

Have a great weekend, especially for Canadian readers enjoying a holiday Monday. Please tune back in early next week for an update to 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

Going for Gold, Financials Data in Toilet Again

Holy moly, what a ridiculous week! Hope you survived okay. It feels like it could be the top - trader Terry Laundry even says his indicators suggest a 1987-like peak - but who knows! The latest Commitments of Traders data today suggest we're not out of the woods. See my latest signals table for my take on the Commodity Futures Trading Commission's COT report. Some highlights:

- U.S. financials: My trading setup remains in cash, but the data shows a third straight week of declining total open interest for the large speculators in three-month Eurodollar futures and options - which has a 63-percent correlation with next week's BKX U.S. Bank Index. Not good.

- Gold: This trading setup is giving a long signal to take effect on Monday's open of trading. The setup will be long two weeks, then go back to cash.

- S&P 500: This setup is still long. In fact, the "smart money" commercial hedgers have gotten more bullish in the latest COT report, while the wrong-way small traders have gotten substantially more bearish. That should actually be a bullish development - where it not for the fact that week-to-week fluctuations in the S&P 500 COT data have virtually no correlation with market prices.

- Crude oil: My crude setup remains short - nice trade - but the commercial hedgers have suddenly boosted their net position as a percentage of the total open interest. That will impact on the signal with a four-week delay. So this setup will remain short for the next four weeks.

- Natural gas: My gas setup remains in cash, but the COT data suggests more downward pressure is possible on gas prices. The large spec total open interest has plummeted, according to the latest COT report - and that data has a 58-percent correlation with next week's gas prices. On the other hand, this could be mitigated by the fact that small trader total open interest - which has a 60-percent correlation with next week's gas prices - has moved up slightly.

- Nikkei: When will this market mess end? My setup for the Nikkei suggests in early June. It's just gone bullish for the open of the week of June 7, to be precise.

Have a great weekend, and good luck next week. Sorry I missed my portfolio update this week, but please do check back in early next week when I should have my latest numbers up.

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

Financials Data Warns More Trouble Possible

Wow - nutso week! As Stephen Vita has been pointing out, when the selloffs start it will be vicious. He's been saying the rally may not even be completely over, but this kind of massive volatility is indicative of a top à la 2000. Are we oversold and due for a bounce? Trader positioning seems to be leaning against that possibility, according to the latest Commitments of Traders report Friday. See my latest signals table for how the numbers line up this week. Some highlights:

- U.S. financials: My trading setup for the BKX U.S. Bank Index is in cash, but the data has deteriorated again this week, as it did last week. The large speculator and small trader total open interest - both of which correlate moderately with BKX - have drooped again this week.

- S&P 500: This trading setup is still bullish, but the numbers continue to crumble here as well. The "smart money" commercials are a little less relatively bullish, while the wrong-way small traders are, incredibly, now getting more optimistic about the market - amazing, since they've been highly bearish since January. I didn't get stopped out of this position this week because the trade had made a lot of money up until the selloff. (The stop works from the entry price.) The fact that the setup is still bullish could suggest that the rally since March 2009 still has another leg up once the dust from this selloff settles. But that's just a guess. The signal could go bearish next week for all I know. One caveat: If it does go bearish, the setup works with a three-week trade delay.

- Gold: My setup for gold is in cash, but last week the data was looking fairly positive. This week, the large spec net position (which has a 62-percent correlation with gold prices the next week) has pulled back a little, but the large spec total open interest (with a 77-percent correlation with bullion) has moved up nicely. Mixed prognosis, in other words!

- Natural gas: My gas setup goes to cash on next week's open of trading after two weeks of being bearish. Nice trade.

Hope you didn't do too badly last week, and good luck this coming week. Be sure to check back early next week for an update to 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

Short Treasury Position Stopped Out

Wow - what a bloodbath this morning. My short 30-year Treasury bond position was stopped out in the selloff. Good luck the rest of this crazy week.

Cloudy Outlook Next Week for Banks, Gas; Gold Data Brightens

Is the market topping and starting to roll over? There's no way to know. But it may still have some life left, if the Commitments of Traders data released Friday is any guide. You can see how it impacted my trading setups on my newly updated latest signals table. Some brief highlights:

- S&P 500: My trading setup is still bullish, as it's been since late February. The "smart money" commercial hedgers have been steadily cutting back on their relative net positioning for three months, a trend that continues in the latest data. But that hasn't affected the rally thus far. And as long-time readers know, the week-to-week fluctuations in COT positioning don't have much correlation with S&P 500 prices. As well, a signal can be profitable any time during its life, so until the commercial hedgers hit a bearish extreme my setup will remain bullish. We're nowhere near that point yet.

What's more, the commercial signal has to agree with my signal from the wrong-way small traders. They at this point are slightly less pessimistic than last week, but they still have a highly depressed tilt in their positioning.

- U.S. financials: The three-month Eurodollar data, which gives me signals for the BKX U.S. Bank Index, is giving a warning signal for next week. The large spec and small trader total open interest - which both correlate moderately with BKX - have both turned down, as you can see from my signals table. My setup is in cash.

- Gold: My setup is in cash, but the data - which correlates strongly with gold prices - has bounced back and looks quite bullish. Maybe last week's breakout will stick and we finally challenge the highs?

- Natural gas: It looked like gas was breaking out after its long rout, but my signal - which went bearish last week - proved right. This week the gas setup is bearish again, then it goes to cash on the open of May 10. The COT data - which correlates strongly with gas prices - suggests weakness next week, so gas could see more trouble before it finally rallies.

- Nikkei: My short-lived bullish Nikkei signal is done, and the setup goes back to cash on next week's open of trading.

Hope you survived okay last week, and good luck next week! Check back here for an update of my portfolio page Monday or Tuesday.

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