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