Banks Bearish Today, S&P 500 Bullish in Three Weeks

Good news for bulls in the latest Commitments of Traders report issued Friday afternoon by the CFTC. "Smart money" commercial hedgers remain net bullish in their S&P 500 futures and options positioning, while wrong-way small traders have suddenly gotten hugely net bearish. See my newly updated latest signals table for details. Readers might recall I reported last week that my S&P 500 signal had gone from bearish to cash with a three-week trade delay (i.e. for execution on July 11). Now, the latest data has pushed the signal into the bullish column for the week following - i.e. on July 18.

But there's also good news for bears. Everyone can be happy! Trader positioning in the three-month Eurodollars has soured considerably. It's given my BKX U.S. Bank Index setup a bearish signal for execution on Monday's (tomorrow's) open of trading. This signal tends to be shorter-term and on average has lasted 2.6 weeks in real-time trading (as opposed to 6.5 weeks on average for my S&P 500 signals). So it's entirely possible that both of these signals will turn out to be right.

Also, my 30-year Treasury signal goes from bearish to cash on Monday's open.

In housekeeping notes, I've started an update of my backtesting of my system - a necessary step after real-time trading a mechanical system for 20 to 30 percent of the original dataset, since the robustness of the signals tends to deteriorate the longer they're used. The original dataset was 1995 to 2007 for most of the signals, so they're due for an update.

My real-time trading experiences and all this juicy new data should help me come up with a more robust series of setups to replace the existing ones. I should start introducing new setups in the coming weeks. I've also been able to speed up a few aspects of my testing, which should allow me to find time to bring in setups for a few new markets.

Good luck 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