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

Data Frowns on Banks and Bullion

Two new signals this week on my latest signals table, which I've just updated with the data based on the holiday-delayed Commitments of Traders report released Monday afternoon. My trading setups for the BKX U.S. Bank Index and gold bullion have just gone bearish for this week's open of trading. I'll execute the trades as of Tuesday's open. Check the signals table to see the new data for those and the other markets I'm following. Some other highlights:

- Banks: The data for this market is looking positively unholiday-like. The large spec and small trader open interest in three-month Eurodollars, which give me signals for U.S. financials, has fallen into the eggnog, as you can see from my signals table. The open interest data is highly correlated with next week's BKX price, so this could spell post-holiday trouble for the markets.

- Gold: My gold setup has gone bearish again, potentially for up to five weeks depending on how the two signals align that make up the setup. The large spec net position has really stumbled in the latest COT report; that positioning correlates strongly with bullion prices the next week.

- S&P 500: Commercial hedgers are still stubbornly bearish in S&P 500 futures and options. However, as I noted Wednesday, my bearish signal for the S&P 500 got stopped out last week. At the same time, small traders, the usually wrong-way money who have been actually correct in their bullish positioning recently in this market, have started to get more antsy, as witnessed by their sharply reduced net long position this week. What can it mean? The setup remains officially bearish, despite me being stopped out, and it shows no signs of going bullish any time soon.

I hope you're having a great holiday. Check in tomorrow for an update of my portfolio page. Apologies for the missed updates during my time off this month. Please note that the next COT report will again be delayed and is due out Jan. 4. Good luck this week, and best wishes in 2010!

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

Bond Setup to Cash

I'm going to cash on this morning's open of trading in my 30-year Treasury bond setup, which has been bearish for the past week. As I noted in my last weekly signals update, this bearish trade was to last just a week. The latest Commitments of Traders report is delayed until this afternoon, so check back in here later for an update of my setups based on the new data. Hope you had a restful holiday, and good luck today.

Short S&P 500 Trade Stopped Out

My two-month-old short position in the S&P 500 was stopped out today. As usual when this kind of things happens, I take this as a sign that the market is moving so strongly it is going against historic norms. So I'll look for opportunities to go long based on the charts.

Also, please note that due to the holidays, this week's Commitments of Traders report will be delayed to Monday. I'll update this site before the open on Tuesday. Hope you're doing well this week, and best wishes for the holidays.

Gold, Natural Gas to Cash, Data Bearish on 30-Yr Bond

A few new signals on my just-updated latest signals table based on the new Commitments of Traders data released Friday. Natural gas and gold go from bearish to cash as of the open of trading on Monday. In the case of gold, this is likely just a one-week hiatus; that setup looks like it will go back to bearish a week from Monday. Meanwhile, my 30-Year Treasury setup goes to bearish for a single week on Monday. Sorry for the abbreviated report. I am back in my office later this coming week and will resume my normal, more fulsome reporting. Until then, check out my latest signals table to see how the data is shaping up. It is fairly self-explanatory: Still far from any all-clear for an equities rally, while crude oil remains firmly in the bearish column. Good luck this week - and Happy Holidays!!

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

Traders Sour on Financials

Wow - lots of interesting new developments from the latest Commitments of Traders report released Friday afternoon. The data that shows trader positioning in major markets has given me a signal to go to cash in my trading setup for the BKX U.S. Bank Index, after a five-week bullish signal. The data for that setup has suddenly gone seriously bearish, but the trade delays for that setup are such that the setup hasn't gone bearish yet. Also, the new weekly data has given my other setups a whole bunch of other potential new signals. Check out the changes on my newly updated latest signals table. I'm still on vacation so I haven't had a chance to write a more detailed analysis. Sorry about that! But the new numbers - and all that red and green - on the latest signals table speaks for itself in many ways. Good luck this week! I'll be back in my office in a week with my usual, more detailed reports.

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

Market Standoff

The market's two- or three-month trading range seems no closer to resolution this week. Meanwhile, my short gold position, which looked depressingly silly at the beginning of the week, could actually be a surprise winner. Same for my short crude oil trade. The Commitments of Traders data sure works in funny ways. That's one of the reasons I like it so much. It's often completely contrarian in ways you could never imagine from just looking at the charts. I've just updated my latest signals table based on the data from Friday afternoon's COT update. Please check out that table. I'm on vacation right now, so no time for a full post. But here's a short highlights reel:

- U.S. banks: My trading setup for the BKX U.S. Bank Index, a basket of major financials, will enter its its fifth week of being bullish Monday. That's its longest stretch being long or short since July and Aug. 1998 when BKX crashed over 40 percent in the space of a few weeks. The data from Friday looks a good deal more bearish that it did the previous week, as you can see from my signals table. Does that mean the market's feeble attempts at a breakout aren't going to work? It's hard to say while the setup remains in bullish mode. But this coming week could see more lack of resolution.

- S&P 500: Meanwhile, the commercial hedgers - the so-called smart money in this market - are even more bearish this week, while the small traders - the not-so-smart folks - are still more bullish. It doesn't mean a hell of a lot because the week-to-week COT fluctuations in S&P 500 futures and options COT positioning correlates very poorly with subsequent index values. But what's important for me is the broader picture in this market remains far from changing to a bullish configuration, which would see the opposite positioning by both groups of traders. The setup goes into its sixth week of being bearish, and it will remain bearish for at least the next month.

- Natural gas: This is always an interesting market. My setup, short for two weeks, will remain short two more weeks, then go either to cash or bullish.

Good luck this week, and tune back in early in the week 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