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.

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.

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.

Banks, Gold in Cash; S&P 500, Nikkei Bullish; Gas, Bonds Bearish

It's the bull that never dies! The Commitments of Traders data released Friday by the CFTC suggests the rally that started in March 2009 still has strong legs... for now. I've just updated my latest signals table with the details and several new signals. Some highlights:
- U.S. banks: My trading setup for the BKX Bank Index is in cash for the second straight week. It came very close to turning bullish again this week, as you can see from the data on my signals table - but not quite.

- S&P 500: My S&P 500 setup is bullish for the 10th consecutive week. The "smart money" commercial hedgers actually got more bullish compared to recent data, while the wrong-way small traders are more bearish.

- Gold: My gold setup goes to cash after five weeks being bullish.

- Natural gas: My gas setup goes bearish on Monday's open of trading and will remain so for two weeks.

- Nikkei: My Nikkei setup goes bullish on Monday's open.

- 30-year Treasury bond: My bond setup goes bearish on Monday's open.

Good luck this week, and please check in at my portfolio page for an update early this week. Sorry I couldn't get to the portfolio update last week.


Bullish Shoots Appear for Banks

Trader data has recovered slightly in the past week for U.S. banks, with the three-month Eurodollar large speculator total open interest shooting up from last week's depressed levels, according to the latest COT report from the Commodity Futures Trading Commission. That's good news as this data correlates nicely with U.S. financials. On the other hand, the CFTC reports that the small trader total open interest took a haircut this past week, as you can see from my latest signals table, which I've just updated. That data also correlates with financials, so the data is a bit mixed.
My trading setup for the BKX U.S. Bank Index goes to cash this week after a single week being bearish. With two of the three components that make it up now bullish and the third just a mite away from flipping to bullish, this correction may not last too much longer. (This report contains a correction to my original post regarding the signal for the BKX Bank Index. Apologies for the error.)

Also interesting, positioning in S&P 500 futures and options suggests the bull market rally is still going strong. The "smart money" commercial hedgers remain solidly behind the rally, while wrong-way small traders are still as hopelessly bearish as ever. In fact, this past week saw them grow a tad more bearish in their relative positioning. They've been tilting against the rally since early January. Doh!

In other news, natural gas, which has been bullish for four weeks, goes to cash on Monday's open of trading. It then goes bearish a week later, on the open of April 26. The large speculators have drawn down their total open interest enough to push their signal into the bearish column, where they join the small traders, who've been bearish for three weeks. The large spec data has a 58-percent correlation with next week's gas prices, so there could already be trouble this coming week. Except the small trader total open interest, which also correlates moderately with gas prices, has bounced up a tad, so those could cancel each other out.

As well, my gold setup remains bullish for its fifth straight week. The data shows a third consecutive week of rallying large speculator net positioning and total open interest - both of which correlate strongly with gold prices the following week.

Also, my setup for the 30-year Treasury bond goes bullish, meaning yields would fall.

But not all is bullish across the land. My trading setup for crude oil goes bearish on Monday's open.

Good luck this week, and be sure to check back in Monday or Tuesday for an update to my portfolio page.

Banks on Sell

U.S. financials could take a hit next week, according to today's Commitments of Traders data from the Commodity Futures Trading Commission. My trading setup for the BKX U.S. Bank Index, a basket of the major U.S. financials, has gone bearish for execution on next week's open of trading. See more on the unhappy news at my newly updated latest signals table.
The signal comes from a major drop-off in trader positioning in three-month Eurodollars, which give me signals for BKX. A couple of caveats you'll notice from my signals table:

(1) The small traders have sharply increased their total open interest in the latest COT report. This is actually bullish because their total open interest correlates nicely with BKX values. In fact, it went up so much my small trader signal went from bearish to bullish this week. But that signal takes two weeks for that signal to take effect, based on the results of my backtesting. So next week could still be bumpy.

(2) However, large spec total open interest was steady, going up a hair from 1.685 to 1.686 million contracts. This data also correlates with BKX values. So overall, the data may be pointing to a pause rather than an end to the bull market since March '09.

For the S&P 500, my setup remains bullish for its eighth consecutive week. The data here looks decidedly less bullish this week. The commercial hedgers are in their seventh straight week of declining net positioning in futures and options, while the wrong-way small traders have bumped up their net position two weeks in a row. But as I've mentioned ad nauseum before, net positioning in this market correlates very poorly with S&P 500 prices. In fact, the best run-up in the market could be in the last period just before the commercial hedgers really sell off and small traders pile into the market. Neither event is even close to happening right now, so I think the data suggests the present trend remains intact for a little longer at least.

My 30-year Treasury bond setup goes to cash after two weeks being bearish.

In gold, my setup remains bullish for a fourth week, but large speculator total open interest has now risen to extreme territory, putting this component's signal into the bearish column. This signal takes seven weeks to take effect, so my overall bullion setup remains buoyantly bullish for now.

And finally, natural gas goes into its fourth week being bullish. So far, it's been a volatile signal, as per usual with this market. The latest COT report offers some hope for an end to the carnage as small trader total open interest, which has a 60-percent correlation with next week's gas price, has bounced nicely. This bullish signal, however, will last just this one more week before going to cash.

Hope you did well this week and that you have a great weekend. Check back in early next week for a portfolio page update.

Crude Oil Goes to Cash

I've just updated my latest signals table with the data from the latest Commitments of Traders report. My trading setup for crude oil goes to cash on the open of this coming week's trading, then goes bearish on April 19. That's the only new signal, but the data for the other setups shows some other interesting new developments, including a significant increase in bearishness of the large speculator and small trader total open interest in the three-month Eurodollars. This data correlates strongly with the BKX U.S. Bank Index. Sorry for the truncated report this week. Hope you have a good Easter weekend, and good luck this week. Check back in in a day or two for an update to my portfolio page.

Small Traders Fall Off Cliff, Treasury Yield to Break Out?

Are we feeling a little toppy yet? The way some stocks are rising is insane. It's going to be a mess when this ends. But that might not happen for a little while more, according to the Commitments of Traders report issued yesterday afternoon.
The data on trader positioning in various markets shows the wrong-way small traders in S&P 500 futures and options have just tumbled off a cliff in their positioning, getting supremely more bearish. I've just updated my latest signals table with the data for this and other markets.

The COT data may be bad news for the little guy, but good news for the rally, as historically markets have tended to go up when the small traders hit extremes in their bearish positioning relative to recent data. The small trader net long position hasn't been this paltry in a year and a half. Meanwhile, the "smart money" commercial hedgers, while a little less bullish this week again - their seventh consecutive week of reduced bullishness compared to recent data - still have a solidly bullish tilt in their positioning.

The data from the three-month Eurodollar contract, which gives me signals for the BKX U.S. Bank Index, is fairly ambivalent this week, although it's turned up slightly since last week, when it had really soured. The large speculator total open interest, which has a 63-percent correlation with BKX the following week, has bounced back a little after two weeks of declines. On the other hand, the small trader total open interest, with a 42-percent correlation to BKX, has declined slightly. My trading setup for BKX remains in cash for a seventh straight week because its three signals don't agree again.

In gold, my trading setup remains bullish for the second straight week. But the data shows the large specs are running for cover. That's good news for my signal, which fades the large specs in their net position and total open interest. On the other hand, those datasets correlate strongly with next-week gold prices, so the COT report could be suggesting more trouble for bullion this coming week.

Similar situation for natural gas. The setup is bullish, but the trader positioning, which also correlates very nicely with gas prices, has suddenly plummeted. This setup, in particular, sees lots of volatility, like gas itself, which broke down big-time this week after looking like it might want to finally bounce. I'm holding onto my hat.

Finally, my setup for the 30-year Treasury bond has turned bearish for this coming week's open of trading (meaning the yield would go up). That's based on fading the small trader and large spec total open interest, which both hit extremes of excessive bullishness. The setup will remain bearish for two weeks, then go to cash or bullish. So this may not be the big bond break some people have been calling for. That said, the yield is back at the old highs of 2008 and 2009 - so who knows.

Hope you did well last week and that you have a good weekend. I'll be on the road this week, so I won't have a chance to do a portfolio update and may be a little late in my next post. Apologies. I'll do my best to get it up before next Monday's open of trading. Good luck this week!

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