What a week in the markets - phew! Right up into the close with the wild action. In this week's Commitments of Traders data, the first new bearish signal in a little while in one of the major equity markets - the S&P 500. (Check the explanatory links above for details on how my system trades this. For one thing, there's no trade delay in the S&P 500 trading setup, meaning execution on the next weekly open.)
Meanwhile, renewed bullish signals in some markets, while renewed bearish signals in others. Quite the motley bunch, in fact!
What to make of all this? I'll ponder that over the weekend and get back to you with some deep thoughts early next week. Meanwhile, best wishes for a happy and safe Canada Day to Canadian readers, and happy 4th to American readers.
New Signals*
BULLISH
None
BEARISH
-S&P 500
Renewed Signals**
BULLISH
-10-Year Treasury Yield
-NASDAQ-100
-Dow Jones Industrial Average
-Russell 2000
-Gold
-US Global Investors Funds US Gold Fund, USERX
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO
-Gold Bugs Index, HUI
BEARISH
-Soybean Oil
-Natural Gas***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
-Semiconductor Index, SOX
-Nikkei Average
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P 500 (20-Mar-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Silver (1-May-07)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
Friday 29 June 2007
Thursday 28 June 2007
New 13-Wk T-Bill Yield Setup is Bearish
I just posted results of a really interesting new setup for the 13-Week Treasury Bill Yield on my "Profit/Loss Results" page (click the link to the right). The setup is based on the Commitments of Traders data for the 3-Month Eurodollars.
Specifically, I'm fading the small traders when they hit specific historic extremes of bullishness and bearishness. (There's no COTs data for the T-Bills, but the Eurodollars give great signals for this market.)
The setup flipped to bearish on the T-Bill yield in the COTs report dated Feb. 27, 2007 (with a one-week trade delay) and remains bearish right now. (Bearish on the yield means the yield goes down.) For how this all works, click the explanatory links to the right.
Specifically, I'm fading the small traders when they hit specific historic extremes of bullishness and bearishness. (There's no COTs data for the T-Bills, but the Eurodollars give great signals for this market.)
The setup flipped to bearish on the T-Bill yield in the COTs report dated Feb. 27, 2007 (with a one-week trade delay) and remains bearish right now. (Bearish on the yield means the yield goes down.) For how this all works, click the explanatory links to the right.
Wednesday 27 June 2007
Filled!
Bought some Canadian Gold iUnits (XGD) just before the close yesterday to boost my allocation to my maximum for this setup. That's not normally the way I do it, but I have some portfolio rejigging I needed to do.
As part of that process, I also need to sell some of my equities, including the Japan iShares ETF (EWJ) - for which I now have a bearish signal, according to my new Nikkei setup. But today's reversal is keeping me in until a get technical sell signals. (Since switching to COTs-based mechanical trading, I miss trading off the technicals, so this is lots of fun for me.)
I based the XGD trade on an interesting technical system I first heard of on Stephen Vita's excellent AlchemyOfTrading.com website and blog. It's the TD Sequential System named after its developer, Tom DeMark. Stephen uses it a lot, and I've found it's a great way to study overbought and oversold conditions in various timeframes. For the XGD trade, I bought after a TD Seq Countdown buy on the 60-minute chart.
TD Seq is easy to learn and use, and there's lots of info on the web about it or in Tom DeMark's books.
As part of that process, I also need to sell some of my equities, including the Japan iShares ETF (EWJ) - for which I now have a bearish signal, according to my new Nikkei setup. But today's reversal is keeping me in until a get technical sell signals. (Since switching to COTs-based mechanical trading, I miss trading off the technicals, so this is lots of fun for me.)
I based the XGD trade on an interesting technical system I first heard of on Stephen Vita's excellent AlchemyOfTrading.com website and blog. It's the TD Sequential System named after its developer, Tom DeMark. Stephen uses it a lot, and I've found it's a great way to study overbought and oversold conditions in various timeframes. For the XGD trade, I bought after a TD Seq Countdown buy on the 60-minute chart.
TD Seq is easy to learn and use, and there's lots of info on the web about it or in Tom DeMark's books.
Tuesday 26 June 2007
Thanks, Hal!
One of the nice things about having a blog is meeting generous and gracious people. I wanted to post a special message to thank one such reader, Hal Read of Arizona. He wrote me early on to share his insights into trading system development and validation. His comments were very helpful as I thought about how to refine my trading setups to make them as robust as possible. Thanks, Hal!
Like the Casinos Do It
Just picked up some UltraShort Oil & Gas ProShares (DUG) as it broke out above this morning's opening range in order to get up to my max. allocation in that area as part of some overall portfolio rebalancing I'm doing.
Also looking at a spot to pick up some more Canadian Gold iUnits (XGD). This bloodbath may lead to a good technical buying opportunity to bring me to my max allocation for this market.
Speaking of drawdowns, this can be one of the toughest parts of using mechanical systems. It's often not the system that fails, but the trader's discipline.
To that end, I just read something interesting in Way of the Turtle by Curtis Faith - a great book on trading and developing trading systems that a member of the Canadian Society of Technical Analysts was kind enough to recommend. Faith likens the inevitable drawdowns to the wins a casino must occasionally pay to gamblers.
"Casino owners do not care about the losses they incur because such losses only encourage their gambling clientele," Faith writes. "For owners, losses are just the cost of doing business; they know they will come out ahead over the long run."
Same thing with losses in a trading system, he says. "They are the cost of doing business rather than an indication of a trading error or a bad decision. To approach losses in this way, we had to know that the method by which the losses were incurred would pay out over the long run." That seems to be the key.
And to that end, I've just gotten a copy of Robert Pardo's classic Design, Testing, and Optimization of Trading Systems. I hope to review my system some more based on Pardo's techniques. I'll let you know how it goes.
Also looking at a spot to pick up some more Canadian Gold iUnits (XGD). This bloodbath may lead to a good technical buying opportunity to bring me to my max allocation for this market.
Speaking of drawdowns, this can be one of the toughest parts of using mechanical systems. It's often not the system that fails, but the trader's discipline.
To that end, I just read something interesting in Way of the Turtle by Curtis Faith - a great book on trading and developing trading systems that a member of the Canadian Society of Technical Analysts was kind enough to recommend. Faith likens the inevitable drawdowns to the wins a casino must occasionally pay to gamblers.
"Casino owners do not care about the losses they incur because such losses only encourage their gambling clientele," Faith writes. "For owners, losses are just the cost of doing business; they know they will come out ahead over the long run."
Same thing with losses in a trading system, he says. "They are the cost of doing business rather than an indication of a trading error or a bad decision. To approach losses in this way, we had to know that the method by which the losses were incurred would pay out over the long run." That seems to be the key.
And to that end, I've just gotten a copy of Robert Pardo's classic Design, Testing, and Optimization of Trading Systems. I hope to review my system some more based on Pardo's techniques. I'll let you know how it goes.
Friday 22 June 2007
Thumbs Up for Equities, Down for Energy
Today's Commitments of Traders has generally bullish news for equity markets, if the three renewed bullish signals I've gotten are any indication.
But there were more bearish tidings for energy, with several renewed bearish signals in this sector. No new signals to report this week.
Below is my first series of signals using my new list of trading setups based solely on the COTs reports. I have greater confidence in these setups because I was able to statistically validate almost all of them at a high level of confidence, both in terms of profitability and against the underlying markets I'm trying to beat.
In many cases, the new setups are more profitable than the old ones. In a few cases, I had to make small sacrifices in terms of profitability to get a setup in which I can have more confidence about the future results matching past profits. The problem with some of the old setups was that the small number of trades made it impossible to say with confidence whether the profitability was due to excessive curve-fitting. Now, I've managed to find setups with enough trades to be statistically validated.
Most of the existing signals remain the same, but there are a few notable changes. All of my gold-related setups are now in the bullish column, having just flipped from bearish. As well, you'll notice that my new setups for the NASDAQ Composite, Semiconductor Index (SOX) and the Nikkei are now in the bearish column.
The changes come as I've switched which group of traders I follow for these markets. In the Nikkei, for example, my old setup followed the commercials, who have been highly bullish the Nikkei, but the new one fades the small traders, who've also been highly bullish. Go figure! It's a bit of surprise for me because I've got a profitable position in the Japan iShares ETF (EWJ) as a result of the earlier signals. I'm going to find a good technical spot to unload it.
Note, however, that my setup for the NASDAQ-100 is still bullish, so I'm holding on to my Ultra QQQ ProShares ETF (QLD), which tracks that index.
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-Dow Jones Industrial Average
-NASDAQ 100
-Russell 2000
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
-Semiconductor Index, SOX
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P 500 (20-Mar-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Silver (1-May-07)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” to the right.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “Profit/Loss Results” to the right and check the footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to four weeks later). For details on how I trade this system, including trade delays and portfolio allocations, click on "How It Works" and “Profit/Loss Results” to the right. These "existing signals," which are mostly several months old, are listed here as a reference, not a trading recommendation.
But there were more bearish tidings for energy, with several renewed bearish signals in this sector. No new signals to report this week.
Below is my first series of signals using my new list of trading setups based solely on the COTs reports. I have greater confidence in these setups because I was able to statistically validate almost all of them at a high level of confidence, both in terms of profitability and against the underlying markets I'm trying to beat.
In many cases, the new setups are more profitable than the old ones. In a few cases, I had to make small sacrifices in terms of profitability to get a setup in which I can have more confidence about the future results matching past profits. The problem with some of the old setups was that the small number of trades made it impossible to say with confidence whether the profitability was due to excessive curve-fitting. Now, I've managed to find setups with enough trades to be statistically validated.
Most of the existing signals remain the same, but there are a few notable changes. All of my gold-related setups are now in the bullish column, having just flipped from bearish. As well, you'll notice that my new setups for the NASDAQ Composite, Semiconductor Index (SOX) and the Nikkei are now in the bearish column.
The changes come as I've switched which group of traders I follow for these markets. In the Nikkei, for example, my old setup followed the commercials, who have been highly bullish the Nikkei, but the new one fades the small traders, who've also been highly bullish. Go figure! It's a bit of surprise for me because I've got a profitable position in the Japan iShares ETF (EWJ) as a result of the earlier signals. I'm going to find a good technical spot to unload it.
Note, however, that my setup for the NASDAQ-100 is still bullish, so I'm holding on to my Ultra QQQ ProShares ETF (QLD), which tracks that index.
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-Dow Jones Industrial Average
-NASDAQ 100
-Russell 2000
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
-Semiconductor Index, SOX
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P 500 (20-Mar-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Silver (1-May-07)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” to the right.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “Profit/Loss Results” to the right and check the footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to four weeks later). For details on how I trade this system, including trade delays and portfolio allocations, click on "How It Works" and “Profit/Loss Results” to the right. These "existing signals," which are mostly several months old, are listed here as a reference, not a trading recommendation.
Thursday 21 June 2007
Update: New Trading Setups!
I've just posted the results for my revised list of trading setups. Surf to the "Profit/Loss Results" page in the right-hand column and click the link provided. Make sure to check out the explanatory notes on Sheet 2.
I'll post signals for these new setups starting with tomorrow's Commitments of Traders reports. See you Friday!
I'll post signals for these new setups starting with tomorrow's Commitments of Traders reports. See you Friday!
Update: New Setups Almost Ready
My apologies for the lack of Commitments of Traders updates this week! I've been busy refining a new series of trading setups for the markets I'm following. I'm quite excited about the results. I've found high-profit, statistically validated setups in almost every market. Some of the setups will remain the same, but most will change a little - or a lot in a few cases.
The importance of validation is to get a confidence level of how past results may translate into future performance. I'm also applying a second test to see how confident we can be that the setup will beat the underlying market.
I should have the details ready by the time of tomorrow's COTs report. Thanks for your patience.
Sorry also to those who wrote asking for a sample spreadsheet for my S&P 500 trading setup. The setup has slightly changed, so I wanted to finalize it before sending it out. If you'd like the new spreadsheet when it's ready, email me at aroslin1@yahoo.ca.
The importance of validation is to get a confidence level of how past results may translate into future performance. I'm also applying a second test to see how confident we can be that the setup will beat the underlying market.
I should have the details ready by the time of tomorrow's COTs report. Thanks for your patience.
Sorry also to those who wrote asking for a sample spreadsheet for my S&P 500 trading setup. The setup has slightly changed, so I wanted to finalize it before sending it out. If you'd like the new spreadsheet when it's ready, email me at aroslin1@yahoo.ca.
Saturday 16 June 2007
Update: New Setups Turn Bullish on Gold, HUI, USERX Gold Fund
I've been busily refining my COTs-based trading setups - looking for ones that are profitable, beat the markets and can be validated statistically. I guess my timing was good because I've just found validated setups for gold and the USERX Gold Fund - and they've both just given new "bullish" signals, like my XGD gold ETF setup (see post below).
Unfortunately, I'm having some trouble updating my "Profit/Loss Results" page with all the details, so I'll report them right here.
My new gold setup gave a "bullish" signal in the Commitments of Traders report dated May 29, with a trade delay of zero (meaning I would have executed my buy on the open Monday, June 4). This setup had a maximum drawdown of 9 percent (meaning my maximum portfolio allocation would be 22 percent). The setup had 16 trades (12 wins and four losses), with an average profit of 9.4 percent and an overall profit of 352 percent since the first trade, compared to 174 percent buying and holding gold itself.
My new USERX setup gave a "bullish" signal in the latest COTs report, also with no trade delay (meaning my buy should be executed for the open Monday, June 18) like the XGD trade (see post below). This setup had a maximum drawdown of 28 percent (meaning my maximum portfolio allocation would be 7 percent). There were 17 trades (13 wins and four losses), with an average profit of 32.5 percent and an overall profit of 2,743 percent since the first trade, compared to a 25-percent loss for the USERX Gold Fund.
I also got a "bullish" signal for a new setup for the HUI Gold Bugs Index in the May 29 COTs report, but this setup is only validated at a 90-percent confidence level (meaning that 90 percent of the time, the average trade is expected to be profitable) - which is less than the 95-percent confidence I want to see in my trading setups.
All three of these new setups are based on trading the same side as the commercial traders when their net percentage-of-open-interest position in the combined futures-and-options COTs data hits specific historic extremes that in the past have led to superior profits.
I'll update the new results on the "Profit/Loss Results" page as soon as I work out the glitches.
Unfortunately, I'm having some trouble updating my "Profit/Loss Results" page with all the details, so I'll report them right here.
My new gold setup gave a "bullish" signal in the Commitments of Traders report dated May 29, with a trade delay of zero (meaning I would have executed my buy on the open Monday, June 4). This setup had a maximum drawdown of 9 percent (meaning my maximum portfolio allocation would be 22 percent). The setup had 16 trades (12 wins and four losses), with an average profit of 9.4 percent and an overall profit of 352 percent since the first trade, compared to 174 percent buying and holding gold itself.
My new USERX setup gave a "bullish" signal in the latest COTs report, also with no trade delay (meaning my buy should be executed for the open Monday, June 18) like the XGD trade (see post below). This setup had a maximum drawdown of 28 percent (meaning my maximum portfolio allocation would be 7 percent). There were 17 trades (13 wins and four losses), with an average profit of 32.5 percent and an overall profit of 2,743 percent since the first trade, compared to a 25-percent loss for the USERX Gold Fund.
I also got a "bullish" signal for a new setup for the HUI Gold Bugs Index in the May 29 COTs report, but this setup is only validated at a 90-percent confidence level (meaning that 90 percent of the time, the average trade is expected to be profitable) - which is less than the 95-percent confidence I want to see in my trading setups.
All three of these new setups are based on trading the same side as the commercial traders when their net percentage-of-open-interest position in the combined futures-and-options COTs data hits specific historic extremes that in the past have led to superior profits.
I'll update the new results on the "Profit/Loss Results" page as soon as I work out the glitches.
Friday 15 June 2007
"Bullish" Signal for Canadian Gold ETF
A new bullish signal came in this week's Commitments of Traders reports. The "smart money" commercial traders have flipped to a historic extreme of bullishness in gold, giving a "bullish" signal for Canada's Gold iUnits exchange-traded fund (symbol XGD). The commercial traders have been on a "bearish" signal for XGD and the rest of the gold sector since January and February.
Check the "Profit/Loss Results" and "How It Works" links to the right if you're interested in how I trade new signals for this and my other setups. For example, my XGD setup calls for the trade to be executed on the next weekly open (that is, Monday, June 18).
Please keep in mind, though, that this setup's results are based on only six past trades. (That's because the data on XGD goes back only to March 2001.) That means this setup can't yet be validated statistically. In other words, I can't give any confidence level on its future performance. My other gold-related setups came just shy of giving similar "bullish" signals this week, but nothing's been triggered so far, so they remain "bearish" until further notice.
The new XGD bullish signal does, however, look timely since XGD today had a go at a breakout from its recent downtrend. Check here for more analysis of the latest COTs release next Monday or Tuesday.
New Signals*
BULLISH
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO
BEARISH
None
Renewed Signals**
BULLISH
-TSX
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil***
Existing signals (date of original signal in parentheses)****
BULLISH
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO (12-Jun-07)
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (20-Mar-07)
-S&P 500 (20-Mar-07)
-NASDAQ (27-Mar-07)
-Semiconductor Index, symbol: SOX (30-Mar-07)
-Dow Jones Industrial Average (20-Dec-05)
-Russell 2000 (25-Mar-03)
-Nikkei (3-Feb-04)
-TSX (20-Mar-07)
BEARISH
-S&P/TSE Canadian Energy iUnits ETF, symbol: XEG.TO (3-Apr-07)
-Oil Service Holders ETF, symbol: OIH (18-Apr-06)
-Soybean Oil (2-May-06)
-US Global Investors Funds US Gold Fund, USERX (30-Jan-07)
-Gold Bugs Index, HUI (13-Feb-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
-Gold (13-Feb-07)
-Copper (10-Apr-07)
NEUTRAL
-S&P 400 Midcap (3-Jan-07)
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
-Silver (21-Nov-06)
Notes
* For an explanation of what I do after a new signal, click “How It Works” to the right.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “Profit/Loss Results” to the right and check the footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I executed the trade (which can be up to four weeks later). For details on how I trade this system, including trade delays and portfolio allocations, click on "How It Works" and “Profit/Loss Results” to the right. These "existing signals," which are mostly several months old, are listed here as a reference, not a trading recommendation.
Check the "Profit/Loss Results" and "How It Works" links to the right if you're interested in how I trade new signals for this and my other setups. For example, my XGD setup calls for the trade to be executed on the next weekly open (that is, Monday, June 18).
Please keep in mind, though, that this setup's results are based on only six past trades. (That's because the data on XGD goes back only to March 2001.) That means this setup can't yet be validated statistically. In other words, I can't give any confidence level on its future performance. My other gold-related setups came just shy of giving similar "bullish" signals this week, but nothing's been triggered so far, so they remain "bearish" until further notice.
The new XGD bullish signal does, however, look timely since XGD today had a go at a breakout from its recent downtrend. Check here for more analysis of the latest COTs release next Monday or Tuesday.
New Signals*
BULLISH
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO
BEARISH
None
Renewed Signals**
BULLISH
-TSX
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil***
Existing signals (date of original signal in parentheses)****
BULLISH
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO (12-Jun-07)
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (20-Mar-07)
-S&P 500 (20-Mar-07)
-NASDAQ (27-Mar-07)
-Semiconductor Index, symbol: SOX (30-Mar-07)
-Dow Jones Industrial Average (20-Dec-05)
-Russell 2000 (25-Mar-03)
-Nikkei (3-Feb-04)
-TSX (20-Mar-07)
BEARISH
-S&P/TSE Canadian Energy iUnits ETF, symbol: XEG.TO (3-Apr-07)
-Oil Service Holders ETF, symbol: OIH (18-Apr-06)
-Soybean Oil (2-May-06)
-US Global Investors Funds US Gold Fund, USERX (30-Jan-07)
-Gold Bugs Index, HUI (13-Feb-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
-Gold (13-Feb-07)
-Copper (10-Apr-07)
NEUTRAL
-S&P 400 Midcap (3-Jan-07)
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
-Silver (21-Nov-06)
Notes
* For an explanation of what I do after a new signal, click “How It Works” to the right.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “Profit/Loss Results” to the right and check the footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I executed the trade (which can be up to four weeks later). For details on how I trade this system, including trade delays and portfolio allocations, click on "How It Works" and “Profit/Loss Results” to the right. These "existing signals," which are mostly several months old, are listed here as a reference, not a trading recommendation.
Thursday 14 June 2007
Yields Have Topped, According to New 10-Year Treasury Setup
I've just posted the results of a new improved trading setup for the 10-year Treasury note. It's based on trading the same side as the small traders, not the usual practice of fading this group.
I've validated this setup at the 95-percent confidence level. (Ninety-five percent of the time, the average trade is expected to be profitable given a normal distribution of results.)
Also interesting is the fact the setup just gave a "bearish" signal for the 10-year yield - meaning yields may have just topped. The signal came in the COTs report dated May 22. My trade delay for this setup is one week, meaning the trade was to be executed for the open of trading on Monday, June 4.
I've validated this setup at the 95-percent confidence level. (Ninety-five percent of the time, the average trade is expected to be profitable given a normal distribution of results.)
Also interesting is the fact the setup just gave a "bearish" signal for the 10-year yield - meaning yields may have just topped. The signal came in the COTs report dated May 22. My trade delay for this setup is one week, meaning the trade was to be executed for the open of trading on Monday, June 4.
Update: I Feel Validated... Somewhat
We all like to be validated. I'd like to give you an update on what I've been up to in terms of validating the COTs Timer system. As I've mentioned before, this trading system is a work-in-progress. That's one of the reasions I've urged caution about acting on my signals and recently switched from outright "buys" and "sells" to "bullish" or "bearish."
If you've been a regular visitor, you've seen that I'm often revising the setups and looking for ways to validate the system in general. The last point is important because of the small number of trades for many of the setups and the fact that the Commitments of Traders combined futures-and-options data goes back only to 1995. The question is whether past profits tell us anything about future results.
Happily, statistics give us a few ways to test this question and validate trading systems. One is the Student's t-test. It is often used to give confidence levels for trading systems and other data like survey results. Ideally, we would like a trading system to be profitable at a 95- or 99-percent confidence level. (In other words, 95 or 99 percent of the time, the system's average trade is profitable.)
A key variable is the number of trades generated by a trading setup. The more trades, the more confident we can be the future results will be profitable. Because of the small number of trades, I've found many of my setups are profitable only at the 90-percent confidence level at this point. A few are valid at the 95- or even 99-percent levels. Some still simply have too few trades to have a confidence level.
Thus, a setup needs at least 10 trades to have a confidence level, based on the number of trading variables in my system. Of if I were to drop my stop rule - which counts as two variables - a setup needs at least eight trades. Click the "Profit/Loss Results" link to the right to see the number of trades in each setup, keeping in mind that I haven't updated some of them in a while. (The "Last Updated" column tells you when.)
I plan to post some specifics for each setup soon and to keep testing the system in other ways. My apologies for not getting to this sooner. This testing has been extremely time-consuming, but it's also been an extremely valuable and educational process that's helped me find better setups in a couple of markets. I hope to post those details soon, too.
Many thanks to the readers who wrote in about these questions and were so generous with their time and sharing their insights. Your further input is welcome.
If you've been a regular visitor, you've seen that I'm often revising the setups and looking for ways to validate the system in general. The last point is important because of the small number of trades for many of the setups and the fact that the Commitments of Traders combined futures-and-options data goes back only to 1995. The question is whether past profits tell us anything about future results.
Happily, statistics give us a few ways to test this question and validate trading systems. One is the Student's t-test. It is often used to give confidence levels for trading systems and other data like survey results. Ideally, we would like a trading system to be profitable at a 95- or 99-percent confidence level. (In other words, 95 or 99 percent of the time, the system's average trade is profitable.)
A key variable is the number of trades generated by a trading setup. The more trades, the more confident we can be the future results will be profitable. Because of the small number of trades, I've found many of my setups are profitable only at the 90-percent confidence level at this point. A few are valid at the 95- or even 99-percent levels. Some still simply have too few trades to have a confidence level.
Thus, a setup needs at least 10 trades to have a confidence level, based on the number of trading variables in my system. Of if I were to drop my stop rule - which counts as two variables - a setup needs at least eight trades. Click the "Profit/Loss Results" link to the right to see the number of trades in each setup, keeping in mind that I haven't updated some of them in a while. (The "Last Updated" column tells you when.)
I plan to post some specifics for each setup soon and to keep testing the system in other ways. My apologies for not getting to this sooner. This testing has been extremely time-consuming, but it's also been an extremely valuable and educational process that's helped me find better setups in a couple of markets. I hope to post those details soon, too.
Many thanks to the readers who wrote in about these questions and were so generous with their time and sharing their insights. Your further input is welcome.
Tuesday 12 June 2007
"Big Money in the Main Movements"
Last week's market craziness continues as we speak. The uptrends in the major equity indexes since March appear to have broken (even if not decisively just yet).
Wall St. and regular folks alike are all wondering where it will stop. Will the recent lows hold? Are rising bond yields going to break the market's back? Is this 1987 all over again?
One answer may lie in the Commitments of Traders reports. Last Friday’s report - based on data as of last Tuesday, June 5 - showed the “smart money” commercial hedgers still heavily net long the S&P 500 index. Meanwhile, the "dumb money" large speculators - so called because they tend to get it wrong at market turns - are still heavily net short the NASDAQ, a bullish sign.
For other indexes, the picture is essentially neutral. Overall, the latest report hasn't overturned any of the bullish signals that my system generated before for equities. Same thing for the bearish signals in the metals and energy. That would change only if traders register new historic extreme net positions in the other direction. So for me and my positions, that means the existing signals are still good.
All this market turbulence does raise another question I also posed in a report I just did for Kitco.com, the bullion website: Should we worry about weekly fluctuations in the COTs data? I don’t believe so. Anyone trying to find correlations between weekly changes in the data and market prices will quickly come to a surprising conclusion: There is virtually no correlation.
This might be puzzling to readers of the financial media, which widely reports on the COTs reports’ weekly changes in the number of contracts in various markets.
But such short-term changes have little value for trading purposes, as the lack of correlations shows. Last week, for example, the COTs data was fairly upbeat for precious metals, as the commercial traders slightly reduced their net short positions in gold and silver. We might have expected prices to rise. Instead, there was a rout.
So are the COTs reports worthless? Analysts have been befuddled about the data for years. It has to mean something, they thought. A breakthrough came when some clever analysts suggested it’s best to follow the commercials when they reach historic extremes in their net percentage-of-open-interest positions. I think that’s the right approach.
My own twist on it is that I found it was best to fade - or trade opposite to - the large speculators and small traders in some markets. Also, I think it’s important to backtest and validate the specific historic extremes that have led to the most consistently profitable, least-volatile trading signals in each market.
That’s why I don’t get too excited any more about short-term changes in the COTs data. Edwin Lefèvre said something along similar lines in Reminiscences of a Stock Operator. (Yes, here's another quote from this great read.) “The big money was not in the individual fluctuations but in the main movements… I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
Wall St. and regular folks alike are all wondering where it will stop. Will the recent lows hold? Are rising bond yields going to break the market's back? Is this 1987 all over again?
One answer may lie in the Commitments of Traders reports. Last Friday’s report - based on data as of last Tuesday, June 5 - showed the “smart money” commercial hedgers still heavily net long the S&P 500 index. Meanwhile, the "dumb money" large speculators - so called because they tend to get it wrong at market turns - are still heavily net short the NASDAQ, a bullish sign.
For other indexes, the picture is essentially neutral. Overall, the latest report hasn't overturned any of the bullish signals that my system generated before for equities. Same thing for the bearish signals in the metals and energy. That would change only if traders register new historic extreme net positions in the other direction. So for me and my positions, that means the existing signals are still good.
All this market turbulence does raise another question I also posed in a report I just did for Kitco.com, the bullion website: Should we worry about weekly fluctuations in the COTs data? I don’t believe so. Anyone trying to find correlations between weekly changes in the data and market prices will quickly come to a surprising conclusion: There is virtually no correlation.
This might be puzzling to readers of the financial media, which widely reports on the COTs reports’ weekly changes in the number of contracts in various markets.
But such short-term changes have little value for trading purposes, as the lack of correlations shows. Last week, for example, the COTs data was fairly upbeat for precious metals, as the commercial traders slightly reduced their net short positions in gold and silver. We might have expected prices to rise. Instead, there was a rout.
So are the COTs reports worthless? Analysts have been befuddled about the data for years. It has to mean something, they thought. A breakthrough came when some clever analysts suggested it’s best to follow the commercials when they reach historic extremes in their net percentage-of-open-interest positions. I think that’s the right approach.
My own twist on it is that I found it was best to fade - or trade opposite to - the large speculators and small traders in some markets. Also, I think it’s important to backtest and validate the specific historic extremes that have led to the most consistently profitable, least-volatile trading signals in each market.
That’s why I don’t get too excited any more about short-term changes in the COTs data. Edwin Lefèvre said something along similar lines in Reminiscences of a Stock Operator. (Yes, here's another quote from this great read.) “The big money was not in the individual fluctuations but in the main movements… I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
Friday 8 June 2007
COTs Twiddle Thumbs
Well, it sure was a crazy week in the markets. Yesterday's horrible close, then today's rebound. I hope you got through it okay. What did the Commitments of Traders say this week? Not much. No new signals for my system. Which I think in fact may say a lot.
I'll ponder the data some more over the weekend and post an analysis Monday or Tuesday. Starting this week, I'm going to concentrate Friday afternoons on putting out a timely report on the latest COTs data, then work on an analysis piece for the following week.
Meanwhile, I've been re-reading Edwin Lefèvre's classic Reminiscences of a Stock Operator and came across a poignant passage: "No, sir, nobody can make big money on what someone else tells him to do. I know from experience that nobody can give me a tip or series of tips that will make more money for me than my own judgement."
I strongly agree. It got me to thinking about a new format for reporting what I think the COTs data is saying. You'll see no more "buys" or "sells." Instead, it will be "bullish," "bearish" or "neutral."
This is to underline my view that, while I think the COTs can provide valuable market insights, you should do your own research when it comes to your hard-won bucks. It's also a reflection of the fact that my trading system is still in development. I'm refining and validating it as I'm trading it, but that's a risk I'm willing to take with my risk-management strategy. I'm in no position to tell anyone how they should trade their own money.
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-TSX
BEARISH
-Soybean Oil
-Natural Gas***
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (20-Mar-07)
-S&P 500 (20-Mar-07)
-NASDAQ (27-Mar-07)
-Semiconductor Index, symbol: SOX (30-Mar-07)
-Dow Jones Industrial Average (20-Dec-05)
-Russell 2000 (25-Mar-03)
-Nikkei (3-Feb-04)
-TSX (20-Mar-07)
BEARISH
-S&P/TSE Canadian Energy iUnits ETF, symbol: XEG.TO (3-Apr-07)
-Oil Service Holders ETF, symbol: OIH (18-Apr-06)
-Soybean Oil (2-May-06)
-US Global Investors Funds US Gold Fund, USERX (30-Jan-07)
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO (30-Jan-07)
-Gold Bugs Index, HUI (13-Feb-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
-Gold (13-Feb-07)
-Copper (10-Apr-07)
NEUTRAL
-S&P 400 Midcap (3-Jan-07)
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
-Silver (21-Nov-06)
Notes
* For an explanation of what I do after a new signal, click “How It Works” to the right.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “Profit/Loss Results” to the right and check the footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I executed the trade (which can be up to four weeks later). For details on how I trade this system, including trade delays and portfolio allocations, click on "How It Works" and “Profit/Loss Results” to the right. These "existing signals," which are mostly several months old, are listed here as a reference, not a trading recommendation.
I'll ponder the data some more over the weekend and post an analysis Monday or Tuesday. Starting this week, I'm going to concentrate Friday afternoons on putting out a timely report on the latest COTs data, then work on an analysis piece for the following week.
Meanwhile, I've been re-reading Edwin Lefèvre's classic Reminiscences of a Stock Operator and came across a poignant passage: "No, sir, nobody can make big money on what someone else tells him to do. I know from experience that nobody can give me a tip or series of tips that will make more money for me than my own judgement."
I strongly agree. It got me to thinking about a new format for reporting what I think the COTs data is saying. You'll see no more "buys" or "sells." Instead, it will be "bullish," "bearish" or "neutral."
This is to underline my view that, while I think the COTs can provide valuable market insights, you should do your own research when it comes to your hard-won bucks. It's also a reflection of the fact that my trading system is still in development. I'm refining and validating it as I'm trading it, but that's a risk I'm willing to take with my risk-management strategy. I'm in no position to tell anyone how they should trade their own money.
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-TSX
BEARISH
-Soybean Oil
-Natural Gas***
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (20-Mar-07)
-S&P 500 (20-Mar-07)
-NASDAQ (27-Mar-07)
-Semiconductor Index, symbol: SOX (30-Mar-07)
-Dow Jones Industrial Average (20-Dec-05)
-Russell 2000 (25-Mar-03)
-Nikkei (3-Feb-04)
-TSX (20-Mar-07)
BEARISH
-S&P/TSE Canadian Energy iUnits ETF, symbol: XEG.TO (3-Apr-07)
-Oil Service Holders ETF, symbol: OIH (18-Apr-06)
-Soybean Oil (2-May-06)
-US Global Investors Funds US Gold Fund, USERX (30-Jan-07)
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO (30-Jan-07)
-Gold Bugs Index, HUI (13-Feb-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
-Gold (13-Feb-07)
-Copper (10-Apr-07)
NEUTRAL
-S&P 400 Midcap (3-Jan-07)
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
-Silver (21-Nov-06)
Notes
* For an explanation of what I do after a new signal, click “How It Works” to the right.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “Profit/Loss Results” to the right and check the footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I executed the trade (which can be up to four weeks later). For details on how I trade this system, including trade delays and portfolio allocations, click on "How It Works" and “Profit/Loss Results” to the right. These "existing signals," which are mostly several months old, are listed here as a reference, not a trading recommendation.
Wednesday 6 June 2007
Update: Formulas, Walk-Forward Testing
As I mentioned in a few posts, I've been planning to put some formulas up here so readers can create their own COTs database. I had some trouble doing so using Google Docs & Spreadsheets (I guess it's still a little buggie), so until I figure out a better way I'm happy to email a sample spreadsheet to anyone who requests one. Just mail me here: aroslin1@yahoo.ca.
Also, I've been asked by some readers - including one rather irritable quant (cheer up, "Anonymous"!) - whether I've done any walk-forward testing to eliminate the problem of curve fitting. The answer is yes, and happily, my best backtested setups seem to get the best forward-tested results. In those markets where the forward-tested results are weaker, there tends to be a larger maximum drawdown for the setup. And that means my maximum portfolio allocation is automatically smaller to account for the heightened risk. (Click the "Profit/Loss Results" and "How It Works" links to the right for details.)
I'm constantly re-examining and re-thinking my setups as I go because I'm trading them with my own money. One promising approach I've had is to combine signals from various groups of traders. I'll keep you posted on my progress.
Also, I've been asked by some readers - including one rather irritable quant (cheer up, "Anonymous"!) - whether I've done any walk-forward testing to eliminate the problem of curve fitting. The answer is yes, and happily, my best backtested setups seem to get the best forward-tested results. In those markets where the forward-tested results are weaker, there tends to be a larger maximum drawdown for the setup. And that means my maximum portfolio allocation is automatically smaller to account for the heightened risk. (Click the "Profit/Loss Results" and "How It Works" links to the right for details.)
I'm constantly re-examining and re-thinking my setups as I go because I'm trading them with my own money. One promising approach I've had is to combine signals from various groups of traders. I'll keep you posted on my progress.
Monday 4 June 2007
COTs Beat NASDAQ by 712%,
S&P 500 by 135%
Each week I update my latest results for my NASDAQ and S&P 500 trading setups based solely on the Commitments of Traders reports - issued by the U.S. Commodity Futures Trading Commission free every Friday at 3:30 p.m. (Eastern Time). Click the links to the right to learn more about the amazing COTs reports, my system's results in other markets and how I trade it.
NASDAQ
| COTs Report | Signal | NASDAQ | NASDAQ Profit | COTs Profit |
| 5/4/1999 | BUY | 2546.33 | 100.0 | 100.0 |
| 3/28/2000 | SELL | 4994.42 | 198.4 | 198.4 |
| 12/17/2002 | BUY | 1367.74 | 54.3 | 370.1 |
| 11/2/2004 | SELL | 1975.48 | 78.5 | 549.0 |
| 1/18/2005 | BUY | 2081.86 | 82.7 | 577.3 |
| 11/15/2005 | SELL | 2203.79 | 87.5 | 627.8 |
| 7/11/2006 | BUY | 2135.96 | 84.9 | 676.9 |
| 10/31/2006 | SELL | 2347.21 | 93.2 | 821.2 |
| 3/27/2007 | BUY | 2451.6 | 97.4 | 808.1 |
| 6/4/2007 | 2606.05 | 103.5 | 840.3 |
S&P 500
| COTs Report | Signal | S&P 500 | S&P Profit | COTs Profit |
| 8/11/1998 | BUY | 1089.45 | 100.0 | 100.0 |
| 11/30/1999 | CASH | 1416.62 | 131.0 | 131.0 |
| 12/7/1999 | SELL | 1433.3 | 132.6 | 132.6 |
| 5/9/2000 | CASH | 1432.63 | 132.5 | 125.9 |
| 5/30/2000 | SELL | 1378.02 | 127.4 | 128.2 |
| 4/3/2001 | CASH | 1160.33 | 107.3 | 157.3 |
| 3/5/2002 | SELL | 1131.78 | 104.7 | 153.8 |
| 9/24/2002 | CASH | 845.39 | 78.2 | 206.5 |
| 3/18/2003 | BUY | 833.27 | 77.1 | 217.8 |
| 8/30/2005 | CASH | 1205.1 | 111.5 | 303.9 |
| 1/3/2006 | SELL | 1248.29 | 115.4 | 313.1 |
| 8/29/2006 | CASH | 1295.09 | 119.8 | 309.1 |
| 3/20/2007 | BUY | 1386.95 | 128.3 | 308.2 |
| 6/4/2007 | 1530.62 | 141.6 | 332.9 |
* These results are based on trades executed with a delay of one week. The S&P 500 and NASDAQ prices are for the weekly open in the week in which the signal was given, not the entry or exit prices.
Friday 1 June 2007
Bright Skies for Equities, Clouds for Metals
Bullish news for equities in today's Commitments of Traders reports. The "smart money" commercial hedgers are giving their 11th consecutive buy signal for Toronto's S&P/TSX index. This, according to my trading setup correlating the TSX with the S&P 500 COTs data. (Click the explanatory links to the right for details of how my system works if you're not in the know.)
That makes the commercials more bullish on the TSX than at any time since Dec. 2003, near the start of the current bull run.
Commercial hedgers are also highly bullish on Japan's Nikkei index. While other world indexes have zoomed off into the cosmos, the Nikkei has ailed of late, trapped well below its February high. But this week the Nikkei and Japan iShares ETF (EWJ) broke out of their four-month descending triangle pattern, suggesting Japan wants to play some catch-up with North American equities.
The commercials have been this bullish on the Nikkei only once before in the past seven years—in Nov. 2005, just as the Nikkei's grinding 15-year bear market came to an end. The index subsequently exploded 28 percent in six months.
Meanwhile, the "dumb money" large speculators have gone super-bearish once again on the NASDAQ—which means renewed buys for the NASDAQ and Semiconductors (SOX).
In the metals, despite impressive technical action in silver and gold shares this week, the Commitments of Traders data today are urging caution. The commercials have yet to reverse earlier mega-bearish positioning in the futures and options markets enough to give me any new buy signals in the gold complex or silver.
In copper, the COTs data gave a sell signal in April after large specs turned excessively bullish. In fact, the last time the large specs were so aggressively positioned one way in copper was July 2002—except back then they were highly bearish. That gave a buy signal that lasted five years and marked the beginning of a five-fold explosion in copper prices. April's sell signal brought that run to a close.
New Signals*
BUY
None
SELL
None
Renewed Signals**
BUY
-30-Year Treasury Yield
-TSX
-NASDAQ
-SOX Semiconductors
-Nikkei
SELL
-Soybean Oil
-Natural Gas***
Existing signals (date of original signal in parentheses)****
BUY
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (20-Mar-07)
-S&P 500 (20-Mar-07)
-NASDAQ (27-Mar-07)
-Semiconductor Index, symbol: SOX (30-Mar-07)
-Dow Jones Industrial Average (20-Dec-05)
-Russell 2000 (25-Mar-03)
-Nikkei (3-Feb-04)
-TSX (20-Mar-07)
SELL
-S&P/TSE Canadian Energy iUnits ETF, symbol: XEG.TO (3-Apr-07)
-Oil Service Holders ETF, symbol: OIH (18-Apr-06)
-Soybean Oil (2-May-06)
-US Global Investors Funds US Gold Fund, USERX (30-Jan-07)
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO (30-Jan-07)
-Gold Bugs Index, HUI (13-Feb-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
-Gold (13-Feb-07)
-Copper (10-Apr-07)
CASH
-S&P 400 Midcap (3-Jan-07)
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
-Silver (21-Nov-06)
Notes
* For an explanation of what I do after a new signal, click “How It Works” on the right.
** A “renewed” signal is when a market is already on a buy or sell signal, and traders again register an extreme net trading position in the same direction. Click “Glossary” in right-hand column for more details.
*** See my special caveats for Crude Oil and Natural Gas (click “Profit/Loss Results” in the right-hand column and check the footnotes).
**** The date in parentheses refers to the date of the COTs report that gave this signal. For details on how these trades work, including trade delays and portfolio allocation, click on "How It Works" and “Profit/Loss Results” in right-hand column. Please note that my system gave these existing signals months ago in many cases. My profit/loss calculations were based solely on taking trades right after the signals were given as indicated in the “Trade delay” column on the “Profit/Loss Results” page.
That makes the commercials more bullish on the TSX than at any time since Dec. 2003, near the start of the current bull run.
Commercial hedgers are also highly bullish on Japan's Nikkei index. While other world indexes have zoomed off into the cosmos, the Nikkei has ailed of late, trapped well below its February high. But this week the Nikkei and Japan iShares ETF (EWJ) broke out of their four-month descending triangle pattern, suggesting Japan wants to play some catch-up with North American equities.
The commercials have been this bullish on the Nikkei only once before in the past seven years—in Nov. 2005, just as the Nikkei's grinding 15-year bear market came to an end. The index subsequently exploded 28 percent in six months.
Meanwhile, the "dumb money" large speculators have gone super-bearish once again on the NASDAQ—which means renewed buys for the NASDAQ and Semiconductors (SOX).
In the metals, despite impressive technical action in silver and gold shares this week, the Commitments of Traders data today are urging caution. The commercials have yet to reverse earlier mega-bearish positioning in the futures and options markets enough to give me any new buy signals in the gold complex or silver.
In copper, the COTs data gave a sell signal in April after large specs turned excessively bullish. In fact, the last time the large specs were so aggressively positioned one way in copper was July 2002—except back then they were highly bearish. That gave a buy signal that lasted five years and marked the beginning of a five-fold explosion in copper prices. April's sell signal brought that run to a close.
New Signals*
BUY
None
SELL
None
Renewed Signals**
BUY
-30-Year Treasury Yield
-TSX
-NASDAQ
-SOX Semiconductors
-Nikkei
SELL
-Soybean Oil
-Natural Gas***
Existing signals (date of original signal in parentheses)****
BUY
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (20-Mar-07)
-S&P 500 (20-Mar-07)
-NASDAQ (27-Mar-07)
-Semiconductor Index, symbol: SOX (30-Mar-07)
-Dow Jones Industrial Average (20-Dec-05)
-Russell 2000 (25-Mar-03)
-Nikkei (3-Feb-04)
-TSX (20-Mar-07)
SELL
-S&P/TSE Canadian Energy iUnits ETF, symbol: XEG.TO (3-Apr-07)
-Oil Service Holders ETF, symbol: OIH (18-Apr-06)
-Soybean Oil (2-May-06)
-US Global Investors Funds US Gold Fund, USERX (30-Jan-07)
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO (30-Jan-07)
-Gold Bugs Index, HUI (13-Feb-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
-Gold (13-Feb-07)
-Copper (10-Apr-07)
CASH
-S&P 400 Midcap (3-Jan-07)
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
-Silver (21-Nov-06)
Notes
* For an explanation of what I do after a new signal, click “How It Works” on the right.
** A “renewed” signal is when a market is already on a buy or sell signal, and traders again register an extreme net trading position in the same direction. Click “Glossary” in right-hand column for more details.
*** See my special caveats for Crude Oil and Natural Gas (click “Profit/Loss Results” in the right-hand column and check the footnotes).
**** The date in parentheses refers to the date of the COTs report that gave this signal. For details on how these trades work, including trade delays and portfolio allocation, click on "How It Works" and “Profit/Loss Results” in right-hand column. Please note that my system gave these existing signals months ago in many cases. My profit/loss calculations were based solely on taking trades right after the signals were given as indicated in the “Trade delay” column on the “Profit/Loss Results” page.
COTs Timer on Don Vialoux's Tech Talk Site
We're famous! Don Vialoux mentioned COTs Timer today on his excellent technical analysis site, which is part of my reading every morning:
http://dvtechtalk.com/June/June1.htm
Don is a past president of the Canadian Society of Technical Analysts. Thanks, Don!
http://dvtechtalk.com/June/June1.htm
Don is a past president of the Canadian Society of Technical Analysts. Thanks, Don!
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