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Thank God that's over. Stephen Vita put it well just now on his Alchemy of Trading site: "I'm exhausted, and I'm sure you are too. In the great scheme of things this bounce doesn't mean much at all, but I'm going to pray that the nightmare has at least stabilized and we can get back to the business of trading without a gun to the head. People have been shattered by these markets, and I feel for them. This weekend maybe things will be clearer."
So where do things stand now with the Commitments of Traders data? I'm almost scared to look. Indeed, there's more bad news from this afternoon's weekly data on trader positioning in the major derivatives markets. I've just updated my latest signals table with the signals from my trading setups based on this data. Not pretty. Here are some highlights:
- My S&P 500 setup has given a bearish signal for next week's open. This is a signal that will last only one week, then goes back to cash next week. What this setup looks for is bullish and bearish extremes of positioning from the "smart money" commercial hedgers combined with extremes in the total open interest among the "dumb money" small traders - who are faded, or traded opposite to. The setup has a three-week trade delay. The sell signal for next week reflects a sharp spike in the small trader open interest in mid-September, which gave a bearish signal. After that, the small traders go back to a bullish signal. But with the exception of a single week, the commercial hedgers have been on a bearish signal since the end of June.
- My Nikkei setup has given a bearish signal for next week after being in cash for six weeks. The bearish signal will last two weeks before it goes back to cash.
- My setup for crude oil has gone to bearish as well after being stopped out on a bullish signal earlier this week. This new bearish signal will last a single week before going to cash or bullish. Don't know which right now. However, I will ignore the crude bearish signal due to my risk-control rule that says I'll take a new trade only if the majority of my highly correlated commodities setups are leaning in that direction, which they aren't. As of Monday, gold and silver are bullish, while copper and platinum are in cash.
Hope you have a relaxing weekend, and good luck next week to us all.