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I've just updated my portfolio page with results from my COTs Timer trading system as of this morning, including a few new trades based on my latest trading signals. (See Friday's post and the table linked at my latest signals page for more details on those.) As promised, here are some more market highlights based on Friday's Commitments of Traders report. For you newbies, this is the free weekly report issued by the U.S. Commodity Futures Trading Commission that outlines trillions of dollars in futures and options positions in 100-plus markets, everything from gold to crude oil, the Dow Jones industrials and Japan's Nikkei Stock Average. My system trades these markets when the traders hit certain extremes of bullishness and bearishness that in past data have reliably led to high-probability, market-beating trades. And now for those highlights:
- Is crude oil topping? Not according to my data. The "dumb money" large speculators (these are the big investment firms and hedge funds, who are generally wrongly positioned in most markets) are far from any bullish extreme that would signal an end to the crude boom. In fact, the large specs have steadily reduced their net long position in crude oil futures and options since the end of April as a percentage of the total open interest. (See my glossary page and introduction page if you don't have a clue about what I'm talking about. I know this stuff can be confusing.) The large specs are now 1.5 standard deviations below the longer-term moving average I use for this setup. Definitely, no speculative froth here.
- Will the Federal Reserve Board keep lowering rates to relieve shattered markets or hike because of inflation fears? The COT data is unequivocal: The Fed will not hike and will probably keep cutting interest rates. The large speculators in 30-day Fed Funds contracts, who have in the past reliably predicted the course of rates, have hit multi-year extremes of bullishness in their futures and options positions (meaning they are betting rates will fall). They have been well over two standard deviations above the longer-term moving average I use for this trading setup since the end of May.
- Strange divergence between my silver and gold data. In silver, the "smart money" commercial traders have really hit the brakes, increasing their net short position to a one-year high. In fact, they haven't been this bearish in relation to past data since Dec. 2006. Meanwhile, the large speculators in gold, with whom I trade alongside, are blithely bullish - more than one standard deviation above the moving average for this setup. As a whole, four of my six highly correlated commodities setups are bullish, so I ignored my short silver signal for July 7. But the bearishness of the silver setup could mean some short-term volatility is in store.
Tune back in later today to read my update about my new Russell 2000 trading setup and to see what signal it's giving now. Good luck this week!