The commercial traders have been on fire when comes to predicting the stock market in 2014. I suppose this makes sense since they’re the ones with access to the best information and modeling available. This explains the huge moves we’ve seen in their net positions based on the Commitment of Traders reports. Somehow their neural and social networks have put them in the right position for nearly every trade this year as you can see on the chart below.
I’d like to begin this week’s recap with last week’s primary piece, Commitment of Traders Report Returns S&P 500 to 1900. Also note that we we alluded to this setup as early as last Tuesday in our piece for Equities.com when we first discussed the shift in commercial trader bias while we were still sitting at 1975 in the December S&P 500 futures. Read more in, Commercial Selling Tips S&P 500 Bias.
We began our week putting traders on notice that the silver futures market appears to be nearing an end or, at least commercial traders feel that buying silver in the futures markets is becoming more economical than mining for their necessary supplies.
You can see the surge in commercial buying along with the technical analysis that shows where the bottom is expected in the piece we wrote for TraderPlanet, “Silver Decline Nearing an End.”
Tuesday and Thursday we focused on a fairly rare occurrence in the S&P 500 futures’ expiration. There was a dramatic amount of commercial trader selling into the S&P 500 futures’ expiration. We plotted the Commitment of Traders which report showed that commercial traders sold more than 25,000 contracts in the two weeks leading to the September contract’s expiration. We used this as an arbitrary bar to back test and found this happens less than 15% of the time and has a consistent, repeatable effect on the S&P 500 futures.
The weekly Commitment of Traders report published by the Commodity Futures Trading Commission tracks the markets’ players of consequence. The report breaks down the actions of the commodity index funds, managed money, small speculators and finally, the commercial traders. For the purpose of this article, we’ll focus on the commercial trader category. I’ve been reading these reports for twenty years and there’s a phenomenon that I’ve counted now 13 times in the S&P 500 futures that is usually tied to the expiration of the quarterly contracts. This setup has had a 76% forecasting accuracy for the period in which we measured its effectiveness. Most importantly, we find ourselves in the middle of this rare event even as we speak.
We’ve been tracking the commercial traders’ actions via the CFTC Commitment of Traders report for years. Over the years, we’ve determined that their anxiousness to buy or sell matters every bit as much as their total buying or selling in raw numbers. The current situation in the S&P 500 futures is a great example of this.