The recent bond market sell off came on the heels of Bill Gross’ comments regarding the German 10-year Bund as, “The short of a lifetime.” We had already noted the negative yield situation in mid-
March along with the increasingly negative tone that commercial traders were taking. Positioned accordingly, the bond sell off was a profitable experience. Over the last two weeks, however, there has been more and more talk about inflation and frankly, I just don’t see it coming. Therefore, the generational bond rally may not have come to the screeching halt that the media is leading us to believe.
This week we’re going to look at the Dow Jones Industrial Average, the S&P 500 and the Nasdaq 100 equity futures markets. All three of these markets are setting up for a classic Commitment of Traders (COT) Sell Signal based on the disparity between the markets’ prices and the actions of the commercial traders within them.
The sugar futures market has been in a slow motion slide for nearly two years. This follows the market axiom that nothing beats low price like low prices and the expected surplus this year further adds to those concerns. That being said, the sugar market is trading at prices not seen since July of 2010. Furthermore, the sugar market’s seasonality should coincide with commercial long hedgers taking advantage of these multi-year low prices. Finally, the sugar market’s inherent volatility tends to reward forward thinking traders as this market can quickly leave its participants playing catch up.
This was a quiet week for our trading in spite of the explosive moves created by the Fed. Those brave souls willing to take currency positions ahead of the announcement based on our Discretionary COT Signals were handsomely rewarded as our COT Sell Signal in the U.S. Dollar Index was sent out before 10pm on the 17th.
Our focus took a macro view as we attempt to assimilate contradicting indicators into a general thesis upon which to base our long-term trading. We found, “Hidden Strength in the S&P 500,” in our piece for Equities.com. Once again, ahead of the Fed’s announcement.
Here is an example of a successful trade our mechanical trading program generated based on the commercial long hedgers in the Commitment of Traders report.
Here’s a quick link to this wheat trading system along with two others and their historical hypothetical equity curves. We offer 33 in total. We use both the strengths of the commercial traders as well as the weakness of the speculators to stack the swing trading odds in our favor.