The Commodity Futures Trading Commission(CFTC) publishes a weekly report entitled, “Commitments of Traders.” This report classifies the markets’ largest positions by trading groups – speculators, managed money, index traders and commercial traders. Our research focuses on the commercial trader group. We’ve been able to quantify correlated movement between the commercial traders’ net position and commercial trader momentum with the underlying market movement accurately enough to use this as the first screen in our trade selection process. We hypothesize that their accuracy is due to the laser focus necessary when one’s livelihood is derived solely from the movement of an individual market.
The crude oil trade thus far in 2015 has been a textbook example of the way we employ commercial trader activity to the commodity markets. Commercial traders in the crude oil market were relatively nonplussed about the market’s decline through the end of 2014. Time progresses, and as the market built its base and forward demand for summer gasoline blends from refiners began to take shape, their purchases quickly dominated the playing field and pushed the market higher through spring. However, I believe the bigger story is the dramatic forward selling by the commercial drillers who clearly believe this rally will be short-lived.
Currency destruction usually usually places a sovereign national bank at the pointed ends of its citizens’ collective swords. The country’s citizens watch helplessly as they wake up each morning less financially secure than they went to bed the previous night. This general sentiment is why the Japanese Prime Minister, Shinzo Abe’s popularity is counter intuitive. His political platform has been based on the public destruction of the Japanese Yen in a last ditch effort to end 25+ years of secular deflation. As a result of Shinzo Abe’s platform and with the help of the Bank of Japan’s Governor Harihuko Kuroda, they’ve driven the Yen down approximately 20% versus the U.S. Dollar in the last year. Commercial traders are making a strong case that we may be nearing the end of this decline.
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.
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.
This was a busy week. We began on Monday with an exclusive follow up on last week’s “Equity Rally Waves a Caution Flag”, for TraderPlanet in, “Commercial Traders Turn Negative Towards Equity Rally” which focused specifically on the Dow.
Meanwhile, our main piece for the week focused on, “Copper Traders Bailing Out of Record Position.” Specifically, what was going on with the record commercial net long position in the face of a market that appears to be rolling over.
Finally, the equity curve for our commercial live cattle trading program has been updated to show its recent success.
We discussed the growing imbalance in the unleaded gasoline market last week here at Equities.com. Our primary focus was based on two points. First, the fundamentals in the petroleum sector are bearish. Secondly, the commercial traders as a group have now turned negative on their own product at these prices. These two factors have grown in strength over the last week and Monday’s weakness finally triggered an official COT Sell signal.
Monday began with an official COT Sell signal in the U.S. Dollar Index that we published in TraderPlanet. This trade was actually a follow up to the previous week’s piece also published in TraderPlanet.
We combined these into one post including the annotated US Dollar Index chart in – The USD Index – A Speculative Bull Trap?