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Tuesday, April 13, 2010

IF YOU LIKE WHAT YOU READ SPREAD THE WORD

First of all I want to thank those regular readers of the blog. My whole intent in doing this to begin with is to build a small little community to discuss trading ideas. I guess I for the most part put out the ideas, then we kick them around. What I would like to see is more participation. This is not a money maker for me and was never intended to be. However, it does take alot of time creating the posts, so I would like to have more participants if possible. All I ask is that if you like what you read, spread the word.

I can track generally where in the world people come from that check in. As a result I do know that we have people from all over the world that read this, many on a daily basis. I am not going to spend money advertising it because that makes no sense since there is no way of covering the cost of doing that. Also, I am not selling anything, so there is just no logic in that. I just would like to get a bigger audience. If anyone has any ideas please shoot them to me, or post them in here.

I am working on one thing that if it turns out well, it will probably accomplish this task, but it will not happen until the end of the year.

Let's look at my new favorite report to bash, the COT report, and see what it is telling us if anything about the stock market.


Looking at this weekly chart, you can see that in general the commericals ( red line ) have had longs at reasonably high levels during this rise, supporting the price movement. They have been selling in the last couple of months. This is to be expected, the natural function of what they doing is hedging. Typically they get opposite the trend much faster than they did here, so in hindsight this should have been a clue to how far this might go.

When we look now, although they have been selling, their net position is really in more of a neutral ground area, so I don't think it means a thing. Small specs ( green line ) have been buying recently, but not at large levels, again this means nothing. The last category, the large specs ( black line ) have been doing some selling. This is a bit surprising because they are trend followers and accelerators. Generally at new high levels like this they would be much more heavily long.

There are 2 ways to look at this. First, it means they have alot of buying power left to drive this further. Generally there are limits to the position sizes so often when they get to historical highs trends tend to reverse. This is because they have run out of buying power, and the market can then just fall on it's own weight. Since we are a long way off from their highest long position, it means if they wanted to drive price they have a lot of buying power left to do it.The second way we could look at this is that since they are trend followers and accelerators, this selling means they perceive the trend to be ending, and this is a red flag.

The $64,000 question of course is which is correct? This has really been the whole problem with COT analysis and why I have been bashing it lately. The patterns in the positions just are completely inconsistent. What means a buy in one instance is a sell in another. This should not be the case, this is fundamental data. I like the techniques I used to be able to be applied the same way to all markets. This can no longer be done with this information. There are still a couple of situations that when present with this data have value, but that is a topic for another day. In this case what I think this means is just that some large players have taken some profits due to the magnitude of this move. This would not normally be how they move their money around so it is complete conjecture on my part. If the DOW is going to 15,000 they would not want to miss that much of the run. If that were the case, we would look for them to be aggressive buyers on breakouts and that would confirm that view as being correct.

Net net, I cannot really draw any meaningful conclusions from the COT report for this market. I suspect that we will just keep moving along here with very small pullbacks, creeping higher. Life is good, don't fight this.



4 comments:

Thomas Adair said...

I can say to you, that your quest for the Holy Grail to Investing, is way off.

Developed multiple arbitrages that produce double digit returns, a decage ago.

Thomas
thomasadair@live.com

Chris Johnston said...

Who said I was looking for the holy grail of investing? I state in here all the time that there is no such thing.

Flip flop flow said...

The best way to get some notice is to get an article accepted on Seeking Alpha. Many of the popular writers there are macro economic people or specialists in something like electric cars or energy. Others are traders who submit articles frequently.
There is Phil Davis who submits articles after the fact. He charges a lot for his timely communications. He is very entertaining. Karl Denniger is intense and now seems to not submit many articles now that everyone has discovered his web site.
Whatever you do, don’t title an article with a question. People really hate that.
I originally saw you mentioned in an article by Charles Hugh Smith of oftwominds.com.

Thomas Adair mis-read you about the holy grail.

Chris Johnston said...

Yes that is likely although he could just be of a different school of thought. Making 10 or 12%a year like a good arbitrageur makes, is not much of a return in my mind. I made that in one day last month.

However, it is a good topic for a post