I GUESS SUMMER IS OVER
One of my golfing buddies reminded me yesterday that summer is now over. This is the first year in my career that I can honestly say I never hit the broad side of a barn one single time on the golf course for the whole summer. I have often thought combining trading with golf was a bad idea, they must be the two most frustrating things to do on the planet. My family is thankful my trading has been better than my golf game this year. I have been playing around with my indicator and although I have not come up with any enhancements, I have determined the best way to use it. The simple view is we go by the most recent signal until we get one in the opposite direction. Keep in mind this is designed to give us daily insight into what the Commercials "might" be doing day to day. It is not a buy or sell tomorrow type of indicator. It is designed to tell us which way the power guys are positioning for the next move to be. In that regard, the above chart shows with the S&P 500, the most recent signal has been a sell, so that is the way we play until we get a buy signal. On the charts that follow you will see how this works. The level of +15/-15 are the zones for buys and sells.
It is easy to get really bearish after a day like Friday, but we all knew we were in a downtrend, surprises if this was one, come in the direction of the trend. The short side is clearly the side of the market to be working here, how you do it is up to you.
Here is a chart of Natural Gas that shows the concept of the COT Synthetic indicator, and the the most recent signal etc.. You can see that although some were early, moves came in the direction it indicated in every instance except one, not too bad. Our last signal is still a sell here so maybe we just continue down here. However, my short term things are showing a possible buy signal now, so I am looking here. The COT Indicator is not the end all, just a tool. We are at the seasonal low spot, so it is time to look for buys here.
The Bond Market has clearly shown with the COT Indicator, that we have been in the buy zone with the most recent signal. I remarked the other day that this had curiously stayed strong recently indicating strength. For those that are still bearish here, there is a possible trap pattern in place after Friday's close. The stop is a monster, not a trade for me, but the pattern is there if Friday's low were to be taken out. Even my short term things are marginal now, although there is a possible triple divergence in them forming. I am still watching here closely, but not enthusiastically. The top here may not be at hand after all.
The Cocoa market interests me here. The most recent signal in the COT is a sell, and we have a pretty clear trend line for price at hand. On a weekly chart we are in a sell zone, and we are also close to seasonal and cyclical tops. This is one to watch for me going forward.
This chart is Wheat ( Weekly ). This market in my view is setup as a sell now. We have a rally in a downtrend and there are longer term cycles, that call for sideways to down for a couple of months. Sentiment has reached overly bullish levels, and ADX has declined sharply on this recent rally telling us it is not a trend move. I am looking for shorts in this market now.
Overall, it is time to for the most part look for shorts. We live in a risk on risk off world now. With the stock market headed back down now, it is likely most markets will follow. In this scenario, Bonds, Gold and the Swiss are likely to continue to rally. It will be interesting to see what President Intern proposes. Rumor has it there is a $5000 tax credit per new worker hired. Does anyone think it makes sense to pay someone $30,000 or more per year just to get a one time $5000 tax credit? Would you do it? I move back and forth between thinking he is really bright and doing all these things wrong intentionally to weaken us, and him just being an imbecile and having no idea the damage he is doing. One thing we need to be aware of even though we cannot trade off it alone, is that when he does all these dumb things that hurt the country, it creates long opportunities. The reason this is true is because he makes things so bad the FED has to be highly stimulative, which creates rallies. I mention this just to make sure you don't get too overly bearish. In the near term the FED is going to be able to intervene and stop big selloffs when they feel like it. There will come a time if we keep going down this road where we will be so upside down, the FED will not be able to do anything more. I sure hope we don't reach that point but I do think it is a possibility.
We have the pleasure of these goofy electronic sessions for Monday that show as bars on the chart, so Tuesday could have some action for us.