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Sunday, March 04, 2012


IT JUST DOESN'T GET ANY BETTER THAN THIS




I can scroll charts going back as many years as I want to and I will never find a better setup than what we have going on here in Gold. We have a double top, with the Commercials strongly defending that level by heavy selling. We have the Small Specs incredibly bullish. We have Open Interest skyrocketing and all due to small fry buying not big boy buying. We are at a seasonal period where a decline typically occurs. We have a 4 year cycle due right about here. We had a trend break last week and now we are forming a short term retracement.

Folks, they don't cook em any better than this for a good sized decline. Will it be the bubble bursting decline, or just a tradeable move down? I have no idea, and do not care. If it does get going on the down side, we know that this long trade is full of uneducated individual investors who have been sold a bill of goods. The exits will be incredibly crowded at some point in this market when it crashes, and I just hope that I am short when that happens. I do not know where that point is where the people who are trapped in a bad trade will realize it and run for cover. I suspect it is quite a bit below current levels, so it is not really an issue to worry about at this point. Gold bugs, don't bother with the attacks on this, the comments won't get posted. I am tired of the skit of going back and forth with you folks, and won't engage in it anymore. If you don't like my views, don't read them. Go get a room with G Gordon Liddy, I hear he is a good kisser.

I was amazed how long the people in Real Estate were able to keep it from falling off a cliff before it finally did. If you recall it kind of stalled for about a year and a half, then fell off a cliff. This situation is identical to that except I think it is even more over done on the up side. I am looking for sell signals here obviously.




The above chart is the ES. In situations like this where the Commercials are pegged in the sell zone all the way up, this is not considered to be a bearish situation. Here we have the Large Specs driving the trend, with a big long position. This is normal. Commercials by their nature are hedgers, so when you see their first attempt at selling fails, and they maintain shorts, the ensuing sell signals are to be ignored. It is true the Russell is far weaker than this, but when I see two of the three major indexes sailing along like this, I ignore the sells in the one that is weaker. I did learn from a friend who is never right, that you should always play the laggards because they "catch up." I would suggest doing the research yourself, but to give you a hint, that could not be more wrong.

No sells for me here at this point even though I have mentioned my concerns about these markets at these levels. There is a pretty good sell in terms of COT stuff for Sugar right here but the daily price action is still in a bull phase, so I don't see anything immediate there it is just something to watch this week.

Good Trading


7 comments:

Anonymous said...

Hi, would you be open to recommending some books (or other sources) regarding the topic of COT? I'd like to learn more about COT, but I'm not entirely certain about where to look. I think one book I will buy will be Larry Williams' "Trade Stocks & Commodities with the Insiders".

Cheers,

AP

Chris Johnston said...

Steve Briese also has a good book on the COT stuff. He is not nearly as good as Larry but who is? There are some things he mentions in his book that I found valuable

botz said...

Hi Chris,

I've been reading your blog for some time now and find it very informative. I'm just starting the Larry Williams courses now. I was wondering if you'd be willing to let me email you a few questions that I have.

Mark

Robert said...

Here is a short explanation on the COT-by Scott Pluschau--on the Nasdaq 100 futures--brief but very informative

In futures each single digit of volume is a transaction between a buyer and a seller for one contract. Each contract of “open interest” has a long and a short position. There are never more buyers than sellers, or vice versa. If price is going up it is because of demand. With a strong rally, and decreasing volume it is usually a sign of dwindling demand.

What is demand? The buyers are not just putting out bids to buy, but they are cleaning out the offers to sell. Whatever is being offered they are taking. That is demand.

There is a big difference between supply and demand and it has nothing to do with more buyers or sellers.

There are two types of buyers, those who are going long to initiate a position, and those who are closing out a short position. You have to buy to close out a short. Likewise there are two types of sellers, those who are selling to liquidate an existing long position and those who are initiating a short
You have to make sure you understand that last paragraph very clearly in order to move on.
Now in the case of NQ and my chart, are these sellers primarily long a position and liquidating to close them out? If that was the case, then Open Interest would NOT be increasing. If the buyers were primarily short traders getting squeezed and closing out their trades, then Open Interest would NOT be increasing.

The buyers are putting on a long trade, and the sellers are going short, both sides in a big way so far in 2012. This increases open interest. A reason for the decrease in volume could be that the sellers keep raising their offers rather than hit the bid.

Who are these sellers and what do they know about NQ with this price action? This week’s COT report showed the Commercials going net short another 2,929 contracts in the legacy consolidated report. The commercials historically have deep pockets, are hedgers, and informed money. If I have my math correct and assuming NQ is at 2,600 with the consolidated futures contract being 100X the index, this would be an increase of $761,540,000 short by the commercial traders.

sheepgetslaughtered said...

Chris

Sorry but i disagree Open interest is declining short term so this is bullish.

http://sheepgetslaughtered.blogspot.com

Chris Johnston said...

If you are talking about change in open interest over just the last 2 days in gold as significant I think that is an insignificant amount of movement, The overall open interest has increased dramatically over the last month, and it has been completely comprised of small specs. This is as good a sell signal as there is. If you are trading a 5 minute chart who knows, but in the bigger picture, that is a very bearish development.

Anonymous said...

Mystery forecast is money. Maybe I will grow a pair and trade it :) (probably about the time it stops working). - Chris