WHICH GEORGE ARE YOU?
According to readers comments, the story is out on this so lets dissect this a bit now. The one thing I don't like about the blog if I had to pick one is that everyone has the same name when they post comments, Anonymous! It is like dealing with George Foreman's kids, they all are called George. One of my George's has assured me this is loose on the web now, so I will talk about it.
What this chart shows is the net position of the Commercials in the Eurodollar market offset 52 bars. In other words the last bar has the net commercial position just in gross contracts, from one year ago. What this is telling us is that the net position in a different market will tell us what will happen in one year in the US stock market. This is why I have said all along that this makes no sense at all. However, you certainly cannot argue with how accurate this has been.
Here is the real problem when you stumble onto things like this. It is my view that something you find that helps you predict something else, has to make conceptual sense in it's relationship. For example if you see the Lakers lost to the Celtics, and Live Cattle declined the next day every time that happened, that makes no conceptual sense. No matter how long it has worked, it should not be predictive and therefore will stop working at some point since it is basically a highly improbable random intersection of data points. We could certainly argue that there is a relationship between the US stock market and the Eurodollar at the moment. We could even argue that it is a very tight relationship due to the instability of the economic situation over there and how it is effecting things here. However, what is hard to argue is why the net commercial activity in the futures market today would determine almost to the day what happens in the US stock market one year from now.
This is why I have been hesitant to put much weight in this forecast in spite of how incredibly accurate it has been. This is going to derail here at some point just because it makes no conceptual sense. Perhaps there is a better way of studying the Euro and how it relates to us here that would work better. I am not bothering with that but some of you may want to. For the time being we have what we have with this, a decline into a June low, with a rally to last through the end of the year to follow. It will be very interesting to see if that takes place.
Yesterday was certainly interesting in that many of the near term pivot points in many different markets gave way. Here is one market the Aussie that looks like many others. You can see the good COT setup, and now we have price breaking the last significant pivot. In my world this is a sell the bounce, so that is what I am looking to do in the next few days.
You can see that right about when we made the first high in the trading range at the top, the COT stuff went into sell mode, yet we are not just breaking. How you use this is up to you, I like to use it just as a directional bias.