COT Report – 9/8/2013

DX – a continued pop in the dollar suppressed other broad commodities.

TY,US,FV – restarted their descent. Interest rates should start to climb again. Will this stymie the housing market?

AD – aussie has found a base – maybe. A push abouve .93 – .94 should be telling. As China is a major market for Australia’s commodities that market will influence the AUD’s return.

CC – cocoa has beat resistance and busted 2500. We are definitely in atmospheric COT levels now.

KC – coffee steady now for nearly 3 weeks. A push above 1.20 may be telling.

HG – copper continues to collect itself around $3.25. A weaker dollar should push this up over 3.5 within a month.

C – corn steady @ ~$5.00. A critical time for the grains in upon us.

EC – euro put in another higher low. Still looking for this to push to 1.35 and higher soon.

RB – gasoline, has it fallen off with the reduction in stress on Egypt and Syria? This is in opposition to its COT movement… and in opposition to crude oils move. Maybe be refineries have found supply.

GC – we got a nice pull back in gold and silver, something we were looking for. We’ve now the technicals to push to $1500.

JY – the yen is still trolling along the bottom. But with Tokyo’s win of the 2020 Olympics will this pop now?

LB – lumber has oscillated back up to resistance while the COT has fallen. Hard to call this. Is price leading or the COT? Rising interest rates will suppress lumber now but the housing market seems steady if slightly bubbled.

NG – natural gas has paused in its rise back to $4.00. With the liquified natural gas market starting to kick in and permits for trade being granted to LNG companies we may see demand for NG help this push back up.

PA and PL – palladium and platinum have fallen off much more than gold. Are we seeing a rebalance between these three?

RR – rought rice, here we go again. Looking for the COT to drop and for price to touch $15.00. This channel is uncanny!

SI – silver like gold has solidified its floor I’m seeing $27.00 by November.

VIX – the COT is up again this week, and the major markets all look like they’re preparing for further descent. It’s been a long while since we topped 25 in the VIX – time for a test me thinks.

W – wheat and corn have floored while soybeans have popped – is this a result of the demise of the Brazilian real?

CL – crude oil, higher AGAIN!? Crisis after crisis. When will it end. Generally about 2 months for this bumb bumb bumb in crude. We must be nearing the end – no? Time for a volatility spread trade. The USO $42.00 / $38.00 CALL/PUT spread is $.57 cents as I write this. All crude has to do is peal off down and this spread trade should pop to $1.00 easy.

Trading: a simple plan

An associate asked me how they might start trading as an honest endeavor. A serious endeavor. I replied with the following.

Well, there are a ton of “how-to” books/sites/teachers out there that might help. But I think a few simple instructions could be useful if followed explicitly. These are tidbits I’ve picked up from reading these last 10 years of learning the process myself.

1) Plan the trade, trade the plan.
2) Set a monetary goal and a monetary loss threshold for a set duration of time.
3) Focus on a very narrow instrument selection.
4) Create a daily routine and trading schedule and stick to it.
5) Trade only one method during the set duration.

Research and pick a trading strategy. It will have well defined entries, risk expectations and profit targets. It will be very specific. Use whatever fundamental, technical, sentiment indicators are appropriate. Write down the entry conditions. The exit conditions are based on reward to risk. Be very strict with yourself on trading this strategy. Do not be tempted with altering your strategy as conditions change with the instruments you follow. If world war breaks out, well, you may want to reevaluate.

Give yourself 4 or 6 or 8 months to trade a single system. Set a profit goal and a loss threshold that overrides this duration. If you make your goal before time is up, pay yourself a bonus. Take a break. If your losses exceed your set level before time is up stop and take a break. Evaluate your plan following performance. Not your trading performance. Your plan following. Did you follow your entry and exit conditions every time. If you did, and still lost money, go back to step 1. Otherwise, rethink this whole trading thing.

Do not trade the SP500. Do not trade 50+ futures. Do not trade 20+ FX pairs. Pick 10 maybe 20 stocks from at most 2 sectors. Learn them. Study them. Follow them everyday. Know when their earnings come out, when their insiders trade, when news is announced about them.

Pick a few hours out of the day, at a set time, and devote that time to research, analysis and trading. At the end of that time, put away the trading. If you have positions on, set broker side stops and leave them be. Do not worry your trades. Either your system works or it doesn’t.

Trade only a single method at a time. (At least to start out). Learn to instantly see your setup in a chart or know that a bit if news will turn a stock into your setup. If you vary methods you’ll never keep track of them and never be able to definitively know whether you’re following your plan or not.

If at the end of your 4 or 6 month trading session you’ve lost money or made very little, research another set of securities, or a different trading strategy. And swap out the old for the new. If at the end you’ve made money add a new strategy to your trading style. Create a plan for that one too and trade it simultaneously. You may want to dedicate another set of instruments to trade that to keep it separate. Over time, if you’re successful, you might have 5 or 8 different strategies that you trade across a couple of hundred instruments.

The key is to make a plan, trade the plan, stick to the plan and finish the plan. This is the only way to know that you weren’t just lucky or unlucky but you were successful. Even losing is a success IF you followed the plan.

Gold – a strange story

Tribe,

I’ve been trying to reconcile the price of gold lately. The below linked page as well as the embedded youtube video (mentioned in the article – long but worth the watch), are illustrative of the reasons behind the recent price of gold.

A few tidbits I’ve picked up and wonder about – outside of this article:

U.S. Quantitative Easing and 0.0% interest rates should have inflated the dollar. They haven’t. One of the reasons is that the central banks who have received the QE have basically sequestered 2/3’s of this fiat cash on their balance sheets rather than loan it out where it would have an impact – an inflationary impact. (The same central banks as those below.)

The U.S. Fed has a catch 22 situation: their QE 1,2,3,4 has inflated (or should have and will eventually) the dollar. They like inflated dollars for various reasons – cheaper to pay debt with worthless dollars. But an inflated dollar begins to cause concern for countries that buy the U.S.’s debt. So the Fed want’s a strong dollar too to ensure that the USD$ remains the reserve currency of the world.

Foreign currency central banks have also been quantitatively easing (weakening their currencies) which has pushed the dollar higher; a strong dollar equals weak gold (and most other commodities).

The Commitment of Traders report on gold and silver have dipped to very low levels ( per a custom chart I build (below)). When the COT line is low (or way low) commercial buyers tend to step in buy and lift price.

These points are just oddities that raise more questions as to why gold and silver are so price depressed. Why is gold (and silver) falling like they are?

This page helps to answer that question.
http://www.mauldineconomics.com/ttmygh/what-if

In a nutshell, or rather a shell game,
• gold is loaned out from central bank to bullion bank in a fractional scheme.
• One gold bar may be loaned out 10 or 100 times – at the same time – for various uses.
• Central banks are supposed to keep a big chunk of their gold reserves as real gold reserves. But it may be that they haven’t.
• Countries that have deposited physical gold over the years in central banks like London or the NY Federal Reserve are now asking for that gold back. And the banks are having a hard time returning what they don’t have.
• But never fear, they have built in mechanisms to manipulate the price of gold.
• They want the price to go down so that when they have to re-acquire physical gold to return to the countries that want it back – that they won’t have to pay top dollar for it. If word ever got out that the central banks didn’t have the gold they say they do – then there would be a “run on the gold bank.” And that’s something that scares central banks (apparently).
• So, they’re systematically suppressing the price of gold to ensure that when or if there is a run on the gold bank, the price is manageable.

Physical gold is seemingly being bought up around the world.

And we all know the Golden Rule…

(The COT page – takes a while to load – gold is the symbol “GC” in the list)
https://dl.dropboxusercontent.com/u/29771494/COTReport/COTReport.html

Sentiment through insider transactions

I built my own insider trading sentiment extraction.
Here’s some results, 3+ years of the DJIA,
I plot the prior 10 days and the following 10 days to the sentiment event as averages of % change in price compared to event date close price.
Approx. 1200 sentiment dates (many thousands of Form 4 SEC filings coalesced down to single events per security per date).

Evaluation is a simple scale:
-3 strongly bearish
-2 bearish
-1 weakly bearish
1 weakly bullish
2 bullish
3 strongly bullish

Interesting to note that there is a general up trend on all events.
That there appears to be a bit of a leak on the strong bullish events.
And that the sellers tend to sell during a strong up trend.

SentimentUp SentimentDn

Data looks like this:

Symbol,Date,Sentiment,Prior10,Prior9,Prior8,Prior7,Prior6,Prior5,Prior4,Prior3,Prior2,Prior1,Event,After1,After2,After3,After4,After5,After6,After7,After8,After9,After10
AA,2010-01-25,3,19.09,16.53,19.39,22.46,8.92,12.14,10.90,9.66,9.58,6.88,0.00,-6.00,-6.07,-4.97,-6.66,-9.36,-10.68,-6.29,-4.10,-5.12,-9.22
AA,2010-03-01,-2,-1.09,2.03,-0.23,3.28,2.19,2.27,1.72,1.72,-0.94,-1.88,0.00,-0.08,0.00,-0.47,0.23,0.94,3.99,3.60,2.74,1.95,2.50
AA,2010-04-26,3,7.36,3.91,5.18,3.53,4.21,3.31,0.45,-0.90,-0.68,-0.98,0.00,1.88,1.43,-2.93,-2.03,-0.90,-3.01,-5.03,-9.17,-9.77,-13.60
AA,2010-10-04,-2,-7.01,-7.78,-6.07,-7.78,-3.42,-3.08,0.77,-0.34,0.85,-0.26,0.00,0.94,-1.62,0.26,2.14,0.77,6.41,6.75,8.97,10.43,8.38

After examining the data some more, I reran the plots to use the Median of the price % changes rather than the averages. This plot below is of a secondary group of securities, NOT the DJIA.

SentimentMedian

The list from the Google Screen criteria:
AI, ALJ, ARII, AWR, AZZ, BANC, BFK, BGG, BLW, BOE, CATO, CFNL, CHI, CHY, CII, CRK, CSGS, DCOM, DUC, EDE, EHI, ERC,ESIO, ETJ, ETV, FFBC, FFC, FPO, GSM, HAFC, HPI, HPS, HQH, HTD, HTGC, HYT, HYV, JFR, JGT, JRO, JSN, KBALB, KND, KNL, LBAI, MCA, MGU, MMU, MTSC, MUE, NEA, NMZ, NP, NPI, NPM, NPP, NPT, PCN, PDT, PFL, PFS, PMO, PNNT, RGS, RNP, SHLM, TAXI, TCAP, TDF, TEI, TSRA, VTA, WIW