Wow - nutso week! As Stephen Vitahas been pointing out, when the selloffs start it will be vicious. He's been saying the rally may not even be completely over, but this kind of massive volatility is indicative of a top à la 2000. Are we oversold and due for a bounce? Trader positioning seems to be leaning against that possibility, according to the latest Commitments of Traders report Friday. See my latest signals table for how the numbers line up this week. Some highlights: - U.S. financials: My trading setup for the BKX U.S. Bank Index is in cash, but the data has deteriorated again this week, as it did last week. The large speculator and small trader total open interest - both of which correlate moderately with BKX - have drooped again this week.
- S&P 500: This trading setup is still bullish, but the numbers continue to crumble here as well. The "smart money" commercials are a little less relatively bullish, while the wrong-way small traders are, incredibly, now getting more optimistic about the market - amazing, since they've been highly bearish since January. I didn't get stopped out of this position this week because the trade had made a lot of money up until the selloff. (The stop works from the entry price.) The fact that the setup is still bullish could suggest that the rally since March 2009 still has another leg up once the dust from this selloff settles. But that's just a guess. The signal could go bearish next week for all I know. One caveat: If it does go bearish, the setup works with a three-week trade delay. - Gold: My setup for gold is in cash, but last week the data was looking fairly positive. This week, the large spec net position (which has a 62-percent correlation with gold prices the next week) has pulled back a little, but the large spec total open interest (with a 77-percent correlation with bullion) has moved up nicely. Mixed prognosis, in other words! - Natural gas: My gas setup goes to cash on next week's open of trading after two weeks of being bearish. Nice trade. Hope you didn't do too badly last week, and good luck this coming week. Be sure to check back early next week for an update to my portfolio page. TAGS: SPX, S&P 500, gold, BKX, Bank Index, natural gas, Nikkei, crude oil, Treasury, bond, COT, Commitments of Traders,derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission,COTs Timer, out-of-sample testing, walk-around testing