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First of all, I would like for ALL people to understand that the COT data that I plot on my charts, is not a technical indicator, per say. t is not some derivative of price action, or some other algorithm model derived from price and/or volume. (Like the MACD, RSI, etc) The Commitments of Traders report is a break down of commercial and large trader POSITIONS in the futures markets. (After you account for the commercials and large traders, any remaining open interest is attributed to the small traders). So what’s your point? My point is that the COT reports are a very powerful tool once you learn to listen to the story that they are trying to tell you. For example, in this week’s “Financial Sense Newshour”, I heard a comment about crude oil going back down to the $10 to $20 range. Hmm, let’s take a look at this COT crude oil chart: http://buythebottom.com/oil.html On a relative basis, commercial players – or the users and producers of the commodity – have been bullish on the price of crude for the past month-and-a-half. WOW! Isn’t that great? Commercials are bullish…Hmmm…Donuts… HELLO!!! COMMERCIALS ARE BUYING CRUDE AT 70 DOLLARS PER BARREL!!! I am not sure if this is a confirmation of peak oil from the market itself, but we are talking about the big players in the oil business buying crude at today’s “elevated” prices because they think its going down to $10??? More likely, commercials are buying crude at $70 because they think that oil prices are heading higher. Be careful now, this DOES not mean that oil prices will not go lower first. That 200 day moving average at $65 is looking awfully inviting. IF the commercial position (yellow line) hits 10 000 to 25 000 contracts net long, that would give me the green light to start looking for a trend reversal to buy me some of that black gold. Once this scheduled summer rally in crude starts rolling, we will most probably see oil retesting its recent highs at $75 and then breaking out. Now let’s look at gold http://buythebottom.com/gold.html If we hold this week’s low in gold, (roughly 540) then we probably put in an intermediate-term bottom. The other possibility is a consolidation period lasting anywhere from 1 week to 2 months. I don’t really see gold going much lower, would be surprised to see it go below 530. Commercial activity from last week was little changed, so not much help from there. Maybe next week we’ll get a better clue. The broad markets This is where the crosscurrents title comes into play. Take a look at the S&P 500 index. http://buythebottom.com/sp500.html Commercial net long position shot up 60 000 contracts. All the other indexes were little changed from last week. Russell
2000: http://buythebottom.com/russell.html What does this mean? To be frank, I think this could mark a bottom in the stock market for the near future. The markets are oversold, and from what I can tell, sentiment is rather bearish. Currently there are crosscurrents in the market, making it hard to forecast tomorrow’s wind speed and direction. I am going to bet small, and continue to listen to the market via the COT reports. Eventually, the market always speaks; it is the investors – however – who do not always choose to listen. ©
2006 James West Updated weekly COT charts can be found @ www.buythebottom.com Mailing
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