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NET COMMERCIALS
AND THE BIG PICTURE
by James
West
buythebottom.com
forever a student of the markets
October 18, 2006
Broad
Markets
Russell
2000 [ http://www.buythebottom.com/rut.html ]
Net-commercial position decreased by 2 365 contracts, which makes
sense as commercials typically sell into strength; total net-commercial
position now stands at 9 048. For now it still looks like this market is
headed higher, on its way to test record highs near 785. Keep an eye on
this index, and especially on the extent of commercial selling in the
next little while to gage future market direction.
S&P
500 [ http://www.buythebottom.com/spx.html
]
Net-commercial position increased slightly by 963 contracts. The
biggest area of concern is that large trader’s are big buyers of this
index as it is making new yearly highs. And from a historical
perspective, large traders tend to get very bullish near market tops.
This is leading me to believe that the US stock market(s) may currently
be in the process of putting in a big-picture top.
NASDAQ
100 [ http://www.buythebottom.com/ndx.html
]
Net-commercial position increased by 2 500 contracts which is
telling me that this is probably not yet the top, but at the same time
there are probably better places to put your money to work right now,
such as the commodity sector (specifically: gold & oil).
Dow
Jones [ http://www.buythebottom.com/indu.html
]
Net-commercial position increased by 41 contracts.
The
big-picture regarding the US stock market is somewhat hazy right now. I
don’t really see a clear setup either way. I think we will have a much
clearer picture within the next few months. Remember, patience is a
virtue in this game.
Commodities
Crude
Oil [ http://www.buythebottom.com/wtic.html
]
This marks the 8th
consecutive week of commercial buying; the net-total currently
stands at 92,528 contracts. The more commercials buy, the more bullish this
setup becomes. So far the $58 reaction-low is holding, but is it the
bottom? I cannot answer that for certain, no-one can, but I am leaning
towards a yes. But what is even more important, is to focus on
commercials during crude’s retreat from $80. They are big buyers, so
this is telling me that if the bottom is not already put in place, it is
very, very close. In other words, if we go under $58, we will most
probably bottom in the $55-57.5 range. Again, the setup in crude is very
bullish, I would also note that oil stocks have been outperforming oil
for the last several months. If you compare crude oil to the XOI oil
index, you will see that oil prices made lower lows in October while XOI
made higher lows in respect to September. This type of trading action is
leading me to believe that what we are seeing is a major bottom in oil
as well as oil related stocks.
Gold
[ http://www.buythebottom.com/gold.html
]
Net-commercial position increased by 9 392 contracts. The setup in gold
is also very bullish, and if we indeed saw the bottom in oil then we
also probably saw the bottom in gold at the 560 reaction-low. If we see
gold closing below 565, then the correction has probably further to go.
I
believe that both gold and oil are in the late-stages of putting in
intermediate-term bottoms. But why, is a very important question. First
of all, commercials are persistent buyers over the last couple of
months. Second of all, these markets are at support levels: $540 – 560
for gold, and $55 – 57.5 for oil. And third of all, there is abundant
negative sentiment surrounding commodities right now, meaning that there
is a lot of potential money sitting on the sidelines, or chasing the Dow
Jones to new highs. As it stands right now, gold and oil are setup
to rally. Until commercials tell me something different, I remain
bullish on these markets.
Currencies
US
Dollar [ http://www.buythebottom.com/usd.html
]
Net-commercial position decreased by 7
023 contracts. This is confirming what I thought a week earlier,
commercials are very eager sellers. As the market looks right now, one
can argue that we are already setup for a decline. That may or may not
be true, the setup is not that clear from where I am standing. Maybe we
will get a better clue from COT data in the next few weeks. But from a
big-picture point of view, it looks like the US dollar is heading lower,
and it is starting to be less a question of if, and more a question of
when.
Cheers,
James
©
2006 James West
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CONTACT
INFORMATION
James
West
www.buythebottom.com
Toronto, Ontario, Canada
Email: westjam @ gmail.com (Remove the space before and after @ when
sending your email.)
The
opinions of FSU contributors do not necessarily reflect those of
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