C.O.T, O.I, and Year-Opener

January 10, 2009 |

This has been the first full trading week of 2009. In years previous: the trends marked in Year-Opener would provide direction for a number of months(!) Of course, 2009 is getting the most uneasy start across most markets in recent memory - as credit has been severely constrained, fund net inflows are non-existent and the entire financial service industry undergoes austerity. In this extremely emotional environment, we are doubly reminded of just how important objective measures of market commitments can be.

1. SP flows continued somewhat Bearish within their make-up. I was pointing in recent weeks, that Commercials have flipped back into Net-Shorting mode - erasing their Net-Longs accumulated near decade's lows. Also, that sentiment surveys went Bullish 1/6/09 - for the first time since 8/20/08! Current report showed Large Specs shedding their recent Longs into 100-point pop; while Small Specs assuming new Longs, under the drum of "rally over 900". Another interesting tidbit was substantial migration of Open Positions from bigSP to E-mini (except, remarkably, in Small Specs!!) I venture guess: Small Specs, convinced that "bottom may be in", took some Longs earmarked for "longer-term hold". Larger Traders, in contrast, preferred greater flexibility of E-mini to scale in-and-out of price spurts and "play the range". Other than this little distinction: I must note that 2009-opener week was decisively DOWN!

2. C.O.T. showed Commercials rolling significantly out of 30y and 10y Longs and into 5y, 2y and Eurodollar Longs! (again, a tiny indication that big boys are reaching for flexibility - as opposed to committing to obvious yield differentials.) Two very important notes: a) the week was decisively UP for shorter-term paper; b) O.I. pattern in 30y favors one more Bullish attempt - before they commence "long-term Bear Market". Why? The 142->132 pullback was all due to aggressive Commercial Long-liquidation in light trade: hallmark of wave1 DOWN. Wave2 UP to follow is usually emotional and scary. Only then wave3 DOWN should emerge with aggressive NEW SHORTING and voluminous price action DOWN.

3. EUR and SF marked strong DOWN-week; BP, CD, JY UP-week! My opinion remains that EUR and SF will eventually go to new records in 2009; however, as pointed out last week - Specs had to first abort their ill-timed Longs. For those two currencies: this is a classic false start, liable to confuse many a trend-follower. BP has enjoyed solid Commercial support in recent weeks; it should develop into star currency of 2009! Yen is interesting: where its early-week's dump attracted no Commercial support to speak of! I stay of the opinion that Yen lacks its own fundamental bright future - and that it will stay strong in spots on default basis; ready to embark onto multi-year Bear market before most Specs realize it.

4. Gold keeps piling up COT problems: this time Commercials even Shorted it on slight decline. Funds now hold 8 Longs for every 1 Short! Platinum strung basically 11 straight UP-days since I pointed "O.I.-accumulation signal" going into Xmas. Copper's O.I. behavior remains constructive; but it also has already jumped 25% of off Xmas lows. All-in-all, metals are likely to still shadow the currency trade right here.

5. Energies remain extremely interesting: most contracts appear in wave2 pull-back; thus potential of explosive wave3 run remains attractive - despite obviously weak 2009 opening week. CL went up on rising O.I., then down on declining one. Gasoline sports 13:1 Fund long:short ratio. This ordinarily could be viewed a Bear trap - but energy contracts are not undergoing any particular margin stress, plus there is a lot of spread trading among contracts. NG's drop here is very intriguing - as Jan seasonals are, in fact, Bullish. Daily chart is near bottom of yet another price accumulation: five preceding ones resolved down in continuation pattern. This should attract speculative Shorting into the lows - and potential for big Bullish surprise to follow! This has been the first full trading week of 2009. In years previous: the trends marked in Year-Opener would provide direction for a number of months(!) Of course, 2009 is getting the most uneasy start across most markets in recent memory - as credit has been severely constrained, fund net inflows are non-existent and the entire financial service industry undergoes austerity. In this extremely emotional environment, we are doubly reminded of just how important objective measures of market commitments can be.

Comments

23 Comments so far

Eht Yob on January 11, 2009 1:44 am
As usual, vague and idiotic
Anatoly Veltman on January 11, 2009 4:34 pm
1. you+your clones can't comprehend it
2. you+your clones have never stated a single market idea

No need to chip away at my words. Just produce your own, about any single tradeable market at any time. That would be a first.
Bob Gulstan on January 12, 2009 8:03 am
1. Nobody can comprehend
2. Neither do you. Your analysis is after the fact on the same lines as every other internet market "guru". Words such as "as previously stated", "since I pointed", "likely to" are much in line with what one can find on the internet for a dime a dozen.

You cannot simply state a clear cut sentence such as
1) S&P 500 is going up next week because…
2) Gold is going to move down because…

There is always obscure language in your statements that never eliminates the possibility of you being wrong. Until you come out clear and state your predictions without the verbose then I'm afraid that everyone will continue to view your comments as "vague and idiotic".
Eht Yob on January 12, 2009 9:44 am
So many of this guy's ideas, not to mention responses to criticism, match up exactly with vic's observations in his first book about how a scam artist acts and reacts. Its actually kind of fun to predict them.
Anatoly Veltman on January 12, 2009 11:30 am
“Bob Gulstan”, I haven’t seen any of your work - but your connection to group of “unidentified posters” is obvious; your contribution is not. I will explain - for benefit of others.

1. My analysis is not intended to make one go Long or Short when they’re reading it. No experienced trader should ever find self in somebody-else’s trade.
2. I monitor all markets where I feel comfortable (e.g. I do NOT analyze certain stocks, where inside info or decision may be taken - which spells too much randomness for me; or certain currency cross or interest rate contract whose daily and intraday price moves lack much dynamic).
3. A quant may or may not be able to use hints I list. An experienced discretionary trader, on the other hand, may be able to understand and employ some of the filters/biases derived. Again, no trade should ever START with the hints I offer.
4. To me, it is very important to not “force a trade”. I try to only have market exposure, where I isolate remarkable reward/risk and able to efficiently execute it 24 hours. Given the leverage of instruments that I cover - it may be enough to catch ONE trade a year for respectable income. I do not belong to group who emphasize diversification - as key to prosperity.
5. I try to provide hints IN ADVANCE. Current examples: I’m looking to get Long BP, EUR, SF and Short JY for a good portion of coming year. The position I’m seeking to hold may pay well over 1000% return on deposit in less than a year. But if I say today that THIS IS THE POSITION - one may take it prematurely and suffer near 100% loss or margin pressure to force one out. I’m seeking to go Long in some of the four outright Energy contracts - but haven’t done so yet (never under-estimate importance of getting ready). I make plenty clear that I’m anything but ready to buy-and-hold stocks right now; I emphasize playing the range. I’m sure that I will be a buyer of Gold - as most paper currencies are very poorly managed these days - but I see hints that Specs will be washed out of this trade first; and I have no interest of buying BEFORE they are. I’m looking to Short government paper for years to come, possibly decades - I see one last squeeze coming, and I don’t want to be caught in it - but I want to be prepared to jump in. Many emphasize respectable grain price advances of last few weeks - and miss total Open Interest non-confirmation of that price trend; I have no interest in a market like that.
6. Lastly: I do not claim infallibility. I would much appreciate debate of the particulars that I discuss
Eht Yob on January 12, 2009 12:24 pm
Who cares what you say or do is the most important point. What is it your are trying to accomplish here? Most of us know the obvious rules of trading, you are not going to teach us anything with this trading book lessons of the day. I will say again, it is precisely this kind of garbage that Vic and Laurel have been arguing against for years.
Anatoly Veltman on January 12, 2009 2:46 pm
ok the boy: you certainly provide entertainment — and it's enough reason to have YOU stop by. As to me: I'm prepared to discuss ANY important market ANY time. So shoot
Eht Yob on January 12, 2009 8:15 pm
Your non discussion would be more greatly appreciated.
Anatoly Veltman on January 12, 2009 11:02 pm
Clearly, you're not interested in market talk; no need to let the board know about it any more. Everyone heard you: "please do not discuss markets". Thank you, the boy
jim donnegan on January 13, 2009 9:40 am
Amen to that The Boy
George Parkanyi on January 13, 2009 12:48 pm
OK all you guys beating up on Anatoly,

If this is such "garbage" and "idiotic," why are Victor and Laurel giving it air time? How about you take from it what you will, and leave the man alone. I don't see how personal attacks contribute positively to this site. He spends time and effort sharing what he believes to be meaningful.

I don't have to agree with Anatoly all the time to show him respect. Some of it makes sense to me, some of it I don't get — but that's my problem, not his.

George
Murali on January 13, 2009 2:07 pm
I agree with George. If people don't agree with a certain poster, they might as well ignore his posts.
George Parkanyi on January 13, 2009 6:34 pm
Hi Murali,

Thank you for the concurrence, but I’m not against debate per se. Ideas, arguments, and information need to withstand scrutiny and challenge - it’s what gives them value. But there are ways of doing it without diminishing the individual.

It’s fair to ask people to validate what they are putting forward as fact, and also to question assumptions behind a premise or argument. In fact, it’s the essence of the scientific method. But to promote thought and creativity, I think people should be entitled to incubate new ideas and thoughts,and to present information that could be relevant to the community at hand, without being summarily shot down. Even a so-called “bad” idea or premise can lead in a very creative and useful direction.

Looking back on Anatoly’s post, and carefully reading each sentence, I bet I could come up with 100 or more good questions that could lead to interesting discourse. Even the first sentence, “This has been the first full trading week of 2009.” which is a simple statement of fact, could provoke questions such as:

1 - What is the significance of the first FULL week? How has the S&P500 done for the next ___ months based on the (a) price, (b) volume relative to year before’s first week, (c) prevailing dividend yield relative to the year before’s yield?

2 - Why does it have to be a full week? Let’s ask the same question above for the first partial weeks.

3 - How have markets performed in relation to the first full week of years ending in 9?

I’m not going to do the analysis, but who knows - maybe there’s a ringer of a seasonal in there somewhere if I did. And that’s just the first sentence.

Cheers,
George
Anatoly Veltman- on January 14, 2009 1:17 am
My guess George: the study you request will probably not occur. Even if it does — results may not be trustworthy.

Now, at a less scientific level than you requested: here are some hints about how I look at this, based on decades of discretionary trading experience.

1. I was describing "opening-range break-out" idea, as applied to intermediate-term (quarterly) time-frame. It may matter little: how many initial days you choose. The basic trend-following idea is: once in motion, a particular market will have propensity to trend for some time. But how do you define "once in motion"?

2. I say, Friday Jan.2 doesn't count for much: not everyone was back from vacation, to trade a silly Friday. This particular excuse has been eliminated Monday Jan.5; but still traders commitments were somewhat tempered by virtue of having to wait for the big Friday Jan.9 government report (I know for fact: some influential players will abstain from positions in front of reports, not to be risk investigations). Thus was my call: choose the complete week's price trend as indicator of newly-funded 2009 commitments
Anatoly Veltman on January 15, 2009 8:34 am
A little less vague for NatGas during off-hours. Seven straight sessions down, while O.I. has steadily climbed since Dec30 low of 671.7k to 706k: Specs have definitely added to their record Shorts during straight $6.24->$4.92 slide; new low price trading before the weekly storage report - the ideal set-up today would include double-dip… Very close to long-term reversal in Energies. Going on red alert today; but always remember: I'm not trading for you, you are trading for you; everyone has to have own reasons and tactics before getting involved in any particular trade, especially when almost all markets are as dynamic as I see them developing today
Rocky Humbert on January 15, 2009 7:00 pm
There are a variety of reasons to be growing increasingly constructive on the energy complex — so I share Anatoly's bias. That said, what's the point of calling THE bottom? Bottoms take weeks/months to form. Instead, focus on the markets that appear to have already bottomed… For example, see the post about the gasoline crack spread on my blog. Regards, Rocky.
Anatoly Veltman on January 16, 2009 7:58 am
With all due respect to the author of this: “what’s the point of calling THE bottom? Bottoms take weeks/months to form. Instead, focus on the markets that appear to have already bottomed…”

1. This is good advice for certain individual trading style. It makes for somewhat “safer”, possibly even “feel-good” trading operation - where there will be less painful “under-water time” and smoothed out results if you’re in money-management biz. I may sometimes feel same way for my own trading; .. or not. However…

2… if I’m to provide hints that reader may be able to incorporate into trading - this would be terrible approach. By the time I write it, it gets posted, it gets noticed and digested, possibly a question about it asked and answered, and finally trigger ready to be pulled - the trade is all but gone. By having missed much of the initial price move - your risk has now increased by that amount missed, your potential reward is now diminished by the amount missed.

3. You end up entering a trade in same direction, that I was hinting; but only when direction is “confirmed” (???) If it’s already “confirmed by the market” - who needs me (!!!) And most important - where is guarantee that “market is right” about this direction, any more than I were right in anticipation of same. In fact, by the time everyone sees “the fact” - your position is more likely not “right”… at that point
rocky on January 16, 2009 11:56 am
There are many paths to Heaven and there are many ways to succeed in the far more mundane activity known as speculating.

As readers of my post(s) know, my inclination is to look for macro trends deriving from fundamental analysis. These macro trends take weeks, months or even years to unfold and persist. I then trade in the direction of the trend. This requires humility, discipline and patience. There's no hubris, and I will never be critical of any alternative approach that is intellectually honest, successful and verifiable. (see below)

My mentor taught me to search for a "variant perception." However, I've learned that identifying a variant perception is only the first step in a successful investment. Unless others' perceptions eventually shift to my perception, it makes for a good academic exercise, but a lousy use of capital. Put another way, a pure contrarian is like a stopped clock that is correct twice each day. I prefer to try and be correct for the other 22 hours. (My approach IS relevant to day traders; though I've never met a day trader who is successful over long periods of time, and who does not use a systematic approach.)

There has been much harsh criticism of Anatoly on this site, and much of the substantive criticism is justified. Personally, my criticsms are not because Anatoly's market calls have largely been wrong. (Being wrong is part of the business, and entirely forgivable.) I believe criticsm is justified because Anatoly's posts often lack clarity in articulation, analysis; they are neither systematic nor verifiable.

Nonetheless, I enjoy reading Anatoly's posts, because they help me continually refine my own analysis….it's always easier to identify the flaws in others than to look in the mirror, and identify the flaws in ourselves. By applying my criticisms of Anatoly to my own weaknesses, I hopefully improve over time.
Anatoly Veltman on January 16, 2009 2:54 pm
rocky, you’re substantially wrong. This is the second time within past year that you maliciously mention “wrong calls” on my side - while the score is about 90% right. At least you put your name down; while all of other “harsh criticism” is anonymous and came from someone who never discussed market, period.

What worries me much more, however, is that no one here does any serious real time charting. ALL OF MY COMMENTARY, without exception, is based on best available live charting - and ALL OF THE COMMENTARY I get back comes from people who don’t do it. It’s unbelievable that anyone has the kahunas to label criticism upon something they aren’t equipped to see
Ronald Weber on January 16, 2009 5:51 pm
Very good post Anatoly, thanks again, so-called “vague and idiotic” critics are indeed “vague, idiotic and not constructive”! Dailyspecs comments don’t have to result in the holy grail (though we won’t be against it!); unlike academic papers I enjoy these posts precisely because they can be somehow chaotic, unstructured and unpolished. But sometime a single word or sentence helps create an unintended link and there goes the light!
Rocky Humbert on January 16, 2009 9:46 pm
Anatoly:

My 30+ years of experiene tells me that anyone who claims a 90% success rate either will be a roommate of Bernie Madoff, or loses all of his profits on the other 10% of his trades.

Even just since our respective posts and declarations on this thread (see above):

You: long ("red alert" bottom) in natural gas.
Result: new low.

Me: continued (boring) long in trending june gasoline crack spread.
Result: new high.

I'm tired of sparring with you. It seems that we go around in circles and end up in the same place. Hence, I will furthermore refrain from commenting on any of your DailySpec posts. I genuinely hope you make billions of dollars in the markets and look forward to seeing you on the Forbes 400 list (just below my name, of course). I wish you Godspeed, and you know where to find me …regards, Rocky.
Anatoly Veltman on January 16, 2009 10:35 pm
Rocky, you haven't done that much posting to elevate it to the level of sparring with me. I realize I just lost this one reader — but for benefit of others: the Natural Gas trade from the Long side is, in fact, forming now. We're getting the second dip that I was preparing for in the post above. So Rocky's score may commence soon…

I consider this upcoming NG trade interesting, and I will take the time to post it separately with a chart/explanation.
Anatoly Veltman on January 20, 2009 9:35 am
Nine straight down-days and back from holidays; I've been preparing to step into contrarian NG position for a while — and today's the day.

It was symbolic, when floor report made CNBC last week about $3m premium paid by a major player for 10,000 of $3.00 NG puts. This is the kind of news to try and panic Commercial and Small Spec Longs alike out of their position — and it has certainly worked to date! Large Specs are still near-record Short in NG.

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