Rock Notes - COTs Still Bullish Gold/Silver

Da Rock hassa not waivered.......even inna da face o' last weeks chaos......fo' Gold anna Metals.

Still issa good ......ta have others......confirm yer own opinion.

Yours in vestin' inna Gold /Metals Bull,

HardRock

 

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COTs Still Bullish Gold, Silver Despite Turmoil

By Alex Roslin      Printer Friendly Version
Jul 30 2007 10:56AM

www.cotstimer.blogspot.com

Is the bull market over? Is the precious metals run-up done? How bad will the correction get? Investors and analysts are wringing their hands trying to understand the sudden mayhem that's hit the markets. Uptrend lines in gold and silver got caved in this week amid the broader market rout.

What do the magical Commitments of Traders reports issued by the Commodity Futures Trading Commission have to say about the bloodshed?

Not much, actually. At least, not according to my reading of Friday's COTs report, based on data as of last Tuesday.

The latest COTs report is still bullish on gold and silver and remains bearish copper and the U.S. Dollar Index. Same signals as last week.

There are some new twists in the data, as you can see in the table below. The commercial traders have gotten more bearish gold, while growing more bullish the U.S. dollar. As for silver, the small traders - whom I fade in this market - are fairly bearish, so that's a positive for silver. In copper, the large specs - who I fade in this market too - are quite bullish, so that's generally a downer for copper.

However, what's striking given the market turmoil is there are no new or renewed signals in any of these markets. In my trading system based on the COTs reports, that means the existing signals are all still good.

That's because my signals are generated only when traders in a market hit certain historic extremes of bullishness or bearishness that in the past have led to consistently profitable trades that can be statistically validated for future performance.

Now, I can't discount the possibility that these calls are wrong. You have only to check my blog and the details for each trading setup to see the wins/losses. None of the setups is 100-percent perfect.

But one thing I've noticed from studying the COTs is they provide a longer-term perspective that generally lets me not fret about smaller market fluctuations. Is this just another market blip or something more serious? Even though the COTs are telling me not to worry, only the big guy upstairs really knows the answer.

COTS SIGNALS FOR 27-JUL-07

 

New signal 1

Rene-wed signal 2

COTs Timer Ratio 3

Existing signal (signal date) 4

COTs system profit 5

Index profit 6  

COTs vs. Index profit 7

Larg-est draw-down 8 

Traders to watch 9

Gold 10

-

-

-0.39

Bullish
(29-May-07)

351.6

174.1

202.0

11%

Commercials

Silver

-

-

-0.60

Bullish
(3-Jul-07)

880.3

241.6

364.4

17%

Small Traders

US Gold (USERX) 11

-

-

-0.40

Bullish
(12-Jun-07)

2,693.9

76.0

3545.9

28%

Commercials

Gold Bugs Index (HUI) 12

-

-

-0.39

Bullish (29-May-07)

2,238.6

180.3

686.4

40%

Commercials

TSE Gold (XGD.TO) 13

-

-

0.41

Bullish
(22-May-07)

681.9

192.3

354.6

19%

Small Traders

Copper (high grade)

-

-

0.77

Bearish
(10-Apr-07)

899.9

287.2

313.3

25%

Large Specs

U.S. Dollar Index

-

-

0.64

Bearish (3-Oct-06)

185.8

87.2

213.1

18%

Commercials

NOTES TO TABLES

  1. Visit COTsTimer.Blogspot.com to see how I trade new signals.

  2. A "renewed" signal is when a market is already on a buy or sell signal, and traders again register an extreme net trading position in the same direction. The results in this table are based on acting only on new signals.

  3. The COTs Timer Ratio is my reading of the bullishness or bearishness of traders from the latest COTs report. A reading of 1 or more means a buy signal for the commercial traders or a sell for the large specs and small traders. A reading of -1 or less means a sell for the commercials or a buy for the large specs and small traders. The ratio is based on the traders' net percentage-of-open-interest position compared to the position's moving average divided by the number of standard deviations I use for this setup.

  4. In parentheses are the dates of the COTs report that gave this signal.

  5. Past return using the signals of my COTs Timer system, starting from a baseline 100. This is the theoretical return from buying the security on a buy signal and shorting it on a sell signal.

  6. Past return from buying and holding the underlying cash market, starting from a baseline of 100.

  7. Ratio of the COTs Timer return versus the underlying market's return.

  8. Largest past drawdown the setup experienced during a trading signal between the entry price and the lowest price. This was not necessarily the loss at the end of the trade. I use this figure to calculate my maximum portfolio allocation for the setup based on my 2-percent risk threshold of total assets for any one trade.

  9. The group of traders that had the best historic return in this market. My signals are given when this group reaches specific extreme levels of bullishness or bearishness. Unless otherwise noted, my system trades in the same direction as the commercials and fades the large speculators and small traders.

  10. The gold setup trades on the same side as the commercial traders when their net percentage-of-open-interest position is two or more standard deviations from its 18-week moving average (using the combined futures-and-options data). The same setup parameters are used for the HUI Gold Bugs Index.

  11. Signals for the U.S. Global Investors Funds U.S. Gold Fund (symbol USERX) are based on the gold COTs data.

  12. Signals for the HUI Gold Bugs Index are based on the gold COTs data. See note 10 for more details on this setup.

  13. Signals for the S&P/TSE Canadian Gold iUnits ETF (symbol XGD.TO) are based on the gold COTs data.

 

Alex Roslin
Monday, July 30, 2007