Jan

10

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.


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