Presidents Day has come and passed, Stocks (S&P 500) have bounced from our Monthly S-2 Support level; in addition, my indicator did generate a nice buy signal last week (green arrow).
This has no doubt helped fuel our seasonal energy trade and corresponding energy stocks that we wrote about over a week ago. It is nice to see XOM, OXY, MUR, CHK, and BTU move up.
However, I want to go over one of the best confirming contrarian indicator information, the CFTC COT report. Let's examine this together; I am sure you will agree that we have made a very interesting discovery.
It seems that the professional speculators are net long with commercials neutral. It is the small speculators that are net short.
If you believe that 80% or so of the individual retail (small speculators) lose money in the market, then this is valid information, or at least this confirms that the small speculator is short the stock market.
See the table below: note that Non-Commercials are long 666,046 versus short 427,842 leaving them net long 238,204 e-mini S&P 500 futures contracts.
The Commercials are long 2,008,630 versus 2,128,420 or net short 119,790, a fairly neutral position.
Now look at the non-reportable positions those are the small speculators, see how they are long 266,434 versus 384,847? That leaves them net short 118,413.
What this suggests is that professionals adjusted to buy signals and as the report shows this group added 114,199 longs and got out of nearly 24,330 shorts. The general public at the same time did the opposite they got out of longs and added 60, 092 shorts!
Talk about timing, what I get out of this is simply while the system is in buy mode it is prudent to take intra-day buy signals until we hit significant resistance or the market generates boni-fide sell signals.
We have shorts in the market, and unfortunately for this group, they can get stubborn and hold onto losers a bit longer than they should. This may give the market needed ammunition to head higher, perhaps back to my 1109-1123 resistance target level.
As the chart above shows, there is heavy resistance at the 1103 level see how many times the market has traded there and failed? Remember back on 1-28-10 when President Obama delivered his State of the Union Address? The market traded that night during his speech to a high of 1103.50. I can only imagine how many buy stops are resting above that level.
The monthly resistance is 1123.50, if we continue to see the market close above 1087 on a daily basis through this week I am more confident we will see a test of that level. If the market does not hit my resistance this week, and we do not close below 1087 on Friday, then check out the COT data when it is released on Friday at 3:30 PM (ET) to see if small speculators are still net short. This may give the ammunition for a move higher next week and the eventual test of 1109-1123 level.
All the best,
John L. Person
Past performance is not necessarily indicative of future performance. This report includes information from sources believed to be reliable but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report cannot be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
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