COTs Flip to Bullish on Silver

By Alex Roslin       Jul 10 2007 11:11AM www.cotstimer.blogspot.com

The Commitments of Traders have flipped to a bullish signal for silver, according to my best trading setup for this market.

This signal is based on fading - trading opposite to - the small traders in the silver market when they hit certain historic extremes of bullishness and bearishness.

The small traders have been getting progressively more bearish for two months. Only now, however, have they hit that magic point where my signal flips from bearish to bullish.

My silver setup is based on backtesting and validating specific historic extremes of net percentage-of-open-interest futures and options positions that have historically led to profitable signals in this market. Of the three groups of traders in the COTs report - commercials, large specs and small traders - I found that fading the small traders gave the most profitable and robust signals in silver.

In fact, I really like my silver setup because it scored at super-elevated confidence levels in both profitability and market-beating probabilities in my validation testing. (See my blog COTsTimer.Blogspot.com for important details about how I trade this and other setups, including equities, currencies and energy. For example, my silver setup has no trade delay, meaning execution on the next open.)

The bullish signal in silver follows on the heels of a slew of bullish gold-related signals that I got from the COTs reports between the end of May and mid-June. (See the table below for details.)

All these signals are based solely on the COTs data, which is updated each Friday afternoon by the Commodity Futures Trading Commission and lists trillions in futures and options holdings in about 100 markets. (The latest report was delayed until Monday because of the 4th of July holiday.)

In the other metals markets I follow, I got no new or renewed signals from the latest COTs report. In other words, traders didn’t register any new historic extremes in their net positions that nullify the metals signals. That means my existing signals remain valid.

COTS SIGNALS FOR 29-JUN-07

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. Signals for the U.S. Global Investors Funds U.S. Gold Fund (symbol USERX) are based on the gold COTs data.
    
    
11. Signals for the HUI Gold Bugs Index are based on the gold COTs data.
    
    
12. Signals for the S&P/TSE Canadian Gold iUnits ETF (symbol XGD.TO) are based on the gold COTs data.

Alex Roslin
Tuesday, July 03, 2007

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Disclaimer: This report isn’t meant as financial advice or a recommendation to buy or sell any security. My system isn’t for everyone and involves substantial risk, including large drawdowns in some trades. Past results are no guarantee of future profits. I’m not a certified financial advisor. While I consider my information to be reliable and accurate, I make no guarantees. Please do your own homework before trading.

Alex Roslin’s COTs Precious Metals Review - COTsTimer.Blogspot.com