COTs Flip to Bearish on Gold, HUI and USERX

Sorry, gold bugs. The latest Commitments of Traders report for Sept. 28 has flipped me to bearish on gold, the HUI Gold Bugs Index and USERX U.S. Gold Fund.

It’s been a wild ride to the sky, hasn’t it? Ah well, the good times had to come to an end some time, didn’t they?

But there is some consolation for precious metals boosters: my bullish signals for silver and the XGD Canadian Gold iUnits ETF remain good. I also have a renewed bearish signal for copper, and my existing bearish signal for the U.S. Dollar Index remains good, too.

So a bit of a mixed bag, in some ways. Whoever said interpreting this fascinating government data was easy? (For newbies to the COTs, they’re free weekly reports issued by the U.S. Commodity Futures Trading Commission on trillions of dollars in futures and options holdings in about 100 markets.)

My new bearish signals for gold, HUI and USERX are based on trading with the “smart money” commercial traders. These guys - the commodity producers with the best market intel in most (though not all) sectors - have just increased their net short position in gold futures and options to a historic extreme that in the past has signaled a good probability of a market turn. Some extra details on my gold and HUI setups are in the notes below.

Meanwhile, my setup for XGD is based on fading - trading opposite to - the gold small traders, and they remain neutralish (see the reading in the chart below). As for the silver small traders, they’re actually still quite bearish.

Visit my free blog COTsTimer.Blogspot.com for important extra details about these setups (such as risk factors and my trade delays, which in the case of gold, HUI and USERX are zero - meaning execution for the next open of trading). Also check the blog to see my signals in other commodities, equities, Treasuries and currencies. Good luck in your trading and investing.

COTS SIGNALS FOR 28-SEPT-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. 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

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Disclaimer: This report isn’t meant as financial advice or a recommendation to buy or sell any security. Please do your own homework before trading. My system isn’t for everyone, involves substantial risk and has experienced large drawdowns in some past 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 see COTsTimer.Blogspot.com for other disclaimer information.