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Gold Joins Silver in Sell Column

By Alex Roslin      Printer Friendly Version
Mar 11 2008 2:06PM

www.cotstimer.blogspot.com

Bullion’s rise looks wobbly on the charts. A blowoff top in gold and silver probably occurred last week after both precious metals powered to highs, then closed down for the week. The Commitments of Traders data issued last Friday added more evidence of looming trouble for the sector.

My trading setup for gold has now joined my silver setup in going bearish. The gold setup works by trading on the same side as the large speculators in gold futures and options, as reported weekly in the COTs reports issued by the U.S. Commodity Futures Trading Commission. Normally, the large specs are seen as the “dumb money,” but I’ve found that’s not always the case. It may depend in some cases on what timeframe you use to watch them. The large specs tend to be trend followers, so that would tend to make them right during major trends and wrong only at extremes, particularly if they stay in too late. In gold, they actually seem to bail out in a fairly intelligent way.

And last Friday’s data shows them bailing out of gold. Their net position as a percentage of the total open interest hit a bearish extreme that, in the past, has suggested reliable selling points. My gold setup works with a two-week trade delay (see table below for more details), so execution will be for the open of Monday, March 24.

Interestingly, my trading setup for the HUI Gold Bugs Index and iShares Canadian Gold Fund (XGD) - based on fading the small traders - remains in bullish mode for now. I should point out this setup has no trade delay, so it could still flip to bearish in the coming couple of weeks to coincide with the gold setup.

As it happens, the "dumb money" small trader crowd has been getting increasingly exuberant for the past seven weeks straight, and it's now getting close to the extreme point that could trigger a sell. Stay tuned. I'm still personally long XGD for now, but I sold my silver position a few weeks ago after my silver setup went bearish.

Visit my free blog COTs.Timer.Blogspot.com to see my other signals for equities, currencies, energy and Treasuries and to learn more about how my system works. Good luck this week!

COTS SIGNALS FOR 7-MAR-08

 

New signal 1

Execution date for pending signal 2

Existing signal (signal date) 3

COTs system profit 4

Index profit 5 

COTs vs. Index profit 6

Trade delay 7 

Traders to watch 8

Gold 9

BEARISH

24-Mar

Bullish
(22-Jan-08)

660.7

208.2

317.3

2

Large Specs

Silver

-

-

Bearish
(19-Feb-08)

4,775.3

274.1

1,742.0

0

Commercials

Gold Bugs Index (HUI)

-

-

Bullish
(8-May-07)

23,298.0

224.9

10,637.5

0

Small Traders

TSE Gold (XGD.TO) 10

-

-

Bullish
(8-May-07)

1,437.4

253.9

566.0

0

Small Traders

Platinum

-

10-Mar

Bullish
(8-Jan-08)

950.6

350.6

271.1

8

Commercials

Copper(high grade) 11

-

24-Mar/28-Apr*

Bearish
(22-Jan-08)

1,810.5

202.3

894.9

8

Small Traders

U.S. Dollar Index

-

-

Bearish (3-Oct-06)

185.8

87.2

213.1

0

Commercials

* The copper setup works with an eight-week trade delay. It has two pending signals. The most immediate one is a bearish signal to be executed for the open of Monday, March 24. The setup has since flipped back to bullish with the Feb. 26 COTs report, with that bullish signal to be executed April 28.

NOTES TO TABLES

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

  2. Date for pending signals including trade delay for the setup. Execution is always on the weekly open of trading.

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

  4. 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.

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

  6. Ratio of the COTs Timer return versus the underlying market’s return.

  7. This column shows how many weeks the trade was delayed to maximize past results and statistical robustness. For example, "0" indicates that the trade was executed for the open on the Monday after the COTs report was issued. In case of holidays, calculations are based on the weekly open price. In my own trading, in case of holidays, I execute trades for the open on Tuesday.

  8. 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.

  9. My gold setup trades on the same side as the large speculators. It goes long when the large speculator net percentage-of-open-interest position is -1.2 standard deviations below its five-week moving average or above. It sells gold short when the net position is -1.2 or more standard deviations below its five-week moving average.

  10. Signals for the iShares Canadian S&P/TSX Global Gold Index Fund (XGD trading in Toronto) are based on the gold COTs data.

  11. My copper setup trades on the same side as the small traders.

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.