One of the best traders is Larry Williams. I was listening to a You Tube video yesterday by Larry Williams and was reminded that it pays to follow the Commercials over the long run. Commercials are institutions in the business of buying and selling stocks, futures, commodities,equities,and options. Commercials are often early but they are usually right about long-term market direction. If given a choice, it is a better bet to side with commercials against the retail public.
Q: What are the commercials doing right?
Google "Fin Viz." You should pull up FINVIZ.com. Double-click on Finviz.com. You should see the homepage. There is a chart of the Dow, Nasdaq, and the S&P on the home page. There is a blue tape across the top of the screen that reads "Home News Screener Maps Groups Portfolio Insider Futures Forex Collorborate Store." Double-click on "Futures."
You will now see rows and rows of quotes for various futures and commodities.
The first row is titled "Indicies." The first future in this first row is DJIA. The second future in this future row is S&P 500. Double-click on "S&P 500."
You will first see a thirteen-month chart for the S&P 500. Below this daily chart is an important Commitment of Traders (COT)chart for the S&P 500 Index.
The position of Commercial Hedgers is in green.
Review the entire graph of the positioning of Commercials from December 2009 to the present. See how the green line moves up and down over time. When the Commercials are increasingly bearish on the market, they close out their positions. The green line drops. You will see that the green line dropped in November and December of 2009. The Commercials were becoming bearish on the market.
Now, the Commercials control billions of dollars. They are the Big Whale. They cannot easily move in and out of positions. So, they scale in and scale out in advance of market turns. They tend to be early, and right, about the long-term direction of the market.
The market went up in December and into the first half of January.
The market topped during the January 14-19 time period. You can barely see it but the green line flat-lined during this week. The retail public was at their maximum bullishness during this week.These two conditions led to a 110 point correction in the S&P 500 Index over three weeks into February 5.
Q: Where are we at today in terms of this setup? Well, the green line dropped alot from August into December. Commercials were selling into the rally. In December, the green line hooked upwards and has now flat-lined. Check. The retail public is at a record level of bullishness. Check.
These two conditions suggest to me that we are now topping. The next big money will be a correction, comparable to the January 19 - February 5, 2010 time frame. So, I am not excited about the market right now. The Commercials are not excited about the market.
Look to the right side of the chart. Those numbers reflect the total volume of Commercial interest, be it positive or negative. Right now, the Commercial interest is about negative 40,000. That means the Commercials are not long-term bullish on the market. If the Commercials are not long-term bullish on the market, then I am not long-term bullish on the market. Certainly, I'm not going to be 100% in the C Fund.
But I do think we will see a fine buying opportunity come May.
Have a good day. And keep an eye out for a possible trend reversal. The Commercials are not positioned for a bullish run at the moment. And they have more money than you or me.
Later.
Wink
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Hi Wink, Great site, thanks for this tool and the explanation. Please keep them coming. Charley
ReplyDeleteCharley,
ReplyDeleteThanks for the kind words. The day job intruded into my blogging life, so I dropped off of the radar for a few weeks. But I am back as you can see from my voluminous posts.
Anyway, July 1, 2011 will prove to be a pivot date this year. The dominant trend remains down, so we now are experiencing overbought conditions in a downtrend. Probabilities favor a down day in the market on July 5. Probabilities also favor a downward slide in the market from July 1 through August 23/25. A nice shorting opportunity should present itself the Wednesday/Thursday before options expiration this month.
We are flat for the year. If the above probabilities play out, we should outperform the S&P 500 Index before the end of August.
A good buy opportunity should present itself either at the end of August, September 28 or the October/November timeframe. I anticipate a nice celebration at the end of the year.
Wink