Just a quick update on the weekly Commitment of Traders numbers. I will send out a longer article on Monday’s trading shortly. If you don’t receive it, check the website.

Commitment of Traders: Professionals -16.4% (short)

This week the Professionals reduced their net Short positions to -16.4% of total open interest from a high of -18.5% three weeks ago. This is what we’d expect as the next down leg gets underway.

The SP (large contract) Professionals are still more bearish than the ES (mini contract) Professionals, with the red line in the chart above at -19.1%. Back testing shows the SP Professionals are a more reliable indicator of market direction.

Commitment of Traders: Oscillator +79

The Commitment of Traders Oscillator is now on its way down and reached +79 this week, having peaked at +151 five weeks ago. In previous weeks I’ve warned that "It’s only a matter of time … the divergence between the rallying market and shorting Professionals will eventually break." Looks like the down swing is starting.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.

Received a few emails about the latest Commitment of Traders article. This question from Richard was typical:

"Can you recall a time when the SP (large contract) Professionals were ‘wrong’ in their positions when the COT had reached extreme (or record) levels?"

I’ve mentioned before that I pay more attention to the change in the Professionals position than their absolute long / short reading. So the Commitment of Traders Oscillator is more important in my analysis.

However, the absolute long / short reading must have some predictive value, right? Well, the hypothesis I’m working under is that the current Commitment of Traders position is most similar to March 2002.

Commitment of Traders March 2002 (Emini weekly)

In March 2002, the Professionals were Short 17.7% of total open interest. The Professionals are currently Short 18.5% of total open interest. Back in March 2002 the SP contract Professionals were also much more bearish than the ES Professionals – again, same as today.

So, I believe we’re still in a long term bear market but rallying and about to form a Pull Back turning point, after which we’ll re-test the March lows. If I stick my neck out, I’d say that this turning point is due in the next week or two.

My Better TRIN system reversed Long on Friday and the Better TRIN Oscillator is yet to turn down. A signal Short on the system or break of the previous week’s Low might signal the start of this down leg.

Good luck with your Emini trading.

It’s been almost a month since I last posted an article on the Commitment of Traders. But not much has changed really – the rally has continued and the Professionals have added to their Short positions. In fact, they’re reached record levels for this cycle.

Commitment of Traders: Professionals -18.5% (short)

The Professionals increased their net Short positions from -18.1% to -18.5% of total open interest. The SP (large contract) Professionals are still more bearish than the ES (mini contract) Professionals, with the red line in the chart above at -17.8%. Back testing shows the SP Professionals are a more reliable indicator of market direction.

Commitment of Traders: Oscillator +96

The Commitment of Traders Oscillator has peaked and turned down to +96 this week. It’s only a matter of time now – the divergence between the rallying market and shorting Professionals will eventually break. But when?

Hilbert Sine Wave Pull Back Signal Approaching (Emini weekly)

We’re approaching a cyclical turning point on the Hilbert Sine Wave. This will give a Pull Back in a down trend signal once it is confirmed and lead to a testing of the March lows. The next 2 weeks are critical – we need a crossover plus the weekly low to be broken for a confirmed signal.

The release of the bank stress tests on Thursday feels like an FOMC announcement. It could provide the perfect catalyst for a significant turning point but I doubt things will be as straight forward as that. Good luck with your Emini trading this week.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.

The rally continued this week and the latest Commitment of Traders Report shows the Professionals continued to add to their Short positions.

Commitment of Traders: Professionals -18.2% (short)

The Professionals increased their net Short positions from -16.3% to -18.2% of total open interest. The SP (large contract) Professionals are still more bearish than the ES (mini contract) Professionals, with the red line in the chart above negative. Back testing shows the SP Professionals are a more reliable indicator of market direction.

Commitment of Traders: Oscillator +147

The Commitment of Traders Oscillator rose to +147 this week and is over-bought. Easter is coming up and the markets tend to be bullish into Holidays. Plus we have a significant Martin Armstrong cycle turn approaching on 20 April.

We could well see the rally continue or the Emini moving into a trading range for the next week or maybe two. However, the Better COT Oscillator shows there is a widening gap between the Professionals (shorting) and the market (rallying). The will resolve with a cycle turn downwards.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.

This week’s Commitment of Traders Report shows the Professionals have gone Short again – to levels not seen since March 2002.

Commitment of Traders: Professionals -16.3% (short)

The Professionals increased their net Short positions from -8.7% to -16.3% of total open interest. We have not seen this level of Short interest since March 2002 – four months prior to the eventual low reached in July 2002.

The SP (large contract) Professionals are still more bearish than the ES (mini contract) Professionals, with the red line in the chart above still negative (-17.6%). Back testing shows the SP Professionals are a more reliable indicator of market direction.

Commitment of Traders: Oscillator +125

The Commitment of Traders Oscillator shot to +125 this week and is now over-bought. Since we crossed the zero line, we can identify the Low of the last down swing – four weeks ago and marked on the chart above with a blue dot.

This week’s change in Professional sentiment was significant – not just in the level reached, but also the difference from the previous week. I cannot rule out a change in the composition of the Professionals – we have seen similar jumps, both up and down, in the data in the past. For this reason, I tend to rely more heavily on the Oscillator reading, rather than the "raw" Commitment of Traders percentage reading.

However, I would bear in mind this Commitment of Traders data over the next week or two. Market commentators appear to be universally bullish and convinced the bottom is in. I don’t know whether that is the case – but the market tends to do the opposite of what everyone thinks. Only time will tell whether this week’s Commitment of Traders data was significant and insightful.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.

Latest Commitment of Traders Report shows the Professionals have covered some Shorts in this latest rally.

Commitment of Traders: Professionals -8.7% (short)

The Professionals reduced their net Short positions from -12.0% to -8.7% of total open interest. The SP (large contract) Professionals are still more bearish than the ES (mini contract) Professionals, with the red line in the chart above still negative (-11.2%). Back testing shows the SP Professionals are a more reliable indicator of market direction.

Commitment of Traders: Oscillator -104

The Commitment of Traders Oscillator fell this week from -51 to -104 and back down to over-sold levels. We’ll need to test the 700 to 750 level again with the Professionals continuing to cover Shorts to convince me that the bottom is in.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.

The Emini had an 84 point rally last week but the Commitment of Traders Report shows the Professionals are still heavily Short.

Commitment of Traders: Professionals -12.0% (short)

The Professionals covered some of their Short positions this week. Their net Short positions decreased from -12.6% to -12.0% of total open interest. Bear in mind the data is collected after the close on Tuesday.

The red line in the chart above continues to be negative and trend down. This shows the SP (large contract) Professionals are increasingly more bearish than the ES (mini contract) Professionals. Back testing shows the SP Professionals are a more reliable indicator of market direction.

Commitment of Traders: Oscillator -51

The Commitment of Traders Oscillator continued to move up from -63 to -51 this week. The Bullish Divergence pattern mentioned over the last 2 weeks is marked on the chart.

I'm still not convinced that the Professionals are supporting this latest rally. Next week's numbers will give us a better indication of how much Short covering took place last week.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.

The Emini is down 58% since October 2007. How about a decent bear market rally? The chart below shows that during the last bear market, 2001 to 2003, the rallies were preceded by some strength in the Commitment of Traders data – bullish divergences.

Commitment of Traders and Bear Market Rallies (2001 – 2003)

In this week’s Commitment of Traders numbers the Professionals continue to be heavily short, in fact, they have added to their short positions. The chart below shows they increased their net Short positions from -11.0% to -12.6% of total open interest.

Commitment of Traders: Professionals -12.6% (short)

The red line in the chart above is still negative and falling, showing that the SP (large contract) Professionals are still more bearish than the ES (mini contract) Professionals. Back testing shows the SP Professionals are a more reliable indicator of market direction.

Commitment of Traders: Oscillator -63

The only bright light is that the Commitment of Traders Oscillator improved from -81 to -63 and has now formed a bullish divergence pattern. However, given the weakness of the Commitment of Traders reading (-12.6%) I am wary of taking any swing trading (medium term) long positions right now.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.

Professionals continue to be heavily short.

Commitment of Traders: Professionals -11.0% (short)

The Professionals net Short positions dropped from -12.2% to -11.0% of total open interest this week. Although the index is making lower lows (734 close), the Commitment of Traders data has improved a little from a maximum low of -15% to this week’s reading of -11%.

The red line in the chart above is still negative but rising. This shows the SP (large contract) Professionals are becoming less bearish than the ES (mini contract) Professionals. Back testing shows the SP Professionals are a more reliable indicator of market direction.

Commitment of Traders: Oscillator -81

The Commitment of Traders Oscillator is unchanged from last week’s reading of -81. The Oscillator is over-sold and has come back down from a spike up 2 weeks ago (possible bullish divergence).

High Volume Churn & Climax Down Bar (Emini weekly)

The Emini dropped below the critical 800 level two weeks ago. We’re now down almost 90 points from the close on Friday 13 February. This week we saw a High Volume Churn weekly bar, showing some slowing of the down move.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.

The latest Commitment of Traders data shows the Professionals are becoming less bearish.

Commitment of Traders: Professionals -8.2% (short)

The picture appears to be becoming clearer with the release of this week’s data. Professionals continued to reduce their Short positions and their net Short positions have now dropped to -8.2% of total open interest.

Commitment of Traders: Oscillator -39

The Commitment of Traders Oscillator continued to rise this week and has now reached -39. We’re still at a critical support level around 800. The market appears to be in no hurry to rally and so this week will be critical.

Remember, the Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday.