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.