Guru View

The market Guru has been checking the Smart Money flow for us:

** Crude Oil
Oil is setting new highs, after testing a support-level at
78-79. The trend continues to point up; but what I find
especially bullish about oil is its COT chart. Notice how
commercial selling has been marginal as crude rallied
from mid-August up to today. So from a COT perspective
this market continues to look very bullish. And trend looks
bullish as long as we remain above the 78-79 level.

** Stock market
There has been a huge decline of open interest in all of the
major stock-indexes. As a result there has been some big
developments in the COT charts. For the S&P 500, net-
commercial position has seen a huge increase to being just
shy of 70,000 contracts net-long. If net-commercial position
remains at this record-level, I can only conclude that this
is very bullish. Trend also remains bullish as we continue to
consolidate on the SPX and hold above 1500-support.
The Dow Jones COT chart is starting to perk up, but
is overall little changed. On the price-chart the Dow
is consolidating not too far from its record 14,000-level.
The Nasdaq 100 COT chart is like the inverse of the
S&P 500 chart. There has been a huge breakdown in
commercial net-position. If you look at the Nasdaq three
year chart, you can see that these break-downs in net-
position are typical for this index. And when they occur
you typically see the NDX correct or at least consolidate.
From the price-chart, the Nasdaq 100 index broke-out,
above its 2007 highs last week, leading the other indexes
in relative strength. So the COT chart is starting to look
bearish, but trend remains very bullish. In this scenario
we must be weary of the COT development while
respecting Nasdaq's uptrend. As long as we continue
to trade above support at around 2050, the path of least
resistance for the NDX remains UP.
The Russell 2000 has also seen a decline in its net-
commercial position. The RUT continues to be one of
my key indicators on the market. While we are holding
about critical support at 800, the market should be fine.
A bullish confirmation would come if we close above 820.
In conclusion, the message from the COT charts
warrants caution, while the TREND for the indexes
remains UP.

** VIX
The COT chart for the volatility index continues to decline:
forecasting a continuation in the current down-trend. A
continued decline in the VIX would be supportive of a rally
in the stock-market.

** Gold
Gold's price chart is similar to oil's. Both are breaking out
to record-levels. However, their COT charts are very much
different. While in crude, commercials have shown very
little willingness to sell, for gold on the other hand, net-
commercial position dropped to levels not seen since
2005. So the COT chart is bearish and the price chart
is bullish. In this scenario we respect the uptrend 100%
but look out for any breakdowns. Currently gold looks
like it is resuming its bullish uptrend after breaking out of a
bull-flag pattern. I would be cautious if gold closed below
746, and become short-term bearish if we broke below the
bull-flag's support line at 730.

** US Dollar
The USD continues to sell-off. The trend remains down so
this development is to some extent 'expected'. What I find
even more bearish is the fact that net-commercial position
did not rise to a new high. Maybe it will next week, or maybe
it won't. For the time being, commercials are not viewing the
current levels on the US dollar as 'bargain' prices. Overall, the
USD continues to paint a bearish picture.

Oh! I forgot to mention that there was (still is) a hole on the VIX index. For long term Swimmer followers, you know what I mean, the hole will be filled. The hole was caused by market rebounce and a sudden drop of fear!

But Swimmer believe there might be some selling off next week. Have you notice that last week was the end of quarter, a lot of hedge fund managers have a tendency to buy stocks and make market go higher in order to get their "fat" bonus. Hedge funds not only charge for managing fee, but also receive "performance" incentives, sometimes as high as 20%. But in order to get the latter, they have to reach certain "water mark". This is the reason for "window dressing".

Do you need any short candidates? Let me do a poll:

What kind of recommendations you want for this week?
Long
Short
Predeep
Contrarian
Warren Buffett
China


(View Results)

Create a Poll