Commitments of Traders charts support the case for becoming more cautious in equities markets

Interpreting the Commitments of Traders (COT) data that come out each Friday afternoon (with data as of the preceding Tuesday) is an art of contrarian trading. The point being, of course, to use the data to figure out where sentiment lies among wrong-way traders and then take the other side of the bet. Often people will think it's best to side with the commercial traders - at least, that's what I normally have heard. I've also heard some counterpoint to that, on the basis that it takes a while for the commercial traders to size up the trend, so they can be slow to get on the right side and therefore also slow to change when trend changes. Well - I don't personally know - I don't find it the best tool for spotting trend changes, but helpful sometimes especially for confirmation of general outlook. For me, it seems more an art than a science. However, I have been interested to keep up with the COTS Timer blogspot which is working with some trading setups based on the COTs data. Alex Roslin there is taking a scientific, formulaic approach - and it's interesting to read his discussions of how he's dealing with the market action. He had been short but stopped out mid-week, and apparently re-evaluating with a comment about going short if under, I think he said 758 - interesting, that's so close to the 760 number which I think will continue to be an interesting level to watch.

Below are COT charts this afternoon for the Nasdaq, the ES (SPX futures) and S&P mini traders. I'm personally not sure what to say about them looking at them all together, other than the obvious which is that the Nasdaq commercial traders have been more bullish (makes sense given the NDX:SPX ratio), and all three sets of commercial traders grew either less bullish or more short as of Tuesday, compared with the week before.

This does remind me of an interview I saw a couple of evenings ago, of one of the largest Asian hedge fund managers, who said the easy money has been made on this bear market rally and from here it's likely to be more of a zigzag suitable only for nimble (professional) traders. That makes sense based on a lot of factors we've been seeing too.