The commercial traders have pretty much nailed every major move in the S&P 500 this year. This makes sense as they have access to the best neural and social networks available. It’s their world and we’re just living in it. Fortunately, we can track their actions through the Commodity Futures Trading Commission’s (CFTC) weekly Commitment of Traders report. Access to this report is nothing new. Distilling weekly data down to a daily tradable timeframe is. That’s the leap that has allowed retail traders to put the commercial traders’ leverage and research to work for them in their own trades.
Commercial traders purchased nearly 60,000 contracts between mid-January and the end of February and the market rallied strongly into the March futures’ quarterly expiration. Commercial traders used this rally to offset their position nearly perfectly as they sold 50,000 contracts by March’s expiration. I won’t detail every trade they made verbally, you can see the handful of trades they’ve inspired through our method on this chart.
Currently, commercial traders are selling off the contracts they bought at October’s bottom. Based on our macro-economic outlook, we feel this is the proper time for that scenario, which we discussed last week. Based on technical actions we can see that commercial trading has been strong enough to turn their momentum to negative. We only trade in line with the commercial trader momentum and this is why we track their net position along with the net change in their position – it determines their haste. Their haste is creating a MAJOR bearish divergence on our short-term market momentum indicator as well. These factors have combined to trigger a Commitment of Traders sell signal that we sent to our clients last night.
Good trading. Be safe.
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