My 1st Million At 33 – yes, you can do it too

Broad Markets

Russell 2000 [ http://www.buythebottom.com/rut.html ]
Net-commercial position increased by 290 contracts.

S&P 500 [ http://www.buythebottom.com/spx.html ]
Net-commercial position decreased by 3 164 contracts.

NASDAQ 100 [ http://www.buythebottom.com/ndx.html ]
Net-commercial position increased by 11 168 contracts. This increase was largely off-set by a net-commercial decrease on the Nasdaq-MINI.

Dow Jones [ http://www.buythebottom.com/indu.html ]
Net-commercial position increased by 629 contracts.

I continue to remain neutral on the stock-market. The trend continues to point up; meanwhile I don’t see a clear signal from the commercial players. Until then, I will continue to pay close attention to these markets to try and gage their future direction as soon as a clearer picture develops.

Commodities

Crude Oil [ http://www.buythebottom.com/wtic.html ]
Net-commercial position increased by 1 197 contracts. When a market is setup from a commercial standpoint to move in a particular direction, but instead moves in the opposite direction, there is a good chance that a reversal will take place. For example, while crude oil is setup for a rally, there is opportunity in trading false breakdowns.

In the following USO (oil ETF) chart – two examples of false breakdowns are presented. Before we continue, let’s first define a false breakdown. For me personally, a false breakdown is a move to lower lows followed by a reversal and a rally above the breakdown point. When a market makes a lower low, it naturally attracts new sellers who anticipate the trend to continue even lower. If the market reverses, these sellers will most probably cover their short positions and fuel a counter-trend rally in the opposite direction of the original breakdown.

The first example of a false breakdown occurred on October 23rd, when USO broke a short-term support level at 52.5. Within the next two days USO rallied back to its resistance trend-line, gaining roughly 2.5 points or 4.8% in the process. The second example of a false breakdown occurred on October 31st, when USO posted a lower low relative to the reaction-low set previously on October 23rd. (The reaction-low on October 23rd was 51.71). In this case, USO rallied within the next seven days, gaining roughly 3 points or 5.8%.

But what about the bigger picture: did the second false breakdown mark a potential intermediate-term bottom for crude? In my opinion, the 2nd false breakdown did mark a potential bottom. However, the market is still making lower lows and lower highs. I would like to see the USO break above the resistance trend-line, in the 54.5 – 55 dollar range, to mark the official turning point in this market. Until then, your guess is as good as mine.

Gold [ http://www.buythebottom.com/gold.html ]
Net-commercial position decreased by 11 387 contracts. Since October’s reaction-low, gold rallied well over 50 points or 8.7%. During this rally, commercials were sellers of strength, which is typical of their behavior. The key is to watch future COT data reports to gage if commercials are aggressive sellers. If they are, then, and only then would that raise a yellow flag in regards to gold’s recent rally. Until then, the setup remains to the upside.

Currencies

US Dollar [ http://www.buythebottom.com/usd.html ]
Net-commercial position increased by 12 250 contracts. It seems like commercials are in a knee-jerk reaction mode in terms of their outlook on the US dollar. They were big sellers a few weeks ago, and since then the dollar declined and it seems like commercials are out in full force on a buying spree. From their action over the last two weeks, I have to assume that if the US dollar declines further, commercials are going to support it. The way it looks right now, if we go down to the $84 reaction low…by that time this market may very well be setup for a rally.