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

Crude Oil [ http://www.buythebottom.com/wtic.html ]

First of all let’s look at oil. The two charts above are displaying USO (oil ETF) and WTIC (oil). If you notice the count from 1 through 4, the pattern is very similar. This makes perfect sense as USO is supposed to track the price of oil. That is until you get to the low made at 5. Here you can see USO at new lows while WTIC is above its lows. In fact as I am writing this on Monday, USO just made another minor new low, while crude oil is trading above its low at point 5. This could be a result of the fact that next month’s oil contract is rolling in (January vs December). It could also mean that stock-traders are hedging against a further oil decline, as they sell the USO ETF and as a result drive prices to lower lows while crude oil finds support at higher lows.

But what is even more important is the net-commercial position. And what is bothering me somewhat, is that net-commercial position has decreased over the last two weeks by a total of 17 639 contracts. And all this while oil is not yet rallying, in fact it is still sitting near its monthly lows. One reason for this could be that large-traders got a little ahead of themselves, and picked the bottom a little bit early. This raises a yellow flag; however, I would like to see next week’s COT data, for confirmation. Otherwise, two data points do not make a trend.

Personally I remain constructive on oil; and if you think about it from a psychological point of view, the play that worked thus far over the last few months, was to buy stocks and sell oil. The only problem is that once everybody buys stocks and sells oil, there is nobody else left to drive stock-prices higher and oil-prices lower. At those junctures we will have a top in the stock market and a bottom in the oil market. I believe that a bottom in the oil market is fast approaching; I am less sure about a top in the stock market. Some COT data is pointing to at topping pattern (SPX) while other data is pointing towards higher prices still (NDX). With oil however, the cot data overall remains bullish, and in the short-term I would like to see whether commercials will start their buying campaign once again. If they do, the oil setup will be near perfect in terms of risk / reward.

Broad Markets

Russell 2000 [ http://www.buythebottom.com/rut.html ]
Net-commercial position increased by 312 contracts.

S&P 500 [ http://www.buythebottom.com/spx.html ]
Net-commercial position decreased by 16 062 contracts. If this selling pressure continues, this market will be setup for a decline pretty soon.

NASDAQ 100 [ http://www.buythebottom.com/ndx.html ]
Net-commercial position increased by 1 149 contracts. In two out of the last three weeks, both commercials and large-traders were buyers in this market, while small traders were sellers. Although this is bullish, there has been commercial selling in the MINI-Nasdaq not to mention a lot of selling in the S&P 500.

Dow Jones [ http://www.buythebottom.com/indu.html ]
Net-commercial position increased by 775 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.

The VIX or fear index is at very low levels. This implies that there is very little fear amongst investors which normally correlates with rising stock market. Commercials were big sellers of the VIX a few weeks ago. Consequently, the VIX broke down to new lows as the market rallied. So far, the VIX is not yet setup to move up. So I am not anticipating fear/volatility to re-enter this market, just yet. This is telling me that the markets will probably continue to move higher. I plan on adding a VIX-chart to the buythebottom.com website, shortly.

Commodities

Gold [ http://www.buythebottom.com/gold.html ]
Net-commercial position decreased by 9 065 contracts, in fact, over the last three weeks net-commercial position declined rather dramatically by 43 012 contracts. From this selling, I would not be buying gold at these levels. It seems that a correction / consolidation is in order. From a big-picture perspective the trend is up, as long as we continue to trade above $550.

Currencies

US Dollar [ http://www.buythebottom.com/usd.html ]
Net-commercial position increased by 4 168 contracts. The US dollar was setup for a decline just a few weeks ago. And now it is setup for a rally. It is interesting that as commercials sold the dollar they bought oil & gold, and now as they are buying the US dollar they are conversely, selling oil & gold… The US dollar index is setup to rally and if it does, look for the dollar to re-test its reaction-high at approx. 87.25.