The commitment of traders report for the week ending March 8, 2011 is a rather interesting one and shows the value in using the report. Copper, followed by many has been signaling a move down in equities for a few weeks now. It is off its highs by 10% while SPX has held in for the most part (down about 3%). The question many would like to know is where is copper headed? What about oil? Oil pulled back a few times (after Egypt and again on Friday after the failed "day of rage"). The answer to both of these will give insight to future equity price action. Let's look at the charts below from this week's COT Report.
Copper: Commercial continues to lighten up their net short position (they short strength and buy weakness). Since copper hit its high in February commercial positions have not stopped in lightening up their short position as shown below, a negative for equities.
Oil (WTI): After Egypt oil pulled back but commercial positions indicated this was not the future price action of oil as they continued moving net short. They have continued this week as well and are more net short than any other time since January 2010. Further oil strength looks to be at hand, a negative for equities.
SPX Consolidated: Note the divergence between the SPX consolidated commercial and the SPX. I don't read a lot into this chart but the large and sustained divergence would imply SPX weakness.
USD: If anyone can figure out the direction of the USD please write a book. Case in point on Thursday the USD had a big move up and recaptured a three year trend line only to reverse the entire move (and the trend line) on Friday. Per the chart below it does look like commercial net and non reporting (retail) are positioned similarly for USD weakness. From a technical standpoint this seems to be the probable path but group think is usually wrong so that would at least raise some doubt.
Thirty Year Treasury: Another tough one to read. Commercial net did increase their net short position which means 30 year rates may fall back this coming week but it certainly does not signal a trend change and any drop in rates may simply be a technical bounce before another move down (down in price, up in yield).
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