{"id":87851,"date":"2016-04-08T10:15:38","date_gmt":"2016-04-08T14:15:38","guid":{"rendered":"http:\/\/countingpips.com\/?p=87851"},"modified":"2016-04-08T10:15:38","modified_gmt":"2016-04-08T14:15:38","slug":"us-bulls-are-the-most-complacent-since-2008","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/04\/us-bulls-are-the-most-complacent-since-2008\/","title":{"rendered":"US Bulls Are the Most Complacent Since 2008!"},"content":{"rendered":"
April 8, 2016<\/div>
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By\u00a0Chris Vermeulen –\u00a0TheGoldAndOilGuy.com<\/a><\/strong><\/p>\n

I have to trade and invest in the markets that I have before me and not the ones that I desire!\u00a0 Therefore, I must be able to approach the market place from a completely \u2018unbiased\u2019 perspective. I do not care if the markets doubles in price, or if it is cut in half.\u00a0 I take advantage of moves in both directions by using my \u2018short term spikes\u2019 which I have shown you, over the past couple of weeks, in order to lock in profits in as short a period as 48 hours.<\/p>\n

I implement my longer term cycle analysis to take advantage of moves in both directions which last several weeks or months.<\/p>\n

Today, there are two \u2018psychological\u2019 situations that lead to big events within the markets. They represent \u2018mirror images\u2019 of one another.<\/p>\n

The first issue is \u2018overconfidence\u2019<\/em>. \u00a0Whether this is \u2018overconfidence\u2019 in a market, a strategy of oneself, \u2018overconfidence\u2019 leads to carrying the largest position at the most inopportune time.<\/p>\n

The second issue is \u2018indecision\u2019<\/em>. \u00a0There are times, when a market approaches critical levels and yet the trading population appears \u2018uninterested\u2019 or even \u2018frightened\u2019 to respond. \u00a0In either case, \u2018indecision\u2019 leads to fewer<\/em> participants, while \u2018overconfidence\u2019 leads to too many<\/em>.<\/p>

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Currently, my focus is the examination of a \u2018very bullish\u2019 net commercial trader position in the face of the lowest commercial participation rate since the economic collapse of 2008\/2009.<\/p>\n

I may frequently reference the \u2018net commercial trader\u2019 position and \u2018commercial trader momentum\u2019, in my analysis. \u00a0The total position is really only meaningful at its\u2019 \u2018extremes\u2019. \u00a0The most important factor to keep in mind, while reviewing the following charts, is the mathematical relationship between the \u2018total and net positions\u2019.<\/p>\n

The \u2018net commercial trader position\u2019 is measured by subtracting the reported short positions from the reported long positions, of the given traders. \u00a0Long contracts minus short contracts equal the \u2018net position\u2019.<\/p>\n

This measure of sentiment is generated by the \u2018consensuses of the commercial trader population.<\/p>\n

This \u2018net position\u2019<\/em> predicts the degree of bullish or bearish sentiment.\u00a0 The total position<\/em>measures the overall level of interest in a market, at any given point in time. \u00a0This is one of those times when total interest must be used in conjunction with the net position in order to avoid trading while under a false set of assumptions. \u00a0Therefore, while the current sentiment is positive, most of the \u2018collective smart money\u2019 is sitting on the sidelines, \u2018uninterested\u2019.<\/em><\/p>\n

Fear<\/em> is the primary reason for \u2018smart money\u2019 to be sitting on the \u2018sidelines\u2019 as the Dow Jones and SPX futures near their all- time highs. \u00a0Commercial traders would most typically be the sellers of this rally.<\/p>\n

Their \u2018indecision\u2019 is again noted by their exceptionally low participation rate, as the current global economic environment continues to waiver back and forth, from one economic announcement to the next, as I refer to as \u2018news driven events\u2019.<\/p>\n

U.S. growth versus global stagnation appears to be the order of the day as the FED attempts to commence withdrawing a decades\u2019 worth of stimulus. \u00a0\u2018Commercial traders\u2019 are typically the most well-informed group of market participants and usually leads the markets\u2019 next move. \u00a0Their uncertainty is, significant, at this point in time.<\/p>\n

\"cont1\"<\/a><\/p>\n

The SPX futures represent an interesting situation! \u00a0The \u2018commercial trader\u2019 participation rate is at the lowest point that it been since 2008<\/em><\/strong>, yet the \u2018net commercial position\u2019 is close to a multi-year high. \u00a0This means that the \u2018commercial traders\u2019 currently in the market are exceptionally bullish, despite it being only a few of them.<\/p>\n

The question to ask today is\u2026 \u2018Are they still right?\u2019 \u00a0My opinion is that they may be right, for a while. \u00a0My expectation is that we will see the broad stock market continue to rally into \u2018nominal new highs\u2019 over the next week still.<\/p>\n

However, I also believe that this \u2018nominal new high\u2019 could coincide with the \u2018peak\u2019. This will present itself with weaker underpinnings and momentum divergence, or new \u2018net commercial selling pressure\u2019, informing us of the first confirmation of a \u2018top\u2019.<\/p>\n

The Nasdaq 100 futures\u2019 recent new high was not<\/em> confirmed by the \u2018commercial trader\u2019.\u00a0 In fact, they are completely disinterested.<\/p>\n

The Nasdaq 100 futures chart is beginning to display what a top may look like.\u00a0 \u2018Commercial buyers\u2019 of the September decline were rewarded with new highs, less than a month later.\u00a0 They were quick to rush into this years\u2019 decline and their current \u2018net position\u2019 nearly matches the total from the last run-up.<\/p>\n

However, note the large decline in the total commercial position since the October 2015 highs.\u00a0 Their participation rate is the lowest since 2008.<\/p>\n

Hence, the \u2018commercial participation rate\u2019 has been trending lower since March of 2014, at which time the Nasdaq made its high around 3680.\u00a0 This is just below the August 2015 and February 2016 lows, in the Nasdaq. The Nasdaq appears to be the leader of the group and has begun most of the recent moves.<\/p>\n

Therefore, my outlook is that the Nasdaq may not breach its\u2019 recent high around of 4725. It will be very interesting to see if the \u2018commercial traders\u2019 will confirm this rally by returning to the market place.\u00a0 Until, and if they do, sentiment should remain \u2018bearish<\/em>\u2019.<\/p>\n

\"cot2\"<\/a><\/p>\n

The Dow Jones futures recent rally is showing all the classic signals of a rally out of breath via divergences in price and momentum between price and commercial trader action, while guarded under the umbrella of declining volume and open interest.<\/p>\n

I have illustrated a similar pattern to the Nasdaq on the Dow Jones\u2019 futures chart.\u00a0 As you can see, \u2018commercial traders\u2019 set a \u2018bullish net position\u2019 record on the late summer decline of 2015.\u00a0 Much deeper analysis reveals that the new \u2018net long record\u2019 came on the heels of the smallest total commercial position in years.\u00a0 While it still created a fantastic trading opportunity, that I was able to capture on a short-term basis. \u00a0I believe the broader pattern is \u2018indicative\u2019 of a \u2018bearishly divergent\u2019 top based on \u2018commercial trader behavior\u2019 patterns and activity.<\/p>\n

\"cot3\"<\/a><\/p>\n

The table below should provide a perspective on the commercial traders \u2018lack of interest\u2019 during this economic and geopolitical climate.<\/p>\n

\u2018Fear\u2019 is the primary cause for the declining commercial participation rate. \u00a0The \u2018commercial traders\u2019 are among the most well-informed group amongst market participants. \u00a0Their unwillingness to participate, at these prices, reveals two main key factors;<\/p>\n

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  1. The current prices are distorted<\/em> enough so as not to draw them into the market, on either side.<\/li>\n<\/ol>\n
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    1. The current banking and political environment is far too ambiguous for them to place any long-term bets before the U.S. Presidential elections take place.<\/li>\n<\/ol>\n

       <\/p>\n

      CONCLUDING THOUGHTS:<\/strong><\/p>\n

      There are many moving parts and influences that create major market trends and one of the most powerful forces is that of the Commercial Positions. When large financial institutions and funds are buying so should we.<\/p>\n

      The US stock market is at a critical juncture. Times like these are tough to gauge, time and trade but as long as we understand this we can tread lightly until we have confirmation of a new major trend.<\/p>\n

      The writing is on the wall and has been for over a year. Stock market tops are process and take a long time to mature before breaking down and starting a new bear market. I feel we are in the final days of the large cap topping stage and will see substantially lower prices this time next year.<\/p>\n

      Get My Simple ETF Swing Trades: www.TheGoldAndOilGuy.com<\/a><\/strong><\/p>\n

      Chris Vermeulen<\/p>\n

       <\/p>\n

       <\/p>\n","protected":false},"excerpt":{"rendered":"

      By\u00a0Chris Vermeulen –\u00a0TheGoldAndOilGuy.com I have to trade and invest in the markets that I have before me and not the ones that I desire!\u00a0 Therefore, I must be able to approach the market place from a completely \u2018unbiased\u2019 perspective. I do not care if the markets doubles in price, or if it is cut in […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-87851","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87851","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=87851"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87851\/revisions"}],"predecessor-version":[{"id":87852,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87851\/revisions\/87852"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=87851"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=87851"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=87851"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}