Friday, March 22, 2013

"Smart Money" Continues to Increase Selling

This week's Commitment of Traders report shows that the commercial traders have continued to increase their net short position compared to last week.

This does not include this week's reaction and changes following the FOMC meeting, but with negligible price activity following announcement I would not anticipate that being a significant factor in the upcoming reporting period.

I plan to post a video update of the CoT charts this weekend, but the spread between the smart money and the speculative money is extreme.  When the smart money gets very heavily net short there are typically 2 outcomes.  The first is for an imminent topping process and for stocks to fall afterwards.  The second is for a low volatility and possibly persistent rise in the markets that leads the smart money to undergo a somewhat drawn out short covering process as prices rise.

For the intermediate term a trailing stop type of strategy out to be effective for long positions because the market is at high risk of correction based on the smart money's heavy short position.  But if the correction is not forth coming stocks may churn higher on low volatility allowing a smooth rise in the trailing stop.

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