S&P 500 Futures CoT

Zeal Research ^ | July 25, 2003 | Adam Hamilton

[sourcery]

FYI

[steplock]

bump - to let soak in -for the second run at it! :>)

[ex-Texan]

There is no sourcery at work in this bear market. The big boys are about ready to eat everyones' lunch and perhaps some of the small speculators may be eaten alive. Do not play the futures game unless you can afford to lose it all. Be careful. Be very careful.

[groanup]

Good article. I prefer put/call ratios for a daily read of how long or short traders are. Look at the last graph. Seems to me that the 40 week moving average would be the best indicator.

[ex-Texan]

So based on the 40 wk moving avg would you be buying or selling right now? Look closer. The 10 wk moving avg signaled Buy in April and Sell at the end of May. I prefer the more intense signals of the 10 wk avg which strongly points up or down if you follow it daily. The small investor crowd is being fleeced again by the Big Boys because they believe the hype of their stock brokers. The zero sum game is very risky and too heady for most.

I worked for Morgan Stanley for four years during the go go days of the Big Bull. There were a couple of day traders who earned my respect. Mgt. even gave one of them access to a computer station but his broker got full commissions for every trade. The other guy was Mexican and only spoke broken English. He would move $ 100,000 to $ 200,000 into the market at the opening bell and sell everything a few hours later. I once saw him make $ 300,000 in a four hour period.

Don't play the game unless you can afford to lose.

[groanup]

The 40 week (or 200 day) is preferable because of the limited number of trades. You could be very intense using the 20 day or 40 day but you'll wear yourself out. Right now you buy on weakness. The only long term ma that makes any sense is the 200 day. I've crunched the numbers and read Jeremy Siegel's book. No other ma makes money over the long haul. And you don't make THAT much more money than buy and hold. You just relieve yourself of the torture of bear markets.

[AntiGuv]

The bottom of the food chain, the helpless shrimp that the whales eat, is the small speculators. Sometimes I think that small specs exist solely to feed the big players and make them rich!

[my right]

The bottom of the food chain, the helpless shrimp that the whales eat, is the small speculators. Sometimes I think that small specs exist solely to feed the big players and make them rich!

If I told you that I have a 401k account with Vangard and that most of my funds are in their Vangard 500 index fund. Would you put me in the catagory of helpless shrimp?

[ex-Texan]

Depends how long you have owned the Vanguard fund. If you purchased a lot of shares before 1992 you have done really well. Vaguely recall that V closed its doors to new investors. But even that fund is tied to the fortunes of the 500 companies in the fund.

The market will get really interesting between now and this time next year. Talk to your 401(k) people about whether they offer an option to move money out of Vanguard and into a money market without charge. Get all the information and watch the market closely. If we get hit again by aQ the brown stuff will hit the fan for real.

[AntiGuv]

We are all helpless shrimp next to the institutional players, but even some helpless shrimp manage to get away.. ;^) I like Vanguard Group - they've got some great funds - but my market outlook between now & about this time next year is exceedingly grim, so I would not hold any long stock positions. JMO.

[Tauzero]

"Would you put me in the catagory of helpless shrimp?"

Yep.

[Tauzero]

"Vaguely recall that V closed its doors to new investors."

Usually closing is a bearish development.

[Tauzero]

There are a couple of misconceptions in the piece -- not in the technicals or analysis, but the surrounding introductory text. Granted, they are common misconceptions, and might improve the sound of the piece in the general ear.

"Futures trading, unlike stock trading, is a zero-sum game."

False. Stock trading is also zero-sum. If you do the accounting properly.

"This is very different from the equity world, where essentially everyone can win or lose at once and winning does not require an opposing trader to realize an identical loss."

Not true. It certainly does require an opposing trader to realize a loss -- or a gain, for that matter. The difference is, if you sell an equity at a loss, it is not usually the person who buys the stock from you who made the opposing gain. It is rather the person who sold you the stock in the first place.

Only on paper -- marking to market without an actual trade -- can wealth appear to be created or destroyed by trading.

"Unlike stocks, futures don't create or destroy any wealth, they just shuffle it around between speculators and hedgers and other speculators."

Stock trading doesn't create or destroy wealth either -- with a single exception, the purchase of new shares. The capital raised from stock offerings is (hopefully, frequently) put to use in enterprises that do generate wealth. Everything that happens with the shares after that point is just moving money around.

[evilC]

Actually, given the cost of vig (commisions), data etc. they are negative sum games. The winner gains less than the loser lost, and the loser loses more than the winner gained.
[what an ugly sentence that turned out to be :) ]

[my right]

Depends how long you have owned the Vanguard fund. If you purchased a lot of shares before 1992 you have done really well. Vaguely recall that V closed its doors to new investors. But even that fund is tied to the fortunes of the 500 companies in the fund.

I started buying in 1989 and of course was doing great until March 2000. Like everyone else I am hoping to hold on until the market gets back to 10,500. Can you imagine what is going to happen if or when us shrimp see this happen??

[staytrue]

I think stock trading and future trading are both plus sum games. What traders do is price the markets appropriately and that is an incredibly important function for capitalism to operate. Proper pricing in the capital markets is an essential function and the traders who do it best are rewarded for it.

Improper pricing results in misallocation of resources. Bad loans are made or bad money is invested when the pricing of commodities or stocks is wrong. Traders get a bad rap, but the traders who price the best win.

[evilC]

The "sum" I was refering to was that between the two sides of any one trade.

I agree that those dreaded speculators actually provide a useful service in terms of providing pricing information, and adding liquidity and market depth.

[Tauzero]

"What traders do is price the markets appropriately and that is an incredibly important function for capitalism to operate. Proper pricing in the capital markets is an essential function and the traders who do it best are rewarded for it."

"Appropriate" and "Proper" are only meaningful with respect to a metric, which you have left unspecified.

"Improper pricing results in misallocation of resources."

This sheds a little more light, but again we don't know what a correct allocation is.

"Bad loans are made or bad money is invested when the pricing of commodities or stocks is wrong."

Are you suggesting that if things are properly priced bad loans are never made?

evilC is correct: traders provide, through their trades, information, liquidity, and market depth. These are valuable things. But traders, themselves, are also resources, and there can be too few or too many of them, depending upon your metric.

Whether prices are appropriate or not at any given moment is a very different question.

[SupplySider]

I think commodities futures trading is a zero sum game, whereas stock index futures trading is a positive sum game. Stock index futures contracts all zero out on the expiration day, but their prices are linked to the stock market, which grows with the economy and with the advancement of civilization over the long-term.