If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.

Milton Friedman

COT Index

The COT index looked like this over the last 5 weeks:
Week 41 was [-22.6%]
Week 42 was [-30%]
Week 43 was [-32%]
Week 44 was [-17%]

Each week, the market rose higher. Weeks 41 & 42 being particularly bullish.

This week the COT index turns positive at +8.7% and the market has been looking a little toppy as if we were looking for some short-term weakness.

That the market rose in the face of the Commercials selling emphasises the strength in the market, which must be a factor in any assessment of where the market may be heading in this time-frame.

Is the market extended? Yes obviously it is. Does that necessarily mean that a pullback is the higher probability? The equity Put/Call ration suggests not. Currently there is no hint that this ratio is in any danger of suggesting a reversal.

Therefore with the Commercials turning bullish, no indications from the Option’s market that a reversal is imminent, I am remaining cautiously bullish.


On the blog a few days ago I mused that we may have been involved in a correction through time rather than price. We got a little of both. We had a major correction through time, culminating in a volatile ending two days. The drop found support and a bounce off of the VWAP.

However the bounce takes us back into technical resistance through a number of timeframes: 5day, 10day. The 15day however has room to run. I would look for a little opening weakness on Monday/Tuesday and look for buying support around the $176.oo level.

Federal Reserve.

There has been some increasing chatter with regard to the last Federal Reserve meeting of the year that the Fed could again introduce the ‘Taper’ in 2013. I think that this is simply not on the cards. Employment in nominal terms has been not too bad, although still a far cry from what is needed. However the quality of job creation is woeful and aggregate wages and the commensurate consumption is far lower than it was prior to 2008. Thus GDP growth, despite the constant and ongoing credit creation [inflation] is tepid. There will be no taper in 2013.

The market however operates on innuendo. Just the hint or suspicion of a taper might trigger a market sell-off, which should it happen provides yet another buy-the-dip opportunity.

There is no trade this week as there are some early positions that are approaching expiry.