The headlines really got crazy yesterday regarding commitment of traders.
Here’s a couple from The Telegraph:
The world can’t afford another financial crash – it could destroy capitalism as we know it
Investors ‘go bananas’ for gold bars as global stock markets tumble … Bullion dealers report record sales as buyers “queue round the block” to purchase the precious metal.
I hope that you weren’t one of the investors queued round the block buying bullion. The sky is not falling.
Yes, there are reasons to be concerned. Yes it is a time to be vigilant and disciplined. No, it’s not time to stuff all your cash in your mattress and bury your gold in the backyard.
Don’t get me wrong, you should have some cash in your mattress and gold at hand. That’s only logical given the massive financial asset manipulation we’ve seen for decades now.
But what we saw yesterday wasn’t the bottom falling out. It was merely a test of support.
Here’s the chart I’ve been showing lately of the S&P 500 and its Volume at Price support levels:
When the stock market is probing such strong support levels and the media are blaring Chicken Little headlines, it’s more likely an indication of a bottom being put in than it is of the bottom falling out.
If you don’t believe me, take a look at what the major financial institutions are doing in their own portfolios as evidenced by the Commercial Commitment of Traders (COT) data on the S&P 500:
If you don’t know what Commercials COT data is, you can look it up online. Suffice it to say, it’s a window into what institutions are doing with their own money and the data above shows that they’ve been accumulating positions in the S&P 500 futures contracts.
The blue-gray vertical bars in the chart above also show what tends to happen when the pace of buying by the institutions really picks up. When the black line in the bottom of the chart touches the upper red line, it’s often a sign of a rally to come. (The red lines are 1.5 standard deviation bands.)
When this week’s COT data is released on Saturday, I fully expect to see further evidence that institutions have been buying into this decline.
I believe that there is more pain to come, but I think that we’re likely to get a short reprieve while the stock market rallies and the smart bears look for a better place to get short again.
In other market news, our call for higher US Treasuries and lower interest rates got off to a good start this week with investors pouring into Treasuries during the mini-panic:
They rallied off of massive volume at price support but are nearing substantial overhead resistance.
I don’t like crowds. That’s why I live in the country, why I don’t sell into panics and why I wait for pullbacks after high volume rallies,
Richard M. Smith, PhD