General Stock Ideas

[bigworld]

scstocks: I promised that I would provide a little information regarding a very overlooked metric....the gauge of futures traders commitments. You can view traders current commitments at www.cotpricecharts.com/commitmentcurrent

Charts are available for a number of futures products...the commodities, the stock futures, certain currencies, and several denominations of US Treasuries. I find this information most useful in gauging the direction of the Dollar. The charts provide you with the professional traders commitments vs the large speculator positions. The professionals use the futures to hedge currency fluctuations and raw material input costs over time for actual business use. For example a profession futures trader working for a cereal maker might lock in favorable prices in certain grains or a multinational business might hedge currency risk. These are true hedges to smooth out business variables. The speculator positions are just that. They are purchases for speculation that are not intended to be held until maturity/delivery. Over time it is the professional traders that have the best intermediate term track record.

As I view a few key futures charts I see that for the Euro FX (the Euro vs major currencies) you see the Speculators are short the Euro FX whereas the professionals are very net long. I view this as bullish in the short term for the Euro and conversely bearish for the Dollar. Looking at several Treasury futures contracts (1ys, 2yr and 10yr) you see that the professionals are net short against Treasuries while the speculators are new long, reflecting current popular wisdom. This tells me Treasuries are probably peaking in the short term and that the Dollar is due for some backing and filling.

Of course there are times the professional futures traders get it wrong, but in the intermediate term not that often. And this is just one tool to look at.

Of note have you seen that some Fed members are telegraphing that they would look favorably toward more Bernanke fairy dust? The Fed often sends out signals like this in advance before announcing some move. This is Bernanke's last chance to juice the markets before the election season begins in earnest. I would be surprised if he did not announce some other stimulus to replace the Operation Twist which expires in June. He has to realize that the market will continue to tank if he stays on the sidelines. I can't tell you for certain which route he will go but I have my money on more easing and a drop in the Dollar and a simultaneous rise in commodities and equities. We'll see soon enough.