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NEW! Complimentary Weekly Report

Introducing the Strategic Trade Index (STI), a new and innovative report from Industry veteran Sterling J. Smith. This dynamic trading tool is easy-to-use, and was developed with the commitment to provide up-to-date market information to all types of traders. See for yourself the power of this tool, sign up for this COMPLIMENTARY weekly report today!

Yesterday afternoon I was talking to a "local", (someone who trades in the open outcry pits here) and he mentioned it was kind of quiet, and that people from the options pits in Kansas City were calling with "player's sheets".

Before the dawn of electronic trading, everything traded out in the open, in the pits. Observers were there to watch who was doing what, and several times a day players sheets were circulated as they were a prime way to get a handle on who was doing what was making the markets move on that given day.

A lot of that has changed, as activity moved away from the pits and onto the screen, this kind of transparency was lost. We still have the data for options players though, and some pits are still busy enough to provide us with this data. However, absent this data we need other tools to take "a look under the hood" and see what is making the price action happen.

Futures markets consist of three kinds of participants: Funds (large speculators), Commercials, (which are ideally, are producers and end users of the stuff we trade) and small speculators (regular people out there trading, and back in the day, a lot of the floor locals who were trading for themselves would be in this category). With the changes in how we actually execute trades, we also have to change how we go about assessing what in part is driving the market.

Every Friday the CFTC releases its commitment of traders report which takes a snap shot of who is doing what, as of the previous Tuesday's close. With the growth of non pit trading activity these reports, in my assessment have become much more relevant. With no players sheets, this is really the best peek into the markets internals and way to see what is actually going on.

I could write a book, and many have been written on how to interpret that data, but this format is designed to be a Fast Break...meaning I should strive for brevity. If you are interested in using COT reports, my complimentary weekly STI newsletter provides up to date market analysis, and if you sign up now you will get my 2009 Futures Market Outlook along with it as bonus.

When I do my COT analysis, I use the Futures and Options format, as the use of options by both large and small speculators is huge, and they are used to both capture volatility and to help provide cushion from it. (If you have questions about options, sign up for the STI, and let me know and I have an easy-to-read booklet about options that I can email to you.)

The first thing I look at is the commercial positions, as these tend to provide the "wide angle view" of were thing are likely to head, and I pay close attention to the net changes of their positions, to see if we they are building or losing positions. The next things are the funds, as the guys have plenty of muscle and can provided the volume and participation to drive the markets.

The Non-reportable category consists of everyone who does not fit into the other two categories. I generally don't want to be with majority in this group, as their track record is less than stellar. I also do not recommend using COT data as your sole form of market analysis, but as one component of your approach to the futures market. The STI is a tool that I developed, as an evolution from the Power Index report I used to do, as markets evolve, we as traders and analysts need to evolve as well.

In other news, this morning featured the big monthly unemployment number which came in, at a loss of 524,000, which was in line with expectations, and unemployment rose to 7.2 percent. It should be noted that the last two weekly jobless reports came in better than expected. There was a lot of concern that this morning's unemployment number could have been shockingly bad, so while this number is not good, it seems to be not nearly as bad as it could have been.

In my picture of thing the next four weekly numbers are going to be very telling. If we can continue to do better than expected, and avoid a bad jobless number in February, we may be far closer to the end of trouble.
 
The last durable goods number, ex autos, came in a little better than expected and that, along with the weekly jobless numbers are the first places I am looking for signs of improvement. My own visual observations made at a suburban Chicago shopping mall seemed to show busy activity. I did notice a lot of traffic at the Sears store in the big home appliance area. While this is one guy walking through one store in Naperville, if things were oh so bad, there would have been no one there, instead of a pretty healthy crowd that seemed to be buying.

As things progress into 2009 we need to keep a close watch on the relationship between interest rate futures and the stock markets. The bond, notes and Eurodollars (shorter term interest rates) remain at very high levels, and this means there is plenty of money sitting in these items earning very low yields. At some point the cork will come out of this bottle, and first thing to do not get hit by that cork, as it will hurt. Second we need to have some ideas about where this money is going to be going, as that should afford some very good trading opportunities for us this year.

If you are curious about where I think things are heading in 2009, just subscribe to the STI, and along with that you will receive my 2009 Futures Market overview along with it.

I am Sterling Smith and I am bullish on 2009.

REPRODUCTION OR REBROADCAST OF ANY PORTION OF THIS INFORMATION IS STRICTLY PROHIBITED WITHOUT THE EXPRESS WRITTEN PERMISSION OF FUTURESONE AND STERLING J SMITH. THE INFORMATION REFLECTED HEREIN IS DERIVED FROM SOURCES BELIEVED TO BE RELIABLE; HOWEVER, THIS INFORMATION IS NOT ASSURED AS TO ITS ACCURACY OR COMPLETENESS. OPINIONS EXPRESSED ARE SUBJECT TO CHANGE WITHOUT NOTICE. THIS MATERIAL AND ANY VIEW EXPRESSED HEREIN ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED IN ANY WAY AS AN INDUCEMENT TO BUY OR SELL COMMODITY FUTURES OR OPTIONS CONTRACTS. FUTURESONE AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AFFILIATES MAY TAKE POSITIONS FOR THEIR OWN ACCOUNTS IN CONTRACTS REFERRED TO HEREIN. TRADING FUTURES INVOLVES RISK OF LOSS. DO NOT DUPLICATE. FUTURES AND OPTIONS TRADING INVOLVE RISK. THE VALUATION OF FUTURES AND OPTIONS MAY FLUCTUATE, AND AS A RESULT, CLIENTS MAY LOSE MORE THAN THEIR ORIGINAL INVESTMENT. IN NO EVENT SHOULD THE CONTENT OF THIS MARKET LETTER BE CONSTRUED AS AN EXPRESS OR AN IMPLIED PROMISE, ASSURANCE OR IMPLICATION BY OR FROM FUTURESONE OR STERLING J SMITH THAT YOU WILL PROFIT OR THAT LOSSES CAN OR WILL BE LIMITED IN ANY MANNER WHATSOEVER. PAST RESULTS ARE NO INDICATION OF FUTURE PERFORMANCE.

NEW! Complimentary Weekly Report

Introducing the Strategic Trade Index (STI), a new and innovative report from Industry veteran Sterling J. Smith. This dynamic trading tool is easy-to-use, and was developed with the commitment to provide up-to-date market information to all types of traders. See for yourself the power of this tool, sign up for this COMPLIMENTARY weekly report today!