Monday, July 30, 2007

Weighing the COT

I get the feeling that quite a few investors have the wrong idea of how the COT report works. I see posts that the smart money such as GS, JPM, LEH, etc are taking a beating and so the COT doesn't work. Let me remind everyone that there are always some commercials on the long side and some on the short side. Its not an all or nothing type of tool. Like the scale above when one side gets a little heavy the scale (or odds in our case) start to favor that side. At the moment the COT scale is still tipped towards the long side. The weekly Bollinger band signal is also tipped toward the long side this week. So the correct bet to make is long this week. What I would like to see is a V bounce back to the old highs and the commercials flip to short. That of course would fit in nicely with my 5th year decline theory. All we can do at the moment is wait and see what unfolds.