Here is something that might be significant. I looked back to see how many players were in each catagory, commercial long and short. The longs always outnumber the shorts. There have been times when the difference between the two is very wide and very small. For instance during the year 2000 the difference was mostly somewhere in the low to mid teens with a few weeks when the difference was only 4-8. We know what happened in 2000. When the commercials went long in Mar. 03 the difference had shot up to the low 30's. For the most part the difference since then has been in the 20's with an occasional spike up to the 30's and the ocasional spike down to the upper teens. During 01 and 02 the difference was mostly in the 20's but the shorts had large positions on. As of last week there were only 16 more longs than shorts. The combined dollar value of short positions is up to 22 billion more than the long positions. There have only been a couple of times that have been higher. The begining of 05 was one. However the difference was rather large between the long and short players at that time. The market did go down in the begining but came back. At the moment we look like we are starting to line up all the elements similar to 2000. Heavy commercial short positions and a small difference between long and short players. I tend to think that the reason it takes a large short position to make the market drop has been the semi large difference between long and short players for the last 4 years. The minority shorts must place a lot of money on the short side to over run the majority longs. This bull is very old by historical standards. All the data is pointing to a slowing economy and a dropping (some would say crashing) housing market. It looks like the Fed is flooding the market with liquidity right before elections. But if you read between the lines in the COT report it looks like the big boys are preparing to abandon ship. I wouldn't be surprised to see the market hold together till the elections. But after that I have my doubts and if we get a large commercial short position on top of everything else that's setting up I think it will be time to go to a leveraged short position.

Gary

you may be right - have no idea. but i DO agree that the broad averages are due for a MAJOR pull-back. and by "pull-back" i'm talking about a resuming of the bear!

it may not start till jan '07 or even may '07... but we are NOT in a bull market environment.

-ja

Seems like a lot of people are expecting a correction today. Also seems like everybody is expecting the correction to be minor and short lived. The S&P is right up against it's upper channel. We've had 6 up legs in this bull so far and the commercials are starting to pile on the shorts. They do seem to be trying to hide them into the small contract right now but I have a feeling it's going to start spilling into the big contract soon. I have my doubts as to whether the Fed can keep levitating this market. Seems to me that the excess liquidity is going to start flowing into undervalued commodities again soon. If oil starts rising again I bet it will put the Kibosh on this rally and I seriously doubt that the market will be able to muster a 7th leg up, very few bulls have.

Gary

Interesting COT today. Another 5 billion over to the short side but again most of it went into the small contract. Noticed that the players on the long side have been dwindling over the last several months from the mid to upper 80's down to the mid 70's while the shorts have remained constant. I wonder if that could be the reason for most of the shorts going into the small contract. There are fewer and fewer players willing to buy long in the large contract.

Larry,
On Nov. 4 1997 open interest in the big contract almost doubled from previous levels and has stayed at that level ever since. Is there anything special about that time frame?

Gary

They split the contract from 500 times the index to 250 times the index.

Larry

I've been watching put activity in the forward month qqqq contracts for several weeks now. There has been quite a few days so far with unusually large out of the money put activity, typically around $4-$5 million in one or two contracts. Today however takes the cake. $30 million so far. Big money is starting to bet against this rally going past spring.

Gary

The media hype for Dow 12000 seems likely to push the market up again tomorrow and if it does it will give the fourth up day in a row needed to bring the 4 day corolary into effect. This indicator picked the begining of the decline in the Dow in May.

Gary

Well maybe monday will manage to pull off the 4th day.

I've been looking at total participants both large and small contract. Since the fall of 03 the number has remained fairly constant from about 240-290 players except the week of and sometimes one or two weeks before quadruple witching when the number swells. I thought the action this week was interesting. Over the last several weeks as open interest has increased the number of players on the short side has incresed while long players have remained constant, which would explain the build in short positions. This week however the longs increased by 10 players and the shorts only by 1. However the total short position still increased by almost 2 billion dollars. It would seem that the longs that came in were fairly week and the longs that are already present are losing conviction while the shorts are adding to their positions. This would seem to match with the sentiment chart that Larry had on the blog this week. My guess is there is a lot of scared money out there right now that will be ready to sell at a moments notice. I'm not sure how much attention the big money pays to charts but the market has been rising along a very well defined trend line for the last couple of months. When that trend line gets broken I wonder if that scared money is going to come out quickly. The market is now in a parabolic rise and we've certainly had some experience with parabolic rises and collapses this year.

Gary

The S&P managed the fourth day up in a row today so according to Sperandeo's 4 day corolary the first down day often signals a change in the intermediate trend. The COT is certainly leaning toward a decline somewhere in the not to distant future. So we'll see what happens.

Gary

The INDU, WLSH, and MID all added the fourth day today. The SPX is on day 7.
There have been only 3 other times since this bull market started that the S&P went up more than 7 days in a row. Interestingly this bull market started in March 03 with 8 up days in a row. How fitting if it were to end with 8 up days in a row.

So far the top is still in and if the Dow where to close down again today that would mark the fourth down day in a row. Sperandeo's 4 day rule says that 4 days in a row in the opposite direction of the trend often signals a change of trend.

Gary

$38 billion more on the short side than the long side this week. That's the largest short position ever. $2 billion more than in Mar. 01.

looks like today's big UP move came on light volume.
i wonder if it (the rally) can be sustained?

earlier i predicted that the market would be UP for the year this year.
that may prove to be true. i also said i tho't the COT would flop to BULLISH before the year's end... i now doubt that'll happen.

interesting times.

-ja

I have been looking at the some of the cycles over the last 3 years. It appears that the longest any intermediate cycle has taken from trough to peak was roughly 6 months and the shortest was about 3 months. Also noticed that if one cycle gets stretched then the next is typically shortened. If this pattern holds then this cycle should be shortened. We are about 3 1/2 months into this uptrend. With the 4 day rule and 4 day corolary both in effect and the COT having the largest short position ever and this market running very long historically put not particularly large % gain wise and the elections are going to be over tomorrow (Perhaps there really is a plunge protection team or republican election team) I would guess there's a good probablity that we saw the 4 year top on Oct 26. Even if we still have farther up to go I have my doubts as to whether it will amount to much before we start the decline into the 4 year low.

Gary

Possible 2b reversal forming today in the DOW & Nasdaq.

Gary

Looks like the decline came on the largest volume today since the July low.

Gary

Try again. 4 days in a row up today. The first down day may signal a trend reversal.

Gary

-49,987 on the large contract this week. I think it's time to get leveraged on the short side.

Gary

It's starting to look like the last 4 day corrolary signal in the Dow might have caught the trend change. If this is an important top in this secular bear market then the Dow will have topped almost exactly at the same level as 1973 (about 5% above the old high).

Gary

Here we go again. Yesterday was the first down day after 4 up days. The Naz was a day earlier.

Gary

Well unless we get the 2:00 miracle it looks like the Dow is not only going to put in 4 up days but is going to follow with 4 down days.

Gary

We must of had the top yesterday because I had a strong urge to cover my shorts this morning and go long. I resisted that impulse and went climbing instead

Gary

So far the latest 4 day sell signal is still holding on both the transports and the industrials. Plus its starting to look like all the excess liquidity pumped into the system prior to the elections is starting to find its way in to undervalued commodities.

Gary