Forecasting the stock market direction is a hazardous undertaking at best, especially forecasts based on fundamentals. However, there is one method that has the potential to indicate changes in the longer term trend (months) of the market. That method is based on the Chicago Mercantile Exchange Commitment of Traders Report for the S&P 500 Stock Index. This report is published every Friday, after the market has closed. The data is current through the prior Tuesday.
One way to interpret this data is as follows. Look at the Commercial Positions (only) and determine if there are more Long Commitments or more Short Commitments. If there are more Long Commitments and the market is in an uptrend then the market could potentially continue higher. If there are more Short Commitments and the market is in a downtrend then the market could potentially continue lower. When the majority of Commitments changes from Long to Short (from one week to the next) or from Short to Long, that suggests that the trend may be reversing itself. This method of predicting a potential change in trend should be used in conjunction with other tools before taking action.
The report can be accessed at http://www.cftc.gov/dea/options/deacmesof.htm
Good Trading, Bill Poulos http://www.instantprofitstoday.com
About the author: Bill Poulos has been trading the markets since the mid 1970's. In 2001, he formed Profits Run, Inc, with his son, Greg, to help educate traders around the world by offering trading courses and systems.
