Tuesday, June 23, 2015

Tom McClellan: Major Market Peak in August - Bear Market into 2016

Tom McClellan (06/19/2015) - It's a little bit of an exotic indicator but it's probably my favorite because it gives us the answers a year ahead of time. What I'm doing is I'm looking at the commitment of traders report that's published each week by the commodity futures trading commission (CFTC) and they give a report on what all of the futures contracts that they track and who's holding them: either the commercial traders, which is the big money; the non-commercial, which is kind of the hedge funds; and then the non-reportables, which is people with very small positions that are not even worth having reported individually. The commercials are the smart money so when you look at what the commercials are doing as a group in eurodollar futures—that's an interest rate product, not a currency product—that tells you what the stock market is going to do a year later.
 
The stock market tends to follow those same dance steps almost literally. It got into a little bit of trouble back in 2013 when those traders weren't anticipating the stimulus of QE3 and it didn't work back then but it's generally been working almost perfectly since about 1997 [see chart below]. It correctly forecasted the 2008 decline. It correctly forecasted the bear market in 2002 and 2003. It correctly forecasted most of the big up-move that we've had off the 2009 bottom and now it's telling us we have a top due in early August and a decline into early 2016.