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Stocks: Why This “Trend Following” Indicator is Worth Watching

This “is compatible with a stock market that has further to decline”

by Bob Stokes
Updated: February 23, 2022

Large Speculators are a sector of traders monitored by the Commodity Futures Trading Commission and are comprised mainly of hedge fund managers and trend followers.

History shows that this group of traders is usually wrong at key market turns.

The Commercials, which you might call the "smart money," is another sector of traders monitored by the CFTC. They usually take positions opposite that of Large Speculators and are usually right.

This indicator is especially useful when the positions that Large Speculators and Commercials have established reach extremes at the same time a market's Elliott wave pattern suggests a trend turn is nigh.

With that in mind, let's review a chart and commentary from our Feb. 14 U.S. Short Term Update:

LargeSpecs

Friday afternoon's release of the most recent Commitment of Traders Report shows that Large Speculators in E-mini S&P 500 futures are net long 7.20% of total open interest, nearly reaching the record 8.12% registered during the last week of January... The willingness of the trend-following Large Specs to maintain a near-record commitment to bullish bets even though the E-mini S&P is still down nearly 9% from its January high is compatible with a stock market that has further to decline.

As you probably know, the downtrend in the stock market has persisted since this analysis published on Feb. 14.

Indeed, on Feb. 17, the S&P 500 slid 2.1% and the Dow Industrials suffered its then worst single-day 2022 decline, closing more than 600 points lower.

The S&P continued to decline on Feb. 18, with the Dow down by triple digits, making it two weeks in a row that the senior index closed in the red.

And, as of this writing intraday on Feb. 22, the stock market is once again in the red.

Keep in mind that no indicator or service can guarantee that a particular forecast will work out.

In this case, our analyst's confidence level was high as the Elliott wave model also suggested further decline.

You are encouraged to learn the details of our latest Elliott wave analysis -- plus the message of other time-tested indicators -- as you read our Financial Forecast Service.

As you read, you will find near-, intermediate- and big-picture analysis.

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Are You Fully Prepared for the Next Financial Downturn?

The preparation may involve more than you realize.

Here's a quote from Robert Prechter's just-published March Elliott Wave Theorist:

I thought it would be a good time to get ahead of things and talk about how to prepare if a bear market is emerging, in which case monetary and economic difficulties will follow. It is better to have your ideas laid out ahead of time rather than trying to make plans in a climate of fear and panic. I hope the suggestions herein will prove of some value.

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