Sunday, February 24, 2013
Gold's Blees Rating Reaches 99
The Commitment of Traders report (COT) that was published at the close of last Friday's trade delivered a couple of welcomed extremes for the gold bugs.
First, the report revealed that the futures contract positions of the 'Managed Money' traders substantially added to their short positions while simultaneously reducing their number of long contracts. In short, they rearranged their portfolio to the bearish side by 28,000 contracts. This subset of investors was already holding a huge short position as of the previous week, which they made even larger this past week.
I don't know what kind of Kool-Aid these 'Managed Money' guys are drinking but something tells me they got it from Jim Jones for a really good price.
And secondly, the Blees Rating attained a score of 99 - which is hugely bullish for gold. The Blees rating is simply a measure of how bullish or bearish 'Commercial Traders' are when compared to the last 18 months.
The formula for this rating is a bit complicated and uses the Commercial Traders net contract holdings at the date of the current COT report, then subtracts the least number of net contracts held on any one of the past 78 weeks. This creates the numerator of a fraction. The denominator is found as the minimum number of net contracts in the past 78 weeks subtracted from the maximum number of net contracts in the past 78 weeks. Finally, once the fraction is computed it is multiplied by 100.
I took a shot at making a couple of charts using MS Excel to plot the weekly price of gold and the Blees Rating. The first chart looks at the time period of the past 4 years. The second chart is something of a close up using a 2 year time frame.
I am a bit annoyed that this second chart did not turn out as nicely as the first, but you get what you pay for here at the TSItrader. No doubt about that.
If the Blees Rating is new to you the thing to notice is that when the rating reaches 100 it means that the commercial traders are expecting gold to now rise. And guess what? They always seem to be correct.
Also you can notice that once gold does begin to rise the Blees Rating will begin to fall. That is because this subset of traders will begin to cash in their chips and eventually end up with an opposite reading nearer 0 when price peaks.
I am expecting good things, and very soon.