Dear Reader,
Today, Marc Charles interviews Larry Williams from his home in St. Croix, Virgin Islands. Larry is one of the most highly regarded short-term traders in the world and has been trading stocks, futures and commodities for more than 40 years. He has written 10 books, including How to Prosper in the Coming Good Years in 1982, in which he accurately forecasted the greatest bull market in American History.
Below, Larry shares with you some opportunities he sees in the markets right now, and the indicators he uses to gauge investor sentiment.
Jon Herring
Managing Editor
Exclusive Interview with Larry Williams
By Marc Charles
IDE: Larry, when did you begin trading? Did you have any mentors when you started?
Larry: I began trading in 1962 with stocks, and in 1979 I began trading commodities, things we now call futures! It was a far different business back then, the markets were less volatile and there were no computers to do any serious research.
I've never had a mentor, and in fact am not sure such an approach can really work. But there were two men who influenced my early thinking: Gil Haller, who taught me openness and Bill Meehan who revealed the COT (Commitment of Traders) data to me in 1969.
Tom Demark and I have been buddies since the early 70's and he's influenced much of my technical thinking.
IDE: What markets do you feel present the best trading opportunities over the next 3-6 months?
No one knows what they will be. Look at all the gold and sugar bulls earlier this year, or the predictions of $100 crude oil, none of which came to pass. I make my money trading, not forecasting. I look for markets that are “set up” - NOW - based on fundamentals for up and down moves and trade them.
However, there are two futures markets that have become setup for important moves.
Coffee has a strong seasonal tendency to rally the last quarter of the year into late January. Yet I would never trade based on just that bias. So what about coffee?
My measurement of investment advisors shows only 28% of them are bullish at this time, a few weeks ago a mere 10% were bullish. As a point of reference the first week of January (last year) we found, in our weekly survey, that 97% of them were bullish and 86% were bullish the first week of August, both nice times to sell short.
The Commitment of Trader reports show the commercials are heavily net long as a percentage of Open Interest.
Technically it is noteworthy that last week’s range was one of the smallest of the year and it shows little public interest in this market, usually a harbinger of a trend change.
Gold fits many of the above characteristics, copper even more with the Commercials net long position and a multi year high.
The Dollar Index appears poised for a decline for just the opposite reasons.
One week ago 91% of the investment advisors were bullish while this week’s COT index shows the Commercials at the most bearish reading for the year as they are carrying a large short position, as a percentage of Open Interest. At the same time small traders have the largest net long position for the year.
Perhaps of most importance is that the U.S. Dollar shows a strong relationship to Gold and at this time the DX is overvalued vs Gold in my Valuation Index.
IDE: In your book, How I Made a Million Dollars... Last Year... Trading Commodities you talk about one of the secrets to trading successfully is tracking the billion dollar super powers. Can you explain what you mean by that?
Larry: The driving force to the markets is the hedgers. These are the commercial users and producers of the actual products. The markets exist for them to facilitate business. For the most part, hedgers are not speculators like we are. So when they become “one sided” or stay heavily long, the better bet is for a rally. Of course I do use a few other tools to confirm whether the hedgers are heavily long or short but seldom will you find me opposite these guys. The hedgers have all of the money and smarts and information so I closely follow them.
IDE: If our readers are interested in learning more about your products and services where can they go?
Larry: Our web site IReallyTrade.com and it has lots of free information and free trading lessons. I’m more of a trader than a marketer but the information is there for traders and investors to use.
IDE: Larry, thank you for spending some time with us.
Larry: Thanks for having me.
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