COT Report Analysis - a thread on market sentiment

Hey guys!

I just took a quick glance over weekly gold chart and apparently gold is resting on a major support level. From what I’ve read weekly support levels are usually pretty serious and there sure was some buyers that had been eyeing for this level for some long positions… wonder how far gold will go ?


Oh why did I jump on dollar longs that quick! :eek:

Silly me for thinking I’ve got it…

Intermarket correlation looks like a reliable tool to gauge dollar strength. As for silver it has already broke through weekly support and heading down. Well its about time for gold to catch up with its buddy…

Hi Rookie,

I think it’s too early to say. The way I understand silver & gold relationship is that the ratio between them will favor gold. I’m not sure about which following which, but the kind of trades I can make out of this relationship is to short silver when silver price is way over or getting too close to gold.


Nb: on second thought, it’d be better to see the ratio in histogram chart rather than the line chart.

Hey guys.
We have a Wednesday here.

NZD: +7 -0 0///+5 -0 0
EUR: +4 -1 2///+2 -1 0
CHF: +4 -1 2///+1 -1 1
CAD: +3 -2 2///+2 -1 2
GBP: +3 -2 2///+1 -1 1
AUD: +2 -5 0///+2 -3 0
USD: +0 -6 1///+0 -3 0
JPY : +0 -6 1///+0 -3 0

Well Comms took this one. +5

So for the week the back and forth looks like this.

Monday: C +12
Tuesday: M +6
Wednes: C +5

And once again the NZD has struck again, being on top. They have absolutely either been on top or bottom, and has been alternating 8 straight trading days now.

Well, I’m taking a major hit guys. When I got home I got out of the NZD/USD and NZD/JPY trades. Losing big time.
But, I’m in on the AUD/JPY. Going up. That only now. I’m gonna stick with that one for a while.

Talk to you in the morning.

00 GMT shot


As promised here’s my take on Gold. But before we get busy analyzing, I’d like to present the way I go on about my trading. So, I learned the ropes from Steve Briese and Larry Williams. I’m sure you’ve read their books. Since I don’t trust in charting services, I constructed the indicators presented in Williams’ books by myself. I use an Excel sheet and it looks something like this.


There’s nothing fancy there, only the basic tools.

  • Commercial & Non-Commercial Net positions for the last 3 years.
  • COT Comm & Non- Comm Index (3 years)
  • COT Comm Movement Index
  • Comm Long & Short + Open Interest chart.
  • Comm Long & Short / OI chart
  • Willco Indicator (1,5 years) (was pretty difficult to figure out the formula)

Okay, enough of my method. Let’s get to work.

Gold

It’s pretty obvious that we are at a major support zone. The price hit the 1180 level 3 times so far, each hit met with less Commercial buying & Non-Commercial selling.


Since Funds are fueling the moves, that means that they still have some bullets to spare to take the trend lower.

The COT Index readings are below extreme levels on both sides (10 ; 90)


Same with Movement Index.

It’s important to note that overall OI has been declining in 2014. Low OI readings are usually symptoms of a bottom. Commercials have been buying heavily into the decline, increasing their longs compared to OI from 35% to 40 % while reducing their shorts from 65% to 50%. (Bullish sign again)

If we take a look at Willco (CP / OI Index), it tells us that Commercials are favoring the long side (net 75% long compared to the last 1,5 years).


Bottom line is: I’m staying flat since COT Index remains neutral. That means that the Funds can take the price below that level.

Sweet! Glad to be the part of the team :slight_smile:

Welcome to the team Balaz!

Your analysis and charts alike do look fancy to me ;p. But I like how you constructed your own indicator on excel from scratch. FE should have something to say on that. But first off allow me to take you through what we do here briefly.

FE /the captain/ and I analyse COT report on a weekly basis, FE covers specs and I do the comparison specs and commercials and occasional fundamental write ups. Mike brings on the stats along with majors and comm split. Philip is working on developing a system for crosses. Flows has joined in recently.

And last but not least we’ve got Peter, he’s the wise one we all look up to him. When he posts something you make sure to write it down on your note and keep it with you. You’ll know what I mean. We cover from COT data , fundamentals to intermarket correlation. Quite a lot actually. And the rest I’ll leave it for you.

Good morning fellas.
BB…welcome!
Wow. Looks like you’ve done your homework. I’m impressed.
Stick around. Would love to hear your opinions on what’s going on in the market. What do you watch? Anything in particular? How far out is your scope on the market? Do you see the big picture, with the different indices and market correlations, or are you zoomed in on something particular, like the commodities?

Talk to us.

Again welcome!

Mike

Hey Doc Rookie!

Talk to me. What do you think on the AUD/JPY? I remember we mentioned about the AUD not too long ago.
I think they are the underdog that just could be on the comeback now. Especially after the bad news that just came out for them. And their on the way up! That tells me something.

What do you think?

Mike

I like that idea flows, can you keep an eye on that ratio for us from time to time?

Rookie it is a very strong support level. from an intermarket perspective, FE and Peterma would know better, its a ripe time to buy gold with the weakness seen in dollar as well as the bounce in Euro. It is the biggest bounce since May. AUD is also going up.

Afternoon guys!

I was planning to take a day off today. But I couldn’t resist checking our thread. Well here I am. I better post something. No write ups for today but few coming tomorrow including this thursdays FOMC minutes of meeting.

I have closed my NZDUSD, AUDUSD and EURUSD with a loss again. Stay strong guys! Mike! we’re going to get through this. I have been thinking a lot.

I was watching this film called catch a trader, that shows how hedge funds trade with ‘inside news’. These guys aren’t even looking at gartleys, or any other fancy indicators. They simply place a long order thats worth of millions right before the positive news at a bargain price and double or even triple the amount in a matter of minutes or even seconds. How do they know ? Crystall ball ? intuition ? They get inside news. I know its unfair. But thats how it is.

I’m not sure if hedge funds trade currencies but in currency trading there’re banks and institutions on the other side playing against us, the fact that banks have control over short term price makes things even harder than it already is. No wonder why its hard for a retail trader to stay in the game with consistent profit. For an outsider it seems like a battle that can’t be won.

And I’ve realized after all this what we do is probably the smartest way to play along with the big guys. From now on I will be keeping track of every annoucement from central banks, minutes of meetings on my note. I’ll be posting them here regularly and I’ll try to be on time. We knew Fed officials were getting concerned about strong dollar, and how latest payrolls data really meant. But we’ve looked past all this well I certainly did and opened couple of long dollar trades.

Look at EURUSD guys, euro has been ignoring bad data and keeps climbing up, I’m thinking its probably the banks that are marking euro higher to entice the retailers to give more momentum and once they like what they see ‘the price’ they go short wiping out the retailers that were fooled and went long.

While I do think COT data is crucial it still is few days old, and while there won’t be any drastic change from week to week on COT positioning. A lot happens during the week, like banks or instutions coming in marking the price up or down. I think we need to shift our attention to the latter , and try to find ways to figure out when banks or instituitions are buying or selling. Then we’re more than halfway to get there. Very close.

[B]Rookie[/B] It is a very strong support level as you said Rookie. Correlations also favor a gold bounce with dollar weakness, a bounce in Euro and AUD. Personally though I’m on the sidelines for gold for now.

I do not understand however why do you say COT is days old. I have actually been talking about a bounce in Euro and Swiss since I joined the thread. If anything, its too early!!

[B]Mike[/B][B] If I were you I wouldn’t put in anymore trades this week. I would even take my profits on AUDJPY for now. For a simple reason; our bias is still dollar and Britain strength against the rest. Both of those currencies are now moving lower against all. We just want to stay in the market so we can make big bucks when Greenback and Pound move in our direction. Euro and New Zealand we also have a bearish view on them but at the moment they are bouncing, we will make big money on those when the time is right. That time is not now however. So its important to be patient. A final example is USDJPY, based on today there is 230 pips to gain at least on that pair alone. it might retrace even more so let’s be patient.

[B]BBlazs[/B] I like your conclusion on gold because it does reflect what is happening with the commodity; its at a sensitive area where it could collapse or bounce.

I do have some questions on your research however. First question is what are the currencies you cover? second question what was your most recent trades and how do you see the market generally. Thirdly I’d like you to talk us through WILLCO a little because I’m a bit confused. You said it is (CP/OI index), what does ‘CP’ stand for? I’m also confused because when WILLCO hits 80, that means a top is in place. You say that gold at the moment is at 75. That should mean that gold is at a top even though we are near the lows which doesn’t seem right. So could you please tell us how you interpret WILLCO?

You’ve seen IMF global economic forecast. China forecast remained unchanged almost. Australian job market has been volatile. But they aren’t doing all that bad. With AAA fitch rating and reasonably high interest rate. Investors will want AUD.

Japan is struggling with deflation, declining exports and overall spending. Current account ‘saving grace’ is currently at deficit. With another consumption tax hike. We might see another contraction in GDP.

Looking at the bigger picture given dollar weakness I think it may be safe to keep your AUDJPY long Mike. But you want to be aware of banks buying and selling activity, they’re out there to get us. We have to play safe. And geopolitical risks. Ukraine conflict is said to be long term and I’m afraid same goes for demonstration in Hong Kong.

I suspect it might be a bumpy road up for AUDJPY, so holding the pair long term without locking in profits is probably not the best idea. I don’t want this to influence you in any way. It’s just my opinion.

Hi guys,

Welcome BBalazs! Whoa, that’s a cool way of doing COT analysis! Is the chart an excel chart?

Sorry about the bad trades guys. I too got stopped out from my cable shorts on Monday. I’ll wait for the next COT report to open more trades. GBP seems like drifting to me. I think the recent upward move is just a correction, but I’m not sure either. Ah well, the more reasons for me not to trade.

PS: I kind of glad reading your recent comment on your losers, Rookie. You take responsibility, saying that it’s due to your rushing into trades, and not due to some banks tilting the market like the other week. That way you’ll have something to work on. Good luck to us all!

Okay, I’ll answer the questions.

  1. I trade Futures mostly, although I keep an eye out for currencies as well (majors). My database includes:
  • Euro
    -Swiss Franc
    -British Pound
    -Japanese Yen
    -Canadian Dollar
    -Australian Dollar
    -New Zealand Dollar
    -Mexican Peso
  • Futures
  1. My two most recent trades was Silver short (from 18.70$) which was closed at 17.20$ and Palladium short (from 820$) closed at 750$ (TP got hit). I also got long on Gold which I closed for a small loss (premature entry).

  2. Willco is an indicator developed by Larry Williams. It’s an enhanced version of the CL & CS / OI chart. The formula is: Stochastic (Commercial Net / OI, vara (80 weeks)). It compares the most recent Commercial Net / OI value to the highest & lowest values of the last 1,5 years and displays them as %. The way I interpret it is simple.

Current Value ~ 50% -> Neutral
Current Value > 75% -> Bullish
Current Value < 25% -> Bearish

CL = Commercial Long
CS =Commercial Short
CP = Commercial Positions (Long & Short)

It works the same way as the COT Index. If the index rise above 90% (Commercial), then it is bullish. As you probably know, Hedgers are using the market to lock in future prices for the cash business. Therefore, they are buying into weakness and selling into strength. In other words, their NP negatively correlated to price. They usually hold their largest longs at market bottoms and vica versa.

CL & CS / OI gives us an idea of how much (in %) does the Commercial entities own of the overall OI.


If we were looking at the Willco of the Funds:

Willco ~ 50% -> Neutral
Willco > 75% -> Bearish
Willco < 25% -> Bullish

That is because the Funds’ NP follows the price. They hold their largest longs (shorts) at market tops (bottoms).

Ok that clears it up. its good to know you follow metals as well apparently. Well done on the silver trade that one was a cracker.

Well we normally start discussing our COT reports on the weekends. So I look forward to hearing on interesting things from your report. We have been working on a mechanical ways to turn our reports to trading signals, we look forward to your feedback on that as well.

Are you currently in any trades based on COT report?

Nope. I have my eyes on Gasoline, the Commercials are extremely long. The price approached a major Support zone (3 years low). Now it’s the time to apply Technicals. I’ll share the setup with you on the weekend :slight_smile:

I meant COT net position , not index Philip. So now we’ve got a futures trader in our team. How convenient. We have been talking of expanding our horizon…

[B]Philip[/B] why would you not go long on gold at this major support ? are you being wary because of dollar strength and silver fall ?

Flows… you’re right I have been jumping onto trades early in the midst of correction lately. A lot to work on.

I’m not going to trade anymore this week. I’ve had enough to lose. But we’re learning. Let’s stay optimistic guys!

Hey BB! I’ve got a question

Whats the difference between Wilco and COT index ? advantages and disadvantages ?
Do you only trade Wilco bullish/bearish extreme signals ?

Simply because I have nothing noticeable in my COT report :slight_smile:
The other thing is VSA. Although I now do it the same way Wyckoff used to do it and not an interpretation. I can send you the ebook if your interested. His idea was if there was buying of gold, price should move to hit back 1190 area anyways. If it doesn’t then gold is still in weak hands.

I’m looking for it to go back and forth between 1235 and 1203 to confirm there was buying of gold. I want the green candles to have higher volume than the read ones. only then I can consider buying.