COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
3700

Hi Philip (as no one else made COT Report analysis but I would be happy if others would contribute too),

I made my COT Analysis and found some very interesting Information.

[B]CHF[/B]: if you are there for possible reversals IMO CHF is the best to trade. As I see they are at a very extreme position and also fundamentals do not confirm their run. CHF will give us a very nice trade after we spot the reversal.

[B]Wheat[/B]: this is a classic example how to jump into ongoing trend. Please tell me how you like the COT Index signal based on the 1 Minute Commodity Trader System.

[B]Gold and Silver[/B]: you were right and I also ask what [B]Peter[/B] thinks. I remember what Williams wrote in his book: if Commercials get long on silver, get ready for a bull market. Well, they did net get long (long means here being more bullish than bearish) in the last 3 years but every time they got to zero, there was a run. And we are almost there. So what I want to say is that for me the main trend is down, but a good RRR trade is about there for the upside.

What do you guys think?

FE

3701

Yep, CHF looks attractive, many traders still wary though, when you get ad hoc intervention from a CB it adds distortion.

Gold and silver - here we have the classic case of context, that context is China.

The indicator of context is what we have spoken of back some months, namely Dr Copper.

If we compare the last 6 months charts of copper, gold, silver, Aud/Usd and the CRB then we can see that the world’s largest user of copper in it’s manufacturing industry has either been using less or the world’s producers are making more, I suspect the former.

So asking the good doctor, based on the market law of supply and demand, whether he was shocked at the recent Chinese manufacturing numbers, he would probably say no. Asking him whether he would yet think of going long on any of the above charts he would likely say we still need to keep an eye on Chinese numbers.

3702

The thing is for me I’m scared of trading CHF no matter what. But my COT index is not giving me an extreme.

I agree with you on Gold. It is at a very high extreme buy levels and I’m very excited about that. I also agree 100% that the trend is down but may be we’ll get nice quick buys from this.

I also agree with you on Silver that we are very close. Almost there and may be by next week my COT index will be ready.

The thing is about COT is even when its counter trend, the rallies take at least two weeks so in the worst case scenario give you nice short-term trades. I’m very excited because lots of instruments are getting to an extreme (regardless of whether we will trade them). NZD, CAD and now AUD is also very close.

There is also a neat trick which we all know but I wanted to bring it up since its useful in understanding dollar.

Dollar Index is also reassuring because there are no extreme levels yet. I suspect that the best buy opportunity will present itself when WILLCO reaches a buy extreme. WILLCO is currently at 22 so someway off the buy extreme.

3703

Also on silver, Williams doesn’t mention, but Murphy does, that this metal has a duality aspect, it is both a precious metal and responds to price behaviour in the Gold market, but is also an industrial metal and is sensitive to world manufacturing demand just like copper.

For this reason Murphy suggests watching the link or ratio of price behaviour between Gold and Silver, we spoke some time ago about how this ratio can be an indicator of change ahead, commercials will be more sensitive to such changes since they are the guys at the hard end of supply and demand - maybe this is what Williams is picking up on.

3704

This idea has been on my mind for some time but I’ve been unable to execute because I lack the skill. May be BBLAZS can help me.

Now its very simple. Larry Williams said that the COT Index was basically the %R of commercials positions for the last three years. So we can find out extreme levels (which %R) is good at. But its not an entry or a timing tool.

But what if we turn it into one as well?

%R itself is not a pure indicator. It is simply %K of stochastic applied to a range of 0 to -100. So in that respect a stochastic is a much better indicator than the % R. Because in addition to spotting extremes, it is a good entry tool as well.

So what I’ve been contemplating is what instead of a %R of the net positions, we plot a stochastic of net positions.

Now the indicator of COT index on Tradingview is reliable (I confirmed it with Larry Williams’ indicator from the webinar and they gave the same reading). We already mentioned that the COT index is basically the %K of net positions. [B]Now we need to plot the %D of net positions and provide a slowing option so we have a stochastic.[/B]

I’m trying to get that done but with no success.
[B]BB,[/B] Do you think you can do it?

3706

Oh my god guys I think I made it.
I think it is much more powerful than the original COT index. The reason behind that is because I think it filters out Commercials signals that are against the trend.

In other words, we talked about haw even though NZD is at an extreme, it is so bearish we shouldn’t take the signal. This indicator actually does that calculation for us!.

My excitement may be pre-mature so let me look at the pictures.

Now I’ve changed the rules for trading it a little as well to incorporate it as a timing tool as well. So it is interpreted more like a stochastic rather than the set up tool COT index is.

3707

I have to say NZDUSD is working like a charm so far. I moved my stop to break even and the worst thing that can happen now is I make money from swaps.

3708

Phil,

NZDUSD seems to have worked out in your favor depending on where you got in. Relentless short selling in Chinese stock market put a downward pressure on AUD, AUDNZD ticked lower early asian session and still is considerably weak compared to kiwi onto London. This might have played a role in NZDUSD upward move.

3709

Hi Philip,

Looks interesting. Please tell us when you get the first signal and for which pair.

FE

3710

Hi,

In USD/JPY&USD/CAD price move in direct with Commercials (Blue line), but in EUR/USD, GBP/USD, NZD/USD it’s moving by Large traders (Green line), please let me know your idea about it?

3711

I got my hands full atm, but I’ll take a look during the weekend. It should not be difficult though in TradingView.

3712

I already created the indicator :slight_smile:

Now I have two versions. The first is basically very similar to the COT Index, it just improves the timing of it but cannot be used as entry. For example we normally see COT Index go to extreme 10 or 15 weeks ahead of the move. This one will improve the timing so we see the move three weeks ahead for example.

Now the second as I’m trying to use as an entry tool. It is basically a 14-week stochastic of COT index. If it works then good. If it doesn’t then at least I tried. I’ll keep you guys posted.

3713

Now this is another proof why commercials are good. RBNZ governor says the NZD is still expensive and needs to come down but what is the immediate response? NZD up 46 pips.

3714

Ok, here is how I use session levels as entry/target, if Monday then the NY session is ok if on USD news.

First here is a shot of Monday close Gbp/Usd hr1, this is what I was looking at Monday morning when Europe opened, i.e. those two yellow lines represent the most recent Asian mid, the top one is the next highest one, my intention was to buy so those were the only two line of interest to me.

Entry at the crosshair, price had gone up through the mid and returned for entry at 13.00gmt

Exit on hit of top mid, see how price first reacted there and then satisfied all orders and slowly fell off at the close.

Note too that the break of the Asian high was fast, so a revisit for left behind orders, this is the more cautious entry.

Next day, Tuesday, everything moved up, so looking at the chart on Monday evening it is reasonable to guess that the next Asian will be higher, price came up fast from the mid so I wonder whether there are still buy orders not filled and not pulled, so the bottom line is still of interest.

The top line is of lesser interest since I am guessing that most orders there are filled.

I need a new top line, so I move up to the next Asian mid that hasn’t yet been re-visited.

I have to go back to July23 for that and draw my line: (note how price reacted both sides, so seems there were orders here)

So I keep the bottom mid Asian and I have a new target mid Asian - here is Tuesday and end of day, note how price made it’s way down to fill any unmatched buys left on the table from Monday.

(that range is 90pips)

And finally today, bottom line now of less interest, the top line still very much in play (price resting there now) and the next Asian mid to encounter on the way up was … yep that solid yellow line (Asian mid on june23 and also the first Asian low to encounter, dated July1)

3715

Btw, I wasn’t trading today, again see the more cautious entry being the break of the Asian high and then the re-visit - one approach is to use both forms in a single trade, I prefer the more cautious at higher risk times such as on Monday or imminent news like today.

3716

Post fomc the level I am watching is today’s mid Asian at 1.5605

3717

Since in the mood for posting charts, remember the Advance/Decline on s&p,

Two charts, clear heads up on recent pull back, first is showing each day still going up, but not so the ad, this is the signal on July 20:

And this is what followed.

Btw, 5605 was good for a reasonable scalp - tomorrow a new day.

3718

And finally, thanks to Tradingview, two charts:

Current play in S&P with those two recent up days - price not following the advance decline down.

Time for another new high?

similar in the past:-

3719

One final post re levels intraday - yet again GBPUSD today, two yellow lines, one from yesterday’ mid Asian level, the lower one has now moved up to Tuesday’s mid Asian.

On Tuesday see how price pushed right up through the mid without a re-visit, wonder would that mean there may be some buys left unfilled - so if price were to make it’s way back for a visit and I remain bullish, then could I leave a buy here.

3720

Week over, one of the guys on Forexlive said yesterday that this week it’s “all about the levels” - the two yellow lines on last night’s post represent 40 pips max, so tradable 30 pips with spreads out.

So, again remaining bullish today. what about just leaving yet another buy at the low line and exit at the top - just leave the lines as was since yesterday’s price has closed where it opened.

Today: