COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
3963

Hi Philip,

here are my thoughts:

  1. I agree what you wrote about China.

  2. I agree what you wrote about intermarket analysis.

  3. I do not agree with the chart when you compared the USD with all other instruments. Although the results for the last 50 years are correct, but I would call that an “unfair” comparison. How would it be possible for the USD to get stronger and stronger for that 50 years? I mean it cannot rise to the moon, lets say to USD/JPY from 120.00 to 800.00. Or EUR/USD cannot go down to 0.00! I have no problem with stock making a 500% rally in 50 years (made up the numbers) or to have the same for commodities. But for a currency? I believe if you make the same 50 years chart for GBP, NZD or doesn´t matter which minor currency, they would all show a similar and flat line compared to the USD. I believe it does not make sense to hold 50 years any of the main currencies. Only exception might be if you have carry trade strategy for long-term.

Intested to know how you see it,

FE

PS: as Peter always says, great posts makes you think and your posts qualified definitely for that!

3964

Hey guys.

Wow. What good stuff you put out there Philip. It is good to keep all that in mind.

Well, I would like to talk about the short term. This week. I’m gonna tell you my idea. And plan.

Ok. So, you all know that I like to trade a basket of trades. I think it’s good for diversification.
You all know that I look at the field. And I have the numbers for back testing any kind of idea.
You know I always seem to bring up the ‘Major/Comm’ thing. (I think I’m the only one!)

This is it.

I’m trading the Majors against the Comms.
That’s 15 trades. (3 Comms against 5 Majors)
And I’m going with the Comms long against the Majors. Now. I put them on at the open.
See, all I need to do is find which of them is trending over the other. Do you remember only a few months ago that the Majors had it all over the Comms? Generally it was pretty easy to figure out who was on top.
And now we have a change. I know…I have read that this all could be just a real good retracement. But, I don’t think so. I have seen the Comms peak up, just to fall back down. It’s happened a few times last month.
And I was thinking they are getting poised for some real strength. And sure enough, it has started, beginning with October.
Ok, and if I’m wrong, well, I will see the numbers. They will convince me. And then…I go with the Majors against the Comms.
It’s gonna be one or the other, for me. Do you know…if I would have thought about this just before last weekend was over, I would have done this, this past week. Ok. So, do you want to know the outcome??? You are not gonna believe it.
+4,375 pips.

Well, I have not defined exactly when to exit yet. I have options in mind.
And the position sizing I’ve upted. I went with a 2k size each. Which turns out to be like a 30k one trade size.
I was trading with 1k with around 17-20 different pairs. But, I’ve been thinking that’s just not enough.

Well, I’m super excited with this style of trading. And I know I need to refine the trade management of it.
Maybe I might keep them open for entire week.

So I see it like this, this week.
The trend is with the Comms. Unless I see something big changing that, it’s all Comms.

I’m not afraid to keep you guys posted on my results.
This is big stuff.

Mike

3965

Maybe you can figure out what it means.

2015-10-11_1843.jpg700×292 40.7 KB

Mike

3966

I agree with you on point 3. That is exactly the point :slight_smile:
The context of the chart was that many analysts were saying the dollar would appreciate beyond measure,…etc. So I shared the chart to say exactly the same thing you are saying, it is just a currency.

A practical way to think about this chart is to say that there were six guys in the seventies who had a $100 each. One decided to invest it in a stock, the other in gold, the other in bonds and another in Dollar,…etc. This would be the result of their investment.

The point I was trying to make is even if the dollar appreciates in 2016 as well and we see a stock crash, it would be the perfect opportunity to invest in stocks, rather than just keep your money as dollars.

3967

Hi Philip,

we are on the same opinion. And I beleive Peter too. That is why he also looks to buy S&P on lows as it will rise. However long-term currency trading has one advantage: carry trade revenue. And this cannot be shown on charts.

Hi Mike,

look at those CHF pairs again vs. commodity currencies :slight_smile:

Have a great trading week everyone,

FE

3968

I’m off to a good start. That’s the bottom line after Asia and a couple hours into London.

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Mike

3969

Guys…
Taking a hit. Running total for the week here.

2015-10-13_1945_001.jpg700×545 62.6 KB

Now I’m starting to wonder if the Comms just had a good week last week (real big retracement).
But, I’m still convinced that they had a trend started. One day up (ok, a big up) isn’t a deciding factor for me. I’ll see how the week turns out.

BTW…what your looking at there is the Majors against the Comms. 15 trades. Comms long against Majors.

Mike

3970

Coming back.


Mike

3971

That’s one wild day wow.

3972

Back in it boys. (About one hr into London now)


Mike

3973

Hi guys,

Just thought I’d mention Gold - I’m sure you have noticed the inverse correlation with USD is very much prevalent.

If you have a look at Oct2 (Nfp) you can see the strong move in each, the correlation has been accentuated since that data release.

The likely cause is the uncertainty surrounding Fed policy/ timing on rates - this uncertainty does not help USD and does the reverse for Gold. Price seems to react on to the slightest negative US news or again the slightest positive for competing currencies, some of the moves can seem exaggerated.

Looking ahead, this uncertainty is likely to be addressed by the Fed, the thought then is whether Gold would continue it’s recent upward path - investors in GDX, GLDX and GLD remain active, whereas the volumes in UUP (dollar bulls) remain low.

3974

One other thing I wanted to mention - the S&P

Tonight watching to see whether it would break to the upside, it’s been trying for about an hour or so.

XLF (financials) is the leader, that’s important, helped today with good results in Citi, XLF is an offensive, probably as offensive as you can get, have a look at the date on this chart and associated volume Oct2nd
and then compare the S&P from same date.

Then if only day trading or scalping the S&P, look at current sector map, this helps in anticipating momentum.

3975

BTW, XLF is hr1 and map is today’s action.

3976

Another btw that I forgot to mention, when seeing this momentum getting played out took a long on Usd/Jpy as a short term trade, if the S&P stays up then will likely stay with that one, will also stay with the S&P and see how the futures play out tomorrow, chance may be positive European, at least in the morning.

The reasoning on the fx is twofold, first the positive data today on US and secondly possible selling of Yen in risk on sentiment with the rise on S&P

(well that’s the plan :))

3977

Lol, me again, now that the dust has settled I can post yesterday’s and today’s s&p.

First the 2 broken lines on price and w/s, I put those on after the close of the first up bar after the down play. - divergence in extremes, price’s fall was much more extreme, then I could see the 200 sma, then w/s refused to go below zero at the down bar, then it happened that the low of that bar was also Tuesday’s low (didn’t draw that horiz, just was aware of the level).

So then, to add to the mix was Citi with it’s numbers - so in truth there was very little doubt of direction.

3978

Hi Peter,

I have two comments to your great analysis:

  1. I did not search the earlier posts about the sector map - but as I remember - we had 9 sectors. Why are there 11 now?

  2. Hmmm was reading your in post 3958 you wrote “positive data today on US”. I guess this is the tough part of fundamentals. We all see them as we want. To me it doesn´t look that positive. The Unemployment Claims change was positive, but for me the CPI is the most important which came in line with expectations, which is -0.2%. Of Course we can talk about what is more important, CPI or Core CPI reading. What do you think?

Have a great day and take care,

FE

3979

Hi FE,

Well spotted, you are correct, there are two newcomers - XLRE and XLFS, first data point for both Oct8th 2015.

ON US data yesterday the news on unemployment was positive, the news on core cpi was positive and the big thing, inflation was as expected.

The fact that the numbers were not a slip was viewed as positive since so many numbers lately have been slipping. You raise an important point for me, I try to think how the market is thinking and yesterday it reacted by saying ’ woosh, thank goodness for that, no missed expectation’.

At a different time those same numbers could be seen as negative and produce a sell off on USD.

3980

Hi Peter,

ok, you are right. It makes sense about the “different times have different expectations”. That seems to be a logical explanation why not so good news were interpreted actually as a buy signal for the USD.

Checking the Friday report outcomes for USD is basically so mixed again as it can get. It might be just again some time until the best is to leave the USD and find better opportunities. When it all settles down a bit better opportunities might come again.

I was talking yesterday with some traders and one raised a very interesting question and I wanted to ask what you think about it. He said that stocks markets are going to crash in the foreseeable future. Well, lets do not discuss what kind of a TF is that. I was more interested about his explanation. He said he thinks that because QEs are artificial and CBs just try to push their economies with artificial money and on the surface it might look that economies are doing fine, but it is rotten quite a lot. So he thinks a crack is going to happen where reality will shows its true face for the world.

I am interested to see what you have to say about that.

Take care,
FE

3981

Hi FE,

That trader has probably been reading such forecasts that arose in the Spring of this year.

Back then a few ‘experts’ were saying things like “[B]It is time to reduce US equity holdings for the near term and look for a 3% to 5% move lower. The Treasury weakness is NOT a ‘risk on’ trade it is a ‘risk off’ trade, where low yields are viewed as a risk asset and not a safe haven.”
[/B]

Of course US bonds did continue to fall, and then rose, stocks did fall in late summer, but are rising again.

This was written by a respected analyst in 2012:
[B]While highly critical of China’s manipulation of the yuan, the Fed is itself using QE to drive down the value of the dollar[/B].

The reality is that some people believe that QE is tampering with the laws of supply and demand, maybe they are right, only time will tell - the ‘crack coming’ is very old, usually instances such as Zimbabwe are used.

My own opinion is that the market will continue just going up and down.

I’d say the best read on QE is with Ecr Research:

The dangers and drawbacks of Quantitative Easing | ECR Research

3982

Hi Mike,

you did not share with us on the weekend if you closed your trades or not and what are your trading ideas for the next week. If you still have the comdoll trades open, or re-opened some of them, I guess you made nice gains on the first day of the week. Keep us updated how it is going.

Have a great week everyone,

FE