COT Report Analysis - a thread on market sentiment

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706

Hi guys,

ok Peter, lets do it on London open! Until Philip and rookie sleeps (Mike gets up way too early to be tricky on him) we both enter the market London open and push the price up! They will be happy to see it in a couple of hours.

I think it was interesting to learn the month end fix, something that we did not know. It saved us money and gave the opportunity to enter the market at a better price.

Now the last 5-10 minutes brougth some unexpected volatility but was everything like expected. Or maybe GBP made some surprise as it was the only currency to bounce back suddenly. However it was the right currency because it did not trigger my entry at 1.6595 earlier but now I am also in there.

I hope you could all finish the week with good entries and we continue our journey next week.

Tomorrow, most likely I am not at my computer, try to post a part of the book still tonight, the COT non-commercial findings and my entries and plans I will share with you guys on Sunday.

I wish everyone a nice weekend do something outside and take care

707

Hi Philip,

I like a lot some of the setups. I am sure on the weekend many posts are coming so I would like to ask you to post them in your weekly trade setups because it will be lost without that. I cannot answer long because I am in a bit hurry now with some things.

In short:
I like GBP/CHF a lot! Bounced back nice from 38.2% Fib, I should have seen it earlier. Grrrrr. It looks good. EUR/GBP too but like the other even more. JPY, hmmm maybe. I have to take a look at that. But I believe slowly in JPY weakness again.

USD/CAD I like too. AUD/USD short, I am into it, as I said I think it was a bad idea. CAD looks better to me.

Good luck and I am waiting for the setups. So far I like them.

708

Morning everyone /Evening , you’re still awake FE/

Looks like what we were expecting had happened. I slept early last night. Was tired. Wanted to view my charts. But my broker oanda won’t allow me. Its maintenance day.

Just wanted to say we’re very fortunate to have you around [B]Peterma [/B] to guide us to the right direction.

Have a good weekends guys…

I’ll be back around soon…

709

[B]FE…[/B] I think the month end fix thing happens either every month or every quarter. Just like account balance. Fund managers around the globe balance out their portfolios. Makes sense. That was a good experience. We can buy whatever currency that is strong at a better price :smiley:

[B]Philip…[/B] I was actually thinking about the same thing. Strong GBP.

710

[I]I continue now the series here, I write here down my own thoughts about my second COT book as I read it. I write down anyway always for myself what I think is important to look it back later, so I decided why not to post it here too? Important: I write down the own words of the author, in the right order as it comes in the book. However I will not structure the different thoughts and do not write down which pages they were. I just want to mention the sentences which I find important for myself. This is not the same value for you as reading the book (hopefully you will all read it when you have the time for it), however it is better than nothing. I also make my own summary in the end of each post.[/I]

[B]A Unified Theory of COT Data[/B] - Part I
What I have found to work better than the old indicators is to look at the commercials as a percent of open interest (OI), as opposed to just looking at the commercials versus themselves. We want to look at them versus all market action. Thus when OI is increasing and it is the commercials doing the increasing by adding short sales, a market peak should be close at hand, and vice versa.

[I]JPY[/I]: typically, its major up and down moves have come about the same time each year. This is largely due to the need to hedge against the USD when most foreign contracts are drawn up. While there is a season as to when rice is planted and harvested, there is also a “season” as to when importers and exporters do most of their business and thus need to take action in the currency markets. The Seasonal Trend Index teaches us that the yen is usually weak and declines during the first part of every year. Typically the yen makes a low in the middle of March. That’s been the case in most of the years under study.

[I]A new COT Indicator - Commercials versus total open interest (OI)[/I]
It’s time to put much of this into perspective. We have learned that the commercials are the driving force of the market. We have also seen that high and low levels of OI have forecasting values and that there are parts and counterparts to OI, as well as that we need to open it up to see what the commercials are doing, to find out who is responsible for the increases and decreases in the valuable data. One such way of breaking this down is to look at the commercials as a percent of total OI (commercial long position/total OI).This indicator provides some of the much-needed insight into the lore of the COT report.

The telling point is that when the short selling by this group has mounted to 55% or more of all market action, longs and shorts, by all other market players, a top has been close at hand.

Williams Commercial Index ([I]WILLCO[/I]): total commercial short position divided by OI and using a 26 week measure.
[I]ProGo Indicator[/I]

Summary: I really like the tip on the JPY, maybe we can remember it and use this information to our advance in a couple of months! Looking at this book and the book of Briese, I have to say I like net positions and COT Index the most. We have seen WILLCO and ProGO indexes but they do not seem to be so clear signals and usage as Net Positions and COT Index. In fact the signals were sometimes not so accurate I would say, even if COT is not a timing tool. The chapter is quite long so I will continue to write about it next time.

I really liked three sentences in this chapter that I share you here in the end because I think we can always use the wisdom of them and do not only belong to the current chapter:

“There are very few hard-and fast rules in this business of speculating but one is that what everyone waits for will never happen.”

“If the setup is pretty clear; the question that remains is when to buy, the exact day, time, and price. Again I would turn to simple trend lines. This business does not need a great deal of fancy math and long-winded formulas. Price is going up or down, and usually the best way to see that is to look at price, it speaks loudly.”

“If you don’t see anything, you don’t trade. You take risk only when you see an opportunity.” - Paul Tudor Jones

711

Hi guys! Happy Weekend.
Let’s see how the week went.

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

This is the totals:

CAD: +18 -6 11
JPY: +14 -6 15
GBP: +15 -10 10
AUD: +14 -10 11
NZD: +14 -13 8
USD: +12 -17 6
CHF: +8 -13 14
EUR: +4 -24 7

Majors vs. Comms:

Monday-----Majors +15
Tuesday----Comms +15
Wednesday-Comms +9
Thursday—Comms +10
Friday------Majors +2

Comms took 3 in a row.
Before that the Majors took 3 in a row.
And if you guys remember, the Majors couldn’t take 4 in a row. So now it’s the Comms turn. Can take it 4 in a row? Well, it hasn’t happened this year so far. I’m guessing it will be a NO.
That makes us think about which Major, or combination, will be a front runner.
Guys…you have agreed with my thinking. I think the GBP will be coming back from the dead soon. Just look up at the week. They were the only Major that was on top this week. Comms took 3 days, GBP took 2 days.
(tied with JPY on the first day) Also check out their progression throughout the week.

Ok guys. I got a lot of work to do here this morning, for my own tallies. I wanted to get this out to you.
I’ll be back with what I’m thinking for the week. Also my results for this past week. And maybe some charts.

Mike

PS…If you want to find a good way to post charts, check out this. Download Jing, Free Software for Screenshots and Screencasts
It’s a great program to capture and send pics and videos.
If I can figure it out, so can you.

712

Thanks Mike for posting the tally quickly. I do hope that you can do a monthly tally if you get the time. I did my report and will share my findings tomorrow or tonight. I am looking at seven pairs this week.

713

I know it’s a little way off, well not really, anyways NFP is in sight yet again.

There was a trader on here a while back and he gave a great little tip for a country’s upcoming employment numbers. Check the latest Business Confidence numbers for that country and look for a sizeable shift from the previous confidence number.

His reasoning is simple - if business people are reporting confidence on the rise, they are more likely to hire.

Have a look at the US on that tradingeconomics site, it’s under ‘Business’ section for US.

(BTW his name was ILovePizza)

714

If that’s true we should get a really high reading. I heard that Manufacturing PMI also is a good guide. I’m more interested in your opinion on this month’s ECB. Do you think its a good idea to trade the Euro this week? or is it better to wait for the results of the meeting? Are you expecting ECB or not? What is the reaction we should expect from the EUR if ECB does not announce a QE?

715

Hey guys.
Peterma…I love you.
Thanks!
So, here it is for all of you guys.

2014-08-30_1702.png681×555 67.8 KB

716

Ok guys.
I got some better numbers for last week. I know you like these better.
We’ll go from top to bottom. Pips made against everyone. Weekly chart, open to close.

CAD: +712 //-----against majors= +563
AUD: +235 //-----against majors= +286
JPY : +85 // ------against comms= +85
GBP: +18 //------against comms= +18
NZD: +0 //-------against majors= +98
CHF: -75 //--------against comms= -75
USD: -103 //-------against comms= -142
EUR: -789 //-------against comms= -493

Comms vs. Majors (total pips) ----just adding up left column—
+947 vs. -864
So boiled down that will be Comms up 83 pips over the Majors.

Comms vs. Majors (teams) —just adding up the right column—
+947 vs -607
Boiled down that will be Comms up +340

717

Morning guys…

Let’s have a look at what big guys were up to as of last tuesday!

COT data analysis 26 Aug update-page-001.jpg700×495 37.6 KB

Commdolls
AUD, NZD and CAD

Non commercials: Specs have reduced their longs and net position /longs/ respectively on CAD and NZD. We also saw a decrease in price level and open interest for both. CAD net positive position has been decreasing at a steady rate for the 4th consecutive week since its peak at 22691 on 29th July reading and now standing only at 5663. Net position reversal from positive to back to negative readings might in the cards for CAD in the near future.

Same goes for NZD, we saw a decrease in net positive position for the 4th consecutive week. The most recent peak was on 15th of July. It’s very unlikely that we’ll see reversal in net position from positive to negative for NZD as it usually manages to stay above with net positive position readings most of the time /even if we go 4 years back net negative position readings are very rare/. But I think its worth taking note that specs have been to shying away from going long on NZD as we see them drop their longs and reduce their net positive positions for the 4th consecutive week.

As for AUD specs have added on both their longs and net position /longs/ respectively and we also saw an increase in open interest and price level. Specs have been reducing their longs and net position /longs/ for the 2nd consecutive week until reading on 12th of Aug, however specs have been buying AUD for the 2nd consecutive week from 19th to 26th . Judging from steady increase in longs and net position /longs/ AUD bulls might not have given hope yet.

Conclusion: Specs are clearly bearish on CAD and NZD but rather bullish on AUD. However we should keep a close eye on AUD as to how far the bulls can go. Their /AUD/ two other buddies aren’t doing all too well. And i think its worth noting commdolls usually tend to move together. So let’s keep that in mind guys… especially before taking any long swing trades with AUD.

Commercials: However on the other hand commercials have reduced their longs and increased their net position /shorts/ across the board. Commercials had bearish /bullish/ stance on all commdolls. As we’ve seen from last weeks price action commdolls have had a great run completing 3in a row win , there also have been a long awaited dollar correction giving a chance for commdolls to run up. Taking advantage of this commdolls run commercials have sold off some of their positions across the board. Except for AUD there wasn’t heavy selling on rest of the commdolls.

Commdolls rally that we saw was probably temporary /as we all know/ and I expect commercials buying of commdolls pick up as commdolls price drop further.

The majors
GBP and EUR

Non commercials: Specs have reduced their longs and increased their net position for GBP /longs/ and EUR /shorts/. We saw price level decrease for both.

Specs are clearly bearish on EUR with net position /shorts/ standing currently at -150,657 increasing at a steady rate since it turned from positive to negative on 13th of May 2014. While current net position readings for EUR seem like an extreme if we go back 4 years, the highest net negative position was at -214,418 in 2012 June. Thus further increase in net negative position readings on EUR for few more weeks could be expected.

As for GBP specs have added on their net position /longs/ from 13,287 to 15,467. Specs positioning still appears somewhat mixed. I think we should look at commercials activity and fundamental factors to get a better picture on GBP.

Commercials: Commercials have decreased their longs and increased their net position /negative/ for GBP. There have been some sell offs /bullish/ of GBP by commercials though not consistent. I don’t have much past data to get an accurate picture. I’m waiting on Philip’s part COt commercials index.

As for EUR commercials have increased their longs and and net position /longs/ respectively. We saw more buying of EUR by commercials. As of last week so far they haven’t started heavy selling off /bullish/ EUR yet. In short they’re yet to be bullish on EUR.

Safe havens
JPY and CHF

Non commercials: Specs have increased their longs for both JPY and CHF. As for JPY specs have added on their net position /shorts/ for the 3rd consecutive week while CHF net positon /shorts/ have decreased for the 4th consecutive week. Specs outlook on JPY seems bearish as they continue to add on their net position /shorts/ and bullish for CHF as their reduce their net position - shorts /we also saw price level increase/.

Commercials: On the other hand commercials have decreased their longs and net position /longs/ for CHF. And increase in both longs and net position /longs/ for JPY. Commercials have been buying JPY so far we haven’t noticed a prominent sell off /bulllish/ of JPY by commercials. However since 12 Aug reading commercials have been selling /bullish/ CHF for the 3rd consecutive week.

Conclusion
Bullish bias: AUD, CHF
Bearish bias: CAD, NZD, EUR and JPY
Neutral/Bullish: GBP

718

I decided to post my trading ideas on trading views so you guys can get a visual on them. I shall post my COT findings (based on which I decided on my ideas) in a bit.
AUDUSD
USDCAD
EURNZD

719

I have a feeling next week will be majors week - 3 in a row win.

I’ll be back with my trade setups later in the evening guys.

720

Hey Philip!

I wonder which side of the trade you’ll be on with AUDUSD ?
I went short with AUDUSD last week and my SL got hit at -70pips. Both were strong. If we look at last tuesdays COT report AUD still appears somewhat bullish.

One thing that I’ve learned since we started analyzing COT report is that never match strong v strong or weak v weak. Either it doesn’t go anywhere and it has a higher chance of going the opposite direction that you initially planned on. Just my two cents.

721

Here’s the latest headline on Ukraine

Conflict in eastern Ukraine is intensifying with thousands of foreign troops, Kiev says 30 Aug 2014

Ukraine has said the conflict in its east was intensifying with thousands of foreign troops and hundreds of tanks aiding separatist fighters, while EU leaders indicated that they were prepared to impose further sanctions against Russia.

Russian tanks entered the small Ukrainian settlement of Novosvitlivka on the border and shelled almost every house until the town was destroyed, Ukrainian military spokesman Andriy Lysenko told journalists in Kiev, Reuters reported.

On a visit to Brussels to meet with EU leaders, Ukrainian president Petro Poroshenko said on Twitter that Russian troops had invaded his country and that this required “an adequate reaction from the EU”.

Ukraine also said that rebels had downed a Ukrainian fighter jet last week using a surface-to-air missile system.

Despite reports of secret military funerals in Russia and rebel leaders claiming to have Russian military personnel under their command, the Kremlin denies that Russian troops are engaged inside Ukraine.

Russia is demanding that Kiev return ten Russian soldiers that the Ukrainian military captured on its territory. Mr Putin said on Friday that the men accidentally crossed the border when they got lost during a patrol.

For more : Conflict in eastern Ukraine is intensifying with thousands of foreign troops, Kiev says - Telegraph

722

U.S. Cuts 2014 Oil Price Forecast as Production Surges

The Energy Information Administration decreased its 2014 price forecast for West Texas Intermediate crudes after the U.S. reached its highest monthly production in 27 years.

The government reduced its forecasts for global demand for this year and next and said U.S. production will reach a 43-year high in 2015.

Probably not a good news for CAD as US is one of their biggest buyer.

723

I will look to sell AUDUSD Rookie. Once you click the link you will see where and why I want to sell it. Out of curiosity, what price did you sell at?

724

So, let’s see what the COT Report tells us this week. Very important that the percentile factors and net positions will always show the non-commercials (speculators) vs. data from the previous week:

[B]AUD:[/B] 70.68% vs. 69.26% previous. Net positions: 41 938 vs. 36 574 previous.

[B]CAD:[/B] 53.96% vs. 54.76%. Net positions: 5 663 vs. 7 281.

[B]CHF[/B]: 26.69% vs. 22.17%. Net positions: -13 039 vs. -15 492. Ok, here we have to watch out. The speculators got more bullish but price was bearish for CHF. There is a divergence.

[B]GBP:[/B] 56.11% vs. 55.06%. Net positions: 15 467 vs. 13 287.

[B]NZD:[/B] 78.23% vs. 77.90%. Net positions: 11 841 vs. 12 032.

[B]EUR:[/B] 20.87% vs. 22.49%. Net positions: -150 657 vs. -138 825.

[B]JPY:[/B] 13.74% vs. 14.58%. Net positions: -102 891 vs. -87 271.

[B]USD Index:[/B] USD is strong as we all know, even after a weaker week. It is in a quite tough resistance zone though.

As I do not have BRL in my charting I cannot look at it. It would make sense to analyze it though. Looking at the COT action there is quite a difference in the last weeks. It looks like a big sentiment change.

The OANDA website is again not in its best form. Some currencies are not updated on the charts, some of them are updated… I do believe the only surprise where we do think a divergence between price action and net position change is the CHF, Peter might give us an explanation there.

In the short history of my non-commercials report, AUD is most bullish and EUR is most bearish.

725

[B]1. Short-term trades:[/B]

Well I entered quite many USD long trades. I might jump into some other trades but mostly [I]I am already in the positions and have to manage them.[/I] The other short-term trade is tomorrow at London open to turn the market with Peter and Mike.

[B]2. Long-term trades:[/B]
Slowly I do not understand the Russian moves at all. Putin now threatens the whole world. I do not know what he wants to do when he mentions the nuclear power of Russia. Hopefully he does not want here a world war. But for sure he is not scared at all and instead of looking for peace he sends further troops to Ukraine. The situation is getting worse continuously. Here is one of the very many articles, but the one the worries me the most:

Putin: You better not come after a nuclear-armed Russia - CNN.com

This makes me think that I cannot even think about to just sit through the crisis but I even have to close the positions as they might go a lot above the historical standards. This would mean to[I] take large losses and be ready to jump in at better prices when the situation finally calms down[/I]. Now it is also interesting that I cannot consider the exotic currencies the same way. With closing trades I mean the USD trades, the EUR trades not, because EUR suffers just the same as the European exotic currencies so these trades are not doing that bad. And of course when tensions rise it affects all exotic currencies around the world but we have to differentiate between Eastern European currencies who’s borders are not that far from Russia, and between non-European exotic currencies. The non-European exotic currencies might also take a hit but not near as bad as the European counterparts. So I will take my time and analyze this situation.

[B]3. Stolen trades[/B]
One advantage sharing are mentality and trade ideas is to get good ideas from others. I do not like to be influenced from others, but I do think about all the trade setups you guys write about. I try to understand why you thought about it and how I see them. Probably you see that I answer for all your trade setups what you mention. Bottom line is I do not take trades that I do not come up myself. Sometimes I take though exceptions.

This week I do have two “stolen trades”. [I]Peter[/I] mentioned on Friday a good entry on the [B]USD/JPY long[/B] setup. Now as you know, I was watching this pair and did not want to enter it until I have a clear view. The latest development in Japan shows me a clearer view and that I should start looking to vs. JPY again. The pair bottomed at 103.55, but I do not mind losing those pips because my mind was not sure about the setup. So if I get an entry signal I jump in.

The other setup was mentioned by [I]Philip[/I], going [B]long on GBP/CHF[/B]. I just love this setup and it makes me angry that I have not found it earlier! Fundamentals from the SNB side also lines up for GBP and the technical analysis on the daily TF really confirms to make this trade. Quite many pips are already lost in this trade, but I do believe that the rally will go on.

So as you see there are not as many setups but so important made this weekend. They are the setups I want to manage, sometimes close or look for the right entry.

And now I start to read the 20+ posts you have made in the last 1.5 days when I was not at the computer (I did not want to read them before making my own analysis as they would maybe influence my own decisions). I will see if they line up with my thinking or not. However based on Mikes charts, we have to see a “Major week” coming.

PS: I clicked through very fast the posts. I see they are very long and great analysis. In the very fast time I have seen many setups, analysis and that Mike loves Peter. I think it will take some hours to work myself through so as it is Sunday I take a break now but do the work before Market open.