COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
2448

Hey guys!

So its been about 6 months roughly since we embarked on this journey. Agree with FE and Mike, we’ve come a long way. But like Mike said there’s so much more to learn, the learning curve will never end. I’m hoping that we’ll arrive at a completely different level as regards to understanding of market by the end of next year. I’m assuming most of you guys will take a break, well I do suggest some time off. So that we can start off the new year with full of energy. :wink: Happy Holidays guys ! and take care Mike ! I guess I should be thankful for living in a tropical weather, but its been getting very cool lately.

There’ no signal for me report this week. So I’ll report on specs positioning.

Russell 2000 mini - specs are bearish
AUD - specs are bearish
GBP - specs are bearish
CAD - specs are bearish
CHF - specs are bearish

I have a suspicion that there’s going to a correction soon for AUD. So beware of taking long term short position on AUD.

2449

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We’ll need a bigger force to break through this level. If you checked lower TFs since 18 Dec corn has failed to create new highs on 15M and 30M. Wait for a retest and going short seems like an okay setup.

2450

[B]FE[/B], I don’t take the trades just because Commercials are bullish on Natural Gas. I just share them with you, so you can act on the signals as you see fit. Wheat is especially responsive to Commercial extremes, but we are not there just yet. Patience is key.

2451

Hi BB,

you are right, patience is key. Just shared my worries that we get into something too fast again :slight_smile:

Tell me if you get a signal and I will also check it how I find it.

Rookie,

good point for AUD, I will get into the analysis of shorting it in January. Now I do not look after that one. But as we were long on it quite often and the rate cut news are growing, it does seem to be a good long-term opportunity.

FE

2452

Hi Guys,

I know we don’t often talk of things like pivots etc, I just thought I’d post something that happens quite frequently on S&P - 15min chart.

The lines on the right are today’s pivots, R1 happens to coincide with very recent highs (blue line), when you see the break of that and you say ’ wish I had caught that’ - no need to worry, it often pays a fleeting visit again, just like a few hours ago.

2453

And Finally…

FE mentioned re using ETF’s for currency, as previously mentioned they can be used a heads upper to investor sentiment, a few days notice of change or end of pullback.

Recently there has been much market talk re risk, this played out a lot on USD/JPY

The largest bear etf, (one that tracks inversely) is Proshares’ UltraShort Yen (YCS).

Note the recent volume, note too the spike in volume before the change in USD/JPY.

Check USD/JPY daily to see what I’m talking about.

So if, for example, USD/JPY is falling, you would expect to see a falling in this ETF volume, then if it happens to spike up - head up :slight_smile:

2454

I think doing historical analysis on this phenomenon is well worth the time. I’m wondering if these currency ETFs corrresponds to cross pairs as well.

2455

Yes Rookie, although volume is needed to make proper analysis.

The purpose of the above etf is to allow investors easy exposure to risk, it’s a leveraged fund (200%) and it is shorting the yen, so if an investor wants risk and he wants to buy that risk in USD, well just buy into the fund.

Imagine you had your investments in Yen and you wanted out of that and into the rising USD, so if you go and change your Yen into Usd, what then? - you would want to buy risk with those Usd’s

It’s second largest currency etf in asset value, there are more, I’ll post on those after Christmas.

2456

I’ll make sure to write those biggest etfs down.

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The blue line represents USDJPY, red Proshares Ultra short yen and the last line represents Proshares Ultra Yen.

I got it Peter, buying into Proshares Ultra Short Yen basically means buying into USD rally and the opposite for Proshares Ultra Yen. Notice the gain I’m assuming its y.o.y ? Oh boy that Proshares Ultra Short Yen is climbing higher !

2457

Yes Rookie, see the gains since beginning of Sep correspond with the rise in volume levels - seems those investors are a little clever.

BTW, are those charts Tradingview?

2458

Its yahoo interactive chart. If you view a single instrument you will be able to see the volume on the bottom. I prefer the visual presentation of their chart. Stockschart is good in a technical way. But thats just me.

2459

Hi guys,

here is something important from the CFTC site:

“December 19, 2014: The next publication date for the Commitment of Traders will be Tuesday, December 30, 2014 because of the Federal Holidays on December 25-26, 2014.”

FE

2460

Thanks for the heads-up :slight_smile: It’s a shame really, I was looking forward to the report :frowning:

2461

Hey guys.

Peter, think I’ve failed miserably in my attempt to do historical analysis on the correlation between USDJPY and Proshares Ultra Short Yen.

I’m not sure yet who drives the whom which was the sole purpose of this study - I wanted a solid proof. Refer to bottom chart looking at declining volume on Proshares Ultra Short Yen with previous resistance getting closer. I notice both investors and specs are not willing to push Dollar higher. At least so far. But theres more room for USD to climb higher looking at past price action the highest point for USDJPY was about around 148.

Before going long on USDJPY should I be looking at any sign of volume increase on Proshares Ultra Short Yen ? Comparing the two, they seem to move about the same. Looks like a good tool to double confirm trades. However, I was looking to use it as a timing tool to enter trades on lower TFs.

I was expecting investors to make their moves ahead of specs. But these two charts don’t show anything of that sort. Instead it looks just about the same !

I suppose I’ll try it out with a live setup. What do you think ? Peter ?

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2462

Hi Rookie,

The thing about Yen is there are two aspects at play. First, as usual there are the Japanese economic factors, but secondly there is risk appetite peculiar to Yen.

There was good input from GlobalMacro on this aspect of Yen here:

http://forums.babypips.com/newbie-island/69274-trader-space-2.html#post661954

On the current daily chart of YCS I have highlighted this aspect clearly. To the left of the blue line you can see a huge spike in volume, the date was Oct 15.

So what happened that day, why the volume?

Well that day the USD news was miserable, core retail sales, m/m retail sales and to cap it all ppi all fell below expectations.

Usd duly dropped against Yen on the bad numbers as one would expect. But looking at YCS something else was happening, something more important, investors has upped their activity, what were they doing?, well they were shorting the Yen.

The next day volume dropped off, but look at the price, it rose as a consequence of the new orders from Oct 15.

Had they gone mad? - no far from it, look at the S&P Oct 15, see the brakes being applied, guys went short on the S&P on Oct 15 armed with the bad US news. Others went short USD/JPY likewise armed, they all lost - YCS was the heads up - remember that the market will follow the investors.

So why did it play out, why did investors begin to short the Yen, why did risk come back on?

Remember when there was talk of a perfect storm up ahead, we agreed that this storm would not appear, that the key was the earnings reports:

Well here is what investors saw on Oct 15:

http://finance.yahoo.com/news/stock-market-news-october-15-134128205.html

2463

Great analogy Peter ! as always. I have read GlobalMacro’s thread on yen and saw you left a post. That’s me I’m always lurking around :slight_smile:

2464

I know some of the guys have been watching Nat Gas, interesting that XNG, the nat gas index has been rising, so worth keeping an eye on.

Interesting too that wti fell again today whereas Nat Gas rose - although energy is still depressed note that XLE is tracking XNG, so investors appear to be stepping back from selling energy shares.

This stepping back is helping S&P bulls, add to that one of the sectors often monitored in a bull market is XLY, the consumer discretionary sector (including retail sales etc) - it continues upwards:

XNG - the index of the major companies involved in Nat Gas:

XLE - reflecting the major players in the energy sector:

And finally one we haven’t spoken of before but I suspect FE has some ideas up ahead. Consumer Discretionary sector will usually rise in a bull market, makes sense when you think about it.

Bottom line, nothing to suggest that the S&P will not continue upwards, USD/JPY approaching a Double top HR1, interesting to see whether the mantra of DT (dbl top) will apply - I’ll not put my money on it.

2465

Your analysis was just in time Peter. Coincidentally I’ve came across an article on bloomberg online Energy Bargain Hunters Plow Record Amounts Into ETFs - Bloomberg

To summarize apparently investors are stepping in placing long orders on energy ETFs fishing for bottoms and prepositioning themselves ahead of the anticipated bull market. For an investors point of view in 2-3 years from now on, the current price is a bargain. But for traders getting in at current market price isn’t going to be a pretty sight at least for the next couple of months or so which I wholeheartedly agree with.

I also read gold had gained but long orders are running low - that its nothing more than a temporary correction that there’s more to fall back. If you think about intermarket correlation. It does make sense.

And last but not least, I read an article on Japan, that Abe is looking to cut corporate taxes to spur growth and encourage companies to increase wages. The first thing that crossed my mind was NIKKEI 225 ! and big name Japanese corporations. Probably a good place to place long bets. With weak yen and cheap oil, those big name corporations might be in for some rally for the next few years. But then again I’m not sure how its going to play out for traders. For an investors point of view looks like a sweet deal than S&P500.

2466

There is a guy in the market called Guppy (cannot remember his first name) - he is the first that have seen over the years draw attention to the trader/investor divide. He emphasizes that instut traders are attempting to second guess investors, that investors act slowly, but that asset price will always, over time, reflect what actions the investors have or are taking.

He developed a system that he teaches using a series on ma’s thus trying to id, through price, the investors actions.

ETF’s are not only quicker but way more accurate way of doing this very thing. They also can be of help in determining that all important “direction bias” in short term trading by incorporating EOD volume.

In stock market trading risk sentiment reigns, if something risk positive happens in Japan that will be felt in the S&P too, or indeed vice versa.

Now the market is currently thin, look at YCS volume for example, so the fall back last Asian session on USD/JPY - a buy opportunity I wonder.

Happy New Year Rookie :slight_smile:

2467

You too ! Peter :slight_smile: