COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
3134

Hi FE,

In the volume section, right click.

Then choose (left click) “Format”, then left click “Defaults”, then “Save as Default” :slight_smile:

On SPY today nothing much in volume, if volume were rising and price falling then there would be a pattern to follow.

All sectors negative with utilities leading the pack. The falls are spread throughout the sector.

This is the knee jerk that I was talking about re interest rates and stocks, not surprised re the lack of volume.

Would I fade this?.. Monday will tell me what to do.

3135

Hi Guys,

hopefully this week many of you will check the COT Report.

Here is what I see:

  • [B]JPY[/B] sell signal

  • [B]Corn[/B] reached an interesting level, soon might be a buy signal

Unfortunately that is about all for me. However something got my attention. Rookie talked more often about Palladium. Does someone know how come it can hold up so strong and go against the main trend down which all other metals follow? That is something very interesting. It looks like Palladium demand was increasing even the bad economic conditions.

FE

3136

That is very strange, my broker is showing that SPX actually declined :S

3137

HI Philip,

sorry, I meant to say skyrocketed to my direction :-)))

3138

FE, it’s possible that early European may cause a push against your short.

It could happen that the DAX may not be just as bearish on US interest rate effect on EU stocks, any push up there may cause a push up on the s&p futures.

Note how little the dax responded on Fri, although the UK ftse was quite negative.

Anyways, I remain in favour of the long term bull market in stocks, but a short now is a nice trade on the knee jerk.

Btw, utilities remained the biggest seller on Friday, next biggest seller at eod was consumer staples - both are regarded as defensive sectors, in defensive sectors you expect to see strength in a bear market. The reason is simple, consumer staples - in bad times we still need the basics.

3139

Mornin’ guys! :44:

This week’s report is pretty dull.

We have a buy signal on Sugar. I might take it, because the price is going sideways, therefore I would not bet against the trend.

Weekly

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As you can see, the price is approaching a support zone. Double that with and RSI bullish divergence, and you have a nice entry point.

Treasury Bonds

I’m looking to go long the 20Y T-Bonds.

3140

Hi Peter,

I just wanted to write you in the morning even before seeing your post. Your writing and technicals for me come into the different direction so I would ask you a psychology question.

As I see you were either surprised or disagree with the movement of S&P yesterday. From a technical point of view I discussed it with Rookie already for a couple of days that a short signal might come. Everything lined up, no matter if MACD, RSI etc.

So my question to you is if you think there was actually any kind of reaction in the cards that would have pushed up S&P? We can never get the right answer but can talk about it. My thinking is that either speculators were already getting ready for such an outcome or the S&P was just oversold (although I am sceptical if oversold/overbought situation exists at all). So I am thinking that technical traders were short regardless of the outcome. Fundamentals are always divided. So actually the only question is how strong the downward movement had to be. A 295K reading is very strong, 200K NFP could still be considered strong, it might have ended in the same result. I do not know if it had to be a 100K or 10K NFP Report for not to trigger such selling but maybe even then the technical traders would have pulled it down.

Thanks a lot on the DAX. It is good to keep in mind so if early Monday stocks go high I will ignore them:-) For me the most important is discipline. I try to wait for other exit signals or adjusted stop loss to hit. I want to go like the system says and not with the emotions. Therefore it is good to know that I can expect a DAX rise. I exited many times way too early trades. On technicals basis I do not see that we should be at the bottom just yet so I wait.

I think actually Rookie and Philip can also write a lot about this from a technical perspective.

FE

3141

Hi BB,

nice spotting. I like your reasoning that it is moving sideways. We are at an extreme net position level, COT Index signal should also come soon and we are at a main support level. For me it is still a bit against the trend as I see more downward movement then sideways however I do agree that based on a COT report analysis, it is like a dream setup.

FE

3142

I have to say the strange thing about the SPX movement is that it actually diverged with a dollar, I’m sure that tells us something but not sure what it is. May be the answer lies with 10 year bond.

From a technical point of view, I expect SPX to move back up to 2085-2090 area, only from there can I determine if a short is still on. If I had a short position on I would definitely close it and wait for that retracement. Unless the SPX-dollar divergence means something else.

3143

Have somebody availed of NFP move last Friday? Have somebody got SL triggered? What was the slippage?

3144

Very little surprise on the downward pressure on spx, the TA was reflecting the fact that there was a greater probability of a good NFP than of a bad one - a good NFP increases the FED pressure.

The market reacted in exactly as the above quote, however, the knee jerk is that an [I]increased[/I] cost to business is bad for business, thus bad for stocks.

This is why it is good to step back and think, if I were an investor, would I want to continue selling stocks, or would I wish to buy the dips - will company earnings suffer in the quarters ahead as a result of Friday’s NFP and the picture that the numbers are painting or will they increase.

It’s interesting that the S&P has been on a bull run, the NFP is actually confirming the reason for that run, when you think about it it’s companies in the USA who do the hiring, the better shape those companies are in then the better the NFP will be.

There was one thing that I had noticed, although we haven’t yet discussed much in volume, was the activity is one the “offensive” sectors this week.

The thinking is that investors will sell off first in one these sectors, consumer discretionary fits into this category, (you do not need luxuries in a bear market), I was surprised to see the volume on Monday past:

(this is a Daily, see the likeness to SPX daily)

Just thought it interesting.

3145

Hey Team.

This weeks results.
USD: +14.79%
CAD: +7.02%
JPY : +6.81%
AUD: +5.28%
NZD: -4.97%
GBP: -5.61%
EUR: -10.33%
CHF: -13.06%

So for the week the Comms were over Majors by +7.4%

But then there was NFP Friday. And as I was looking at the USD, I found some very interesting facts, about NFP. I went back and compared Feb. NFP to Mar NFP. The USD against everyone. All the differences. This is the big picture, aggregate, parallelism, perspective.
This is the USD against: and what happened in between both of them
—[B]COMMS:[/B]—
[B]CAD[/B] – NFP day (Feb) result was +90 pips (USD+)
–RANGED–(+93 pips, -134 pips)
NFP day (Mar) result +122 pips
[B]AUD[/B] – NFP day (Feb) result was +10 pips (USD+)
–RANGED–(+94 pips, -67)
NFP day (Mar) result +184 (USD+)
[B]NZD[/B] – NFP day (Feb) result was +61 pips (USD+)
–BEAR MARKET-- -245 pips
NFP day (Mar) result +152 (USD +)

—[B]MAJORS:[/B]—
[B]EUR[/B] – NFP day (Feb) result was +158 pips (USD+)
–RANGED, first 2.5 weeks, then BULL MARKET last week and half.
NFP day (Mar) result +194 pips (USD+)
[B]GBP[/B] – NFP day (Feb) result was +87 pips (USD+)
–BEAR MARKET, up until the last week and 2 days, then turned BULL for USD.
NFP day (Mar) +227 pips (USD+)
[B]CHF[/B] --Nothing but BULL MARKET for USD.
[B]JPY[/B] --NFP day (Feb) result was +155 pips (USD+)
–RANGED, to slightly higher
NFP day (Mar) result was +64 pips (USD+)

So was BEARISH against GBP, and NZD.
Was RANGING against JPY, EUR, CAD, AUD.
Was BULLISH against CHF.

Interesting is the close of NFP Feb is the same as the close of NFP Mar, for the NZD. It went up much then came back all in the last 2 days of this week.
Against the GBP, the open of NFP Feb is the same as the open of NFP Mar. Same scenario as NZD.

It sure does look like this past month was a big ranging of the USD. And now it all came back to where we left off of last month. This time I just wonder if it’s gonna be different, and now continue on with the trending high for the USD.

But…if they show signs of weakness, then it’ll probably go back to ranging for another month.

I think they have the momentum going now. Probably use that to break some major support zones now.

(That sure did fool me) (month long retracement)

Mike

3146

That’s interesting. But isn’t it possible that investors also saw that wage inflation was very poor, thought it is now less likely we will see a rate hike in June and decided to move out of SPX temporarily (hence the pressure on FED you suggested)? On the other hand dollar rose in interpretation of the headline number as a push towards a rate hike in June and then at the end of the day (figuratively) one will have to follow the other?

3147

Hi Philip, I like your thinking, I have often found over the years that those who question everything, who look from all sides usually are the most knowledgeable.

In this case it’s the simple answer, institutional was biased on a better NFP and played it accordingly, the market is now expecting that rate hike, anything pointing to the contrary and the impact will be on the USD - thus if the FED wish to devalue for a few months they now have the tool . (not saying that they may wish to do so, a different train of thought).

Interestingly, the large volume last Monday on XLY, what caught my attention was that it was at the open, this volume helped push up the SPX on Monday to resistance - only to be sold off since, culminating in Friday’s action.

Remember that we talked some time ago about the opening and large orders - a sign of “weak hands” I think was the discussion -around the manipulation aspect of the market.

3148

I read something just right now that caught my eye and thought it had a little to do with what FE, Peterma and myself were discussing about SPX.

Its from a book called “The New Buffetology” written by alleged students of Warren Buffet. Regardless of whether the writers are actual students of Buffet or not the book basically studies the investments of Warren Buffet and then provides a new take on Benji Graham’s work (who is Buffet’s mentor.)

Here is the quote: “The same kind of thing happens when the Fed raises or lowers interest rates. When it lowers them, the value of businesses increase, and stock prices then rise reflecting this increase in value. When it raises interest rates, the value of businesses decreases and stock prices fall reflecting the decrease in value. This is usually a very calculated dance. Interest rates go down, stock prices go up and vice versa. But sometimes things go out of whack and the market needs to see that the Fed is making a serious effort to raise or drop interest rates before stock prices make their adjustment. This is especially true in a bubble situation in which the market has succumbed to momentum investing and is no longer concerned with earnings. In a situation like that, the market needs to see a slowing down of the economy before it makes its price adjustment— which can then be dramatic.”

So the difference between value traders (buffet) and momentum traders (us) is that they view value as a leading indicator; when value increases price will soon follow and vice versa.

So what’s the lesson? When interest rates increase, value of companies decrease and price would then follow.

3149

The CPI is the only input that will actually move the FED to change rates. CPI growth will need to exceed the target for any meaningful rate hike. Token hikes of a few basis points may come in a game of confidence, but the first sign of trouble will have the FED going right back into ZIRP.

Value investors measure the ROI on equity relative to bonds. As interest rates on bonds fall, equities become more attractive and thus can be bought at higher prices.

But we are in strange territory here. Bond yields are at record lows. Increases in rates will hurt bond prices very significantly and permanently. The flight out of bonds because of higher rates could actually boost equities in the short term. And value investors may choose to buy equities at unusually high prices relative to those of bonds in terms of ROI because they think that equities will outperform in the long run.

-Adrian

3150

Aha, Arb is in on this and he is an accountant…this is exactly the difference between the entrepreneur and his safety net.

You see, from the last sentence, there lies the thinking.

All the time I keep saying to think in context, Buffet is an investor, we are the … well as Philip says momentum traders, others have said ’ street money etc’, I will not say the other

Edit: Arb’s post overlapped mine, time for me and him to get together, and to drink some real Guinness,

3151

FE,

Yeah there’s a sell signal on JPY confirmed by timing charts. There was a buy signal on natural gas but no confirmation, therefore is invalid. But I think it may be a good idea to observe natural gas next week, just to see if its going to react at all.

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And here’s what palladium, gold and dollar ETF look like in comparison. When dollar started to rally palladium went downhill and began ranging ever since. But how about its recent rally ? Dollar index could give half of the answer, but how about the other half ?

Palladium & platinum are rare metals, it is said that they’re rarer than gold. Russia & South Africa are the biggest suppliers and hold the most reserve of this precious metal. Not completely sure if sanction against Russia had anything to do with palladium rally but if you think about demand and supply side of the story it must have had something to do with it, if it had why not rally then ? why now ?

I can’t think of anything at the moment than dollar index, it could be that dollar index just didn’t give any chance for palladium to rally then as it was high on its own victory. But investors/commercials could have been buying all this while, just waiting for the right time to start selling. What better time to sell than now when dollar rally is a pause mode ?

There certainly was a signal :wink:

3152

Back to volume, I happened across this quote by sheer coincidence, it’s by one of the Volume Spread Analysis guys - Gavin Holmes.

Highlighting for emphasis and the term “smart money” are both his.

“[B]It is important to remember that when the smart money players start selling, they will sell as prices rise![/B] This confuses many uninformed traders …What they do is jump onto the rising price (a.k.a. suckers rally) only to get hammered by the effect of the smart money’s prior selling positions…”

Endquote.

3153

Hey Team.

Mike here.
Ok. Look. After completing all my analysis, I’ve realized something. Pretty massive. (I know your all probably saying…ok Mike, what are you gonna predict now?) :wink:
On the contrary, I have some facts. We are now at the premise of a massive divergence. Yesterday I shot out to you about the USD. They have momentum going now. They have come back from a month long correction. A big retracement, in which we all kept asking the question if it’s (trend) finally over. And I am convicted now, because of NFP Friday, that this is just the beginning of a new leg of the trend (across the board).
[B]AND[/B]…I have now found another confirmation about that… Are you all sitting down??
[B]THERE IS A HUGE DIVERGENCE PRESENT NOW[/B]-----And that my friends has to do with the [B]EUR[/B].
I have seen the numbers, and trends. The EUR has dropped on the long term (M), medium term (W) and short term (D) trends, across the board. Every last one is a down arrow on my tables. Except against the CHF on the short term (which is trending high). Just take a look on the charts for yourselves. I also have the USD as trending high across the board, all three groups, except against the NZD for short term, which is ranging. But that is just at the tipping point now.
This past week the EUR, against the AUD, has BROKEN the monthly, weekly, and daily support levels!
Against the JPY they are presently at the weekly support level.
Against the CAD they have broken both the weekly, and daily support level.
Then I got to thinking…as the USD has been retracing lower, at the same time the EUR HAS BEEN RETRACING ALSO, but higher. And now it’s all coming back around to this point. This point being where on a chart you will see something trending high, it turns back down, then rises again up to the last high point, then takes on another leg up. (Trending 101)
We are at that point now. Across the board. WITH BOTH OF THEM. It’s a divergence.
I just haven’t seen something like this before. It just seems so clear.
I’m very excited about this. This week coming up will just be huge. It will tell me whether I’m right, and seeing this in the proper perspective. Or once again, dead wrong. And maybe the timing is off.
But…FE…I’m talking about the already strong currency. Not the Pound anymore. Not someone off into left field. The USD. The most talked about currency.
The only thing I’m a little leery about is the Major/Comm relationship about it. Cause we’re talking about 2 Majors. And I don’t particularly know where they fit in with it all. (Well not yet anyway) I have noticed that the JPY has gotten stronger this past week. In fact, they have tailed the USD much lately. Against the Comms, the Yen has come up in the trend determination to the AUD, and the NZD. But not the CAD. CAD has been holding up just fine lately. Maybe because of tailing the USD also. But you guys should know that the NZD has dropped off much. And is the weakest (short term) Comm now.
I wonder if the USD does flex it’s muscle enough, will that have so much of the opposite effect on the AUD.
Will this massive divergence affect the Comms also? (will be watching)
Oh…and another thing I have been thinking about is this. And there’s not enough hours in a day for me to be digging into the intermarket analysis (although I’m trying). But, can someone tell me what the bonds are doing? Have the 10 yr Tbills moving much? And how about the divergence between the USD bonds, and the EUR bonds? I know that there’s something there that the big players look at. I have been reading up on that some. The T bills are the ‘safe’ money. And when there’s a rush towards that, then there’s more of a risk off. Playing it more conservatively. So when the price of the ‘bills’ goes up, the yields go down, and that must mean it’s not good for the value of the dollar. So when the price of the ‘bills’ goes down, the yields go up, then that must mean it’s good for the value of the dollar. (I don’t know for sure if that’s all correct, I was just thinking out loud. Please correct me if I’m wrong, Peter!)
So, given that logic, I wonder if the yields are going up, for the USD. And the yields of the Bunds are going down. Divergence in the Bond markets. That would be another confirmation of the movements of the USD, and EUR.

So guys…talk to me…what do you all think?
I haven’t looked at the calendar yet to see what’s on tap for this week.

Oh, and another thing. Please tell me someone is just raking it in with the CHF! Just look at all the trends against them. It’s pretty clear. Will I be bold enough to say that everyone will just pick up where they left off before the bomb hit??? …ahh…NO. But I am thinking it! Well, surely maybe the USD will. They are so dog gone close now. If you look at history, USD/CHF, the last time a major hit by the CHF, it all came back up, and even more. It’s just looks like the effect of a hanging man candlestick (or something like that).

Mike