COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
965

From what I know futures market does have an influence on spot forex. COT report that we analyze on a weekly basis is done on futures but relative to USD. Thus why we analyze COT to get an edge in spot forex. In that sense we don’t need to compare the two as we already somehow did. Does it make sense ?

We do follow the non commercials as you might already know there’re few players in futures market speculators /non commercials/ , commercials and small speculators … And needless to say we’ve already seen a good result from following the specs /COT non commercials/ however the problem or drawback that we’ve had with COT was that it didn’t give much on crosses while we some of us still did place trades on crosses based off of COT report - that is relative to USD - the probabilities of this giving false results are/were higher - I didn’t do well with my cross trades. For instance EURAUD short. According to COT specs net position readings EUR was short and AUD was long but remember again that is relative to USD. But I went ahead and placed short trade with EURAUD and that turned out quite bad. However all of my other USD pairs turned out good almost all of them.

We’ve got two things going at the same time COT index for commercials if you haven’t checked out timingcharts.com please do Mike! COT index for commercials will show extreme lows and tops that will allow us to capture the big moves by commercials biggest player. Now the website that FE brought up exactly does all of that for us its already been done for us. So that saves a lot of time but first off we’ve got to put that to test before dive in full and rely on.

On the other hand developing COT index for crosses /FE and Philip has been discussing about this and Philip has already presented his cross setups/ idea has brought up and I so glad that it did don’t know whom probably either by FE or Philip. This should also give us a clue about commercials activity extremes bottom or top but for crosses.

There’s a formula for COT index /that is used to calculate extremes for commercials/ = 100 x /current net - minimum net/ divided by /maximum net - minimum net/ for this we use if I’m not wrong 3 years worth of data, I think Philip does it with 6 years worth of data /lots of work!/ thanks again Philip! So Philip got around calculating COT index for crosses. And that got me to think if we could get COT report on crosses as well. I hope that makes sense.

966

Hi guys,

I start answering, now not with names but as the posts follow each other. Doing so, it will be easier for everyone as the posts follow each other. I start with rookie’s post, number 955.

rookie, yes we can try with one commodity in the beginning, if you wish it can be gold. To tell the truth, I make some extra COT analysis right from the beginning, not only with the 7 currencies. I also do gold, silver, crude oil and from currencies BRL, MXN, RUB and ZAR. As these are not our main markets, I only present the findings when I see something unnatural. As you said (and I shortly read in book) gold hast a lot to do with inflation, I did not know that earlier. Such small information can mean a huge different for us. So, if you wish we can do such analysis!

Mike, I agree with your saying. According to your article, funny they also mentioned the fallen channel what I was also looking for the AUD on the daily chart vs. USD. Thanks a lot for the great article. It is another advice to close my losing AUD positions!

rookie, funny with the cftc website. Have not heard something about that, probably many people around the world are not so happy. I can advice for everyone for the future something: if I have the possibility I always download that data on Friday right when they publish it. And when I have the time on the weekend I do the analysis. It happened this weekend too. I downloaded it on Friday night and would have not had the possibility anymore. Ok, rookie, no worries, we are aware of the problems. You can actually still do some kind of report. The oanda site, cotbase.com, timingcharts etc. are all updated with the new values.

flows, I cannot tell you much about EMA. Can be that you are the only one here using it. It is of course good to know but if I have no experience with it then I listen what you say. If we would have it in the system then I will study it in depth. I am glad you have already the books. No hurry, it is better to read slowly but writing out the important parts and work yourself through. It does not make sense to go through fast and do not remember anything.

Philips, yes and we will follow these pairs further on to see.

rookie, you have to ask Peter about futures. Here I cannot say anything that helps. It is of course not easy to say how valid our signals are for cross currency when we only analyze the currencies vs. USD. I partly agree with you that it might not give as good results as with USD pairs, still we shouldn’t forget that we made also nice gains. Also to remember, if USD is strong vs. Currency A but USD is weak vs. Currency B then we can most likely conclude to go long with Currency B vs. Currency A.

967

Hey guys…

It was late. I apologize. I will do as you say FE… I was thinking for a second they must have halted the website with an intention as they saw we were up to something here :wink:

COT data analysis 9 Sep-page-001.jpg700×495 37.7 KB

The commdolls
AUD, CAD and NZD

Non commercials: Specs have reduced their longs across the board. AUD net position /longs/ has seen a decrease since its most recent peak on 2nd of Sep for the first time net position /longs/ dipping to a low of 41229 lower than a reading the week prior 26th Aug when AUD was headed on an upward move /net position steady increase/. As for NZD nothing much has changed since we did our last weeks report, specs have once again reduced their net position /longs/ for the 7th consecutive week. However CAD net position /longs/ have seen an increase once again for the 3rd consecutive week.

Specs are clearly bearish on NZD however with AUD and CAD they keep sending mixed signals and making it hard for us to determine the bias. But if we look at AUD fundamentals for instance and its recent job report the initial hype was good with better than expected reading however details later revealed that majority of the jobs were part time. Australian job market may keep dissapointing until non mining sectors pick up, slowdown in mining sector leads to economic slowdown in return that will have a negative impact on labour market , GDP - trade deficits - AUD will worth less opposed to other currencies. Not to mention Stevens has been worried about strong AUD - that doesn’t have solid economic ground to stand on - on the foreign exchange market. He wants weak AUD that should make exports cheaper and making australian products more affordable and competitive aboard therefore that should in the long term help grow the economy - specially the non mining sector.

I don’t have much collected on CAD but if you guys read jack’s commentary that FE posted the link here, you’ll get an idea - long term bias for CAD bearish.

Commercials: Commercials however have increased their longs and net position /shorts/ across the board. There was also a price level decrease on AUD and NZD. Commercials have been buying commdolls on and off there was some sell offs during rallies. We should expect commercials to keep buying the commdolls as they’re expected to dip lower in the medium to long term. However we shouldn’t ignore the extremes.

The majors
EUR and GBP

Non commercials: Specs have reduced their longs and net position /shorts/ on EUR and increased their longs and net position /longs/ on GBP. Specs EUR net position /shorts/ has been increasing steady since it turned from positive to negative on 13th of May’14 with some fluctuation in between. Let me remind you guys that while the week prior last weeks reading that came out at -161423 was the highest since 2013 Sep it was far from 4 year extreme -214418. Last week we saw some decrease in net position on EUR the figure came down to -157505.

Specs are still somewhat bearish on EUR with net negative readings. However the pound had a big jump specs have increased their net position /longs/ to 26727 from 9448 and it has been fluctuating without clear direction for the past 5 weeks. If we look at last weeks readings alone no doubt specs are bullish on pound. However lets not forget that specs have been indecisive on pound for 5 weeks, only a week of positive reading /big jump/ shouldn’t be conclusive and we should look for more clues to support this.

Commercials: Commercials on the other hand have increased their longs on both EUR and pound. However there wasn’t much change on EUR net position /longs/. At least we can be sure while they may not be buying euro as they did for the past few weeks they haven’t started selling them off yet. We should blend this with specs reading and go from there guys… As for pound however commercials have increased their net position /longs/ they sold off some of their pound longs while buying some back at the same time.

Safe havens
CHF and JPY

Non commercials: Specs have increased their longs on both CHF and JPY. Specs have reduced their net position /shorts/ on yen after 4 weeks of consecutive increase. And added on their CHF net position /shorts/ for the second consecutive week. Specs stance on franc and yen again sends mixed signal, but as there’s more sellers of yen and franc lets conclude that the bias is more bearish than neutral.

Commercials: Commercials have bought more franc increasing their longs and net position /longs/ and sold some of their yen longs with decrease in yen net position /longs/. Blending the two as commercials are still buying CHF as price moves further down and specs bearish bias with net negative readings we can therefore conclude CHF bias - bearish.

Conclusion

AUD - bearish
NZD - bearish
CAD - bullish *but beware
EUR - bearish /lets not forget about commercials extremes/
GBP - bullish *but beware
CHF - bearish
JPY - bearish /lets not forget about commercials extremes/

There’s also something I wanted to highlight to you guys if you look at the bottom of the table you’ll see CRB and Dollar index attached while both had closed with down figures if we look at previous figures CRB index has been decreasing for the 3rd consecutive week dipping to a low of 281.90 last fridays close from 292.75 how it was 3 weeks prior. So is the daily range , open and close. This should give us a clue more confirmation on top of what we already have on commdolls.

Conversely dollar index has been climbing up to a high of 84.2250 last fridays close from 82.7360. Its all 3 weeks worth of data guys.

968

I’ve got EURUSD 2 short positions going from last week currenly with a loss of about 40pips. We’ve got CPI YoY for euro and for USD this wednesday that should spark some movement hopefully to my direction. On top of that we have Feds monetary policy statement and rate decision on thursday. While I don’t expect any rate change for now, I’m expecting some change of words that alone should be enough to spark some more upward movement for the dollar.

I’m also keeping an eye on NZD, next auction is tomorrow lets not forget about that guys! I haven’t decided on trades that i want to open just yet. I’ll have to think about that and when I do decide I’ll share with you guys!

See you around guys!

Update: I want to long GBPNZD GBPJPY USDJPY and short AUDUSD and I haven’t even looked at the charts yet! Scottish referendum is about 2 days away a no would easily make gains for pound I think and for kiwi we have dairy auction another decrease in dairy price index and on top of that we’ve got CRB index down long GBPNZD already sounds good guys! I think I’ll most likely be going short on commdolls against the majors GBP and USD. I’ll be back.

969

Hi guys,

read the first sentence of PipDiddy’s first session analysis:
“Check out those weekend gaps! Weak Chinese data released over the weekend led Aussie forex pairs to open lower, with AUD/USD recently dipping below the .9000 major psychological level.”

Just as I expected, so I closed my AUD long trades. I am definitely bearish on the long-term with AUD now. I was reading on it and there is nothing optimistic about it in my opinion.

Soon I work myself through on rookies posts.

FE

970

Hi rookie,

the case of CAD is very interesting. In contradiction to AUD and NZD which got more bearish, CAD became more bullish. Of course it is hard to say why exactly but my opinion is: AUD is very dependent on China. NZD is very dependent on diary and Australia; on the other side CAD is dependent on the USA. As China goes down, so does the AUD and NZD and as USA goes up, so does the CAD (because of the strong relationship of the two countries). I would like to hear your opinion on that. These are the current forecasts from me, but just like rookie said, I am also thinking in the long-term CAD is also bearish because of oil, but not as bearish as AUD and NZD.

The next what is important, please check your net position numbers. As I also do these analysis, I usually read what your report and do not work myself through your numbers. Today I did it though. I found something important. I am sceptical about the net positions figure. In your analysis the net position goes down and up for commercials and non-commercials together for all currencies. This is possible but not probable. In this case the small speculators have to balance the non-commercials and commercials too, which is not so easy. Open interest goes up at the same time for both of them, it is logical but net position is normally the opposite. Please check it.

GBP I think is indecisive because of the vote. Since it became a big question the currency does not have a trend at all. I find it a bit “dangerous statement” too when you write commercials have increased their longs. Although it is completely true, if someone does not work with the number your statement indicates that commercials are bullish on GBP. We have to see that they increased their long (like you said) with 1 017 contracts but at the same time they increased their short with 11 145 which is very bearish, but you did not emphasize this fact. Only an increase by longs does not mean too much, we have to see what is on the short side too to get a complete view. I just thought it is important to mention by GBP. By other currencies you emphasized more these changes.

In the end there is also something small: you mistyped the CRB Index value, but if someone follows your post it is easy to see that it was only a mistype.

I like how you follow the indexes and the bottom line is that I have the same opinion on currencies like you; that is the most important. Only difference is that I do not see the extreme for EUR. But the bias is everywhere the same.

I am also bullish on USD, but wait with the vote with GBP.

971

Hi everyone,

this article is a bit longer than usually but I think it worth to read. I will also start it now:

972

Hey FE, As regards to the numbers I’ve double checked it and I always do before I post them here but if will one more time when I get home. I’m thinking there probably shouldn’t be any error as regards to numbers.

And I’m happy about the gap on AUDUSD FE good thing that there was and now you can close your EURAUD !

973

Hi guys.

Well I’m not trading the market, but that doesn’t mean that I don’t know what’s going on. I’m always in touch and have numbers to show for it. So, I will throw out what I know. This is my order of strength, considering both long term and short term strength. my determination—long term trending is on the weekly charts, looking at higher highs and lower lows—short term trending determination is on daily charts.

[B]USD[/B]–Just turned trending high (long term, short term) against everyone. Finally the last 2 currencies turned, which is AUD, CAD, this past week. Remember it was only like a week ago or 2 when USD, AUD, CAD all were tied against each other and dominant to everyone else. Well, we have separation now. USD shot up, AUD shot down, CAD slipped a little.
[B]CAD[/B]–Other than the USD (which I have trending - - ), they are trending long term against GBP, EUR, JPY, CHF, NZD. Only against AUD are they not trending high against long term. Short term trending high varies, some of them are ranging and some high. So only against USD do they have a negative rating on either long or short.
[B]CHF[/B]–Other than USD, they only have a trending low against the CAD. That is long term. Short term rating is ranging against CAD. For the rest of the 5 they are ranging and trending high.
[B]GBP[/B]–As you know, have some trending lows against USD, CAD, CHF. But for the rest of them they have come back with a lot of ranging. One exception is with the NZD. I deem them trending ++ against. Although the short term trending high just occurred and is bordering it. So, that can change soon. (not looking like it today though)
[B]AUD[/B]–Fell. I only have them trending high, long term against JPY, NZD. And short term high against EUR. That’s the only +'s I have on them. The rest is a bunch of R’s and -'s.
[B]EUR[/B]–The only +'s I see is short term against JPY and NZD.
[B]JPY[/B]–Lots of -'s. Is best against NZD, which I have as RR.
[B]NZD[/B]–Lots of -'s. But have one + though, which is short term against AUD.

So that’s how I see the big picture as it stands now. Looks like we’re separating the men from the boys.
Keep in mind this is all determined by who’s trending or ranging against each other. Long term and short term. And if you really want any specifics on any pair, I have it down on paper.

Mike

974

Hey guys,

I don’t know if anyone of you is looking at AUDUSD timing charts but I was thinking can we not look at daily chart for this AUDUSD is already headed for a downward move breaking the range that held the pair for a while. I’ve attached the image below AUDUSD daily chart SMA 56 plotted.

See the bearish candle forming below the SMA on 8 Sep? If you hover your curser over the MA value to each candle the value of each candle is lower than the one before. Is that not good enough ? First bearish candle formed on around Sep 8 another big bearish candle followed there afterwards. It was already below MA and broke out of the range. It may have been too early to jump then but if there isn’t much downward move left for us to ride down… shouldn’t we look at daily chart instead ?

Screen Shot 2014-09-16 at 6.03.35 AM.jpg700×418 31.2 KB

975

Hey guys!
Time to wake up.
Here comes Monday.

NZD: +5 -0 2
CAD: +5 -0 2
AUD: +4 -0 3
JPY : +4 -2 1
USD: +3 -4 0
CHF: +0 -5 2
GBP: +0 -5 2
EUR: +0 -5 2

Well, no surprise here. Comms took them. +14

Majors vs. Comms

NZD: +5 -0 0
CAD: +5 -0 0
AUD: +4 -0 1
JPY : +0 -2 1
USD: +0 -3 0
CHF: +0 -3 0
GBP: +0 -3 0
EUR: +0 -3 0

Notes:
Comms down against no one today.
NZD and CAD tied for strongest.
JPY is strongest Major today. Was down against NZD and CAD, and tied with AUD.

We should have seen that the Majors took the last 5 days in a row, and after the weekend the Comms would be ready to take one. Then again guys, what explains the bad, very bad, data coming out of China? Yeah, it did hurt the Comms through Asia, but things turned around for them. I guess sometimes if it’s destined to volley back to the other side, regardless of economic data, it will happen.

Hope you guys are still ok.
Talk to me.
See ya in the a.m. (rookie p.m.)

Mike

976

Hey FE and guys…

Here’s something on Oil/CAD/USD correlation. Lots of good stuff!

http://www.economicinsight.ca/economic_docs/2009may_oilprices.pdf

For many years Canada has been a net exporter of oil and the U.S. a net importer of oil. Canada has been a significant producer of oil for decades, but we have always consumed much of the oil we have produced and have always imported some oil into eastern Canada, leaving the net export of oil far short of total production. The balance between production, exports and imports is much different for natural gas.

With completion of more pipelines to the U.S are now exporting much more natural gas than was the case in the 1980’s. For many years, the value of Canada’s net exports of natural gas have exceeded the net exports of oil. In fact, in 2005 net exports of natural gas ($35billion) exceeded net exports of oil ($9 billion) by a whopping $26 billion. In such case, a change in the price of natural gas has an even more important impact on the value of Canada’s exports than an increase in the price of oil. One of the major determinants of the price of natural gas is the price of oil.

In many instances (commercial heating) natural gas is a substitute for oil and in oil sands production, natural gas is used in the production of oil. The price of natural gas is also dependent heavily on the weather, with nothing better to stir the demand for Canada than a cold winter in the U.S.

We conclude however by noting that one of the most important impacts of a higher price of oil on the Canadian dollar is its role in driving up the price of natural gas. In fact, the impact of a higher price of oil on the Canadian dollar depends critically upon whether the higher price of oil has, in this instance, also driven up the price of natural gas.

977

Gold Declines to Seven-Month Low on U.S. Rate Outlook

Gold futures fell to the lowest since January on speculation that the Federal Reserve will raise U.S. interest rates sooner than forecast, crimping demand for a hedge against inflation. Silver slumped to a 14-month low.

Gold has dropped 11 percent from this year’s high after the U.S. economy gained traction and the dollar strengthened, cutting demand for the metal as an alternative asset. Demand for a haven declined after tensions in Ukraine and the Middle East eased.

It’s hard to get excited about gold in this current environment when the dollar is rising and the political tensions have eased. The strong wall of dollar strength and prospects of a rate hike are pushing gold lower.

Gold could dip as low as $US900: economist - Australian Mining.

This makes me want to trade commodities. They just seem more predictable if you get the few things right. But I know we’ve got to master the COT index and for crosses first…

But one thing for sure the more we delve into this the more I feel we are being equipped with the right tools to put the puzzle pieces together. Mike said it they are all interconnected.

Speaking of gold/inflation here’s something that I wasn’t aware before thought you guys would be interested Mike and FE… that higher economic growth must reduce inflation is straightforward. I used to think it was the other way around :34: Now it all makes sense.

MV = Pq, where M is the money supply; V is the velocity of money, that is, the speed at which money circulates; P is the price level; and q is the real output of the economy. If the growth rate of the economy increases, that is, if the growth rate of q increases, then, if the growth rates of M and V are held constant, the growth rate of the price level must fall. Since the growth rate of the price level is just another term for the inflation rate, the inflation rate must fall. Assume, for illustrative purposes, that the money supply grows at 6 percent a year and velocity is constant. Then, if annual economic growth is 3 percent, inflation must be 3 percent. (Actually, inflation must be 2.9 percent, which is approximately 3 percent). If, however, economic growth rises to 4 percent, inflation falls to 2 percent. (Actually, it falls to 1.9 percent.)

978

Hey guys… here’s what I’m trading

I’m already down with AUDUSD 2 positions
EURUSD 3 positions

and I’m waiting for NZDUSD correction to be done… I’ll be in short afterwards…

979

Rookie it should be the 52 week SMA and not 56. The COT index system we have is traded on the weekly charts since the report is released every week. You’re more than welcome to experiment though.

980

Thanks for your quick reply Philip! I’ll see how it goes I’m already in with AUDUSD

981

Hi rookie,

rookie
I just noticed that last week the differences between net speculators and net commercials reached an extreme. On July, 1st it reached 87k, while September, 2nd it reached 100k. Despite the increase in numbers, price fails to make new higher tops. Perhaps we can use this (divergence?) as a reference in the future?

AUD extreme.jpg700×261 69.2 KB

Cheers,

982

Hi flow!

How did you get the difference ? the number in that column ?

983

I subtract the net speculators by net commercial. If the result is positive, sentiment is bullish, if it’s negative market sentiment is bearish. I learned that here in babypips school. In the COT section.

984

73% long extreme? is that what you mean by extreme. I thought long extreme should be above 80 and below 20 for short extreme. Even so… a good call flow! Lets keep that in mind for future reference! If we had known that we could have rode down AUDUSD on one of those long big bearish candles! hundreds of pips.