COT Report Analysis - a thread on market sentiment

[ForExchange]

Hi Philip,

thanks for you writing and tips. Unfortunately it is not possible to change the title of a thread. You can change for example your username (as far as I know), but not a thread name. People might not find their way back if someone could change that. I mean we would for sure but still, that one does not work here. And good to read your thoughts on USD.

rookie,

Hmmm. I also dream sometimes about forex. At least its good to know I am not the only one. Well I also think we did some good steps. The next would be I think to read Balazs’s analysis and produce something like that for our own. The problem is that we do not follow all the indicators what he does, so this might be a bit difficult in the beginning. You also pointed out AUD, I am very surprised about that huge net position change to the negative side. Ok so as I see, you will have a different system, most likely based with the COT currency index for the crosses. I like your saying that you rely more on price action and not on indicators. Somewhere I have seen a good thread about that The intermarket part is really interesting, I am waiting for your results there.

[BBalazs]

Platinum

I’m sorry for not posting on Platinum & Palladium yesterday, I was quite busy. Anyway, here they are

COT Index

I thought last week that the index would flash some extreme readings. Well, it did not.

It is important to note though, that 2000 & -2000 values are seems to be important enough to produce market turns.

COT Movement Index’s value is 37 from 52.

Open Interest is falling, along with CS positions.

CP/OI

It’s obvious that commercials are abandoning their short positions while slightly increasing their longs.

CP/OI Index (Willco)

It’s still in bullish territory with the reading of 77% from 80%.

Conclusion: With the fresh numbers out, I usually take a peek at the chart. Price is currently sitting at a 4 years low (1260.00$). I’d be careful with longs at the moment. I need to see more evidence of bullish strength.

[BBalazs]

Hi Team,
Balazs,

I am just out of words. I will reread your comments, learn the charts again and think all what you have written. I have one question for you. As you said for gold OI, usually on market bottoms we usually have low OI. I have read this everywhere. However silver is very interesting as it is the opposite of gold. We are waiting for the bottom but OI is at an extreme high. Do you find it ok that a market bottom should most likely occur for both metals but the OI positioning is completely different? I expect silver to bottom first, but still, one is at an extreme high and the other is hitting the bottom. This is interesting. It is also nice what you wrote on Copper. Peter was giving us already some information but we have not had a COT analysis on it. Please tell us when you see a signal there so we can analyse it live.

Well, the emphasis is on [I]“Usually”[/I]. I want to make a study of my own, with 10 years of data to see the relationship between OI and prices. Low OI simply means that the market has few active participants at a particular time. It is important, because Commercials are there (they has to be there day in and day out). In other words, that is a Commercial market. Price can and sometimes certainly will bottom on high OI readings. You can see that commercials own about 50% of Long & Short Contracts which is compared to the caliber of those guys, is not really significant. That means that Funds and Non-Reportables must own the rest (Zero-sum).

[BBalazs]

Good work BB!

I’m impressed by your analysis on copper! Our transition into other markets might come a lot sooner and smoother than we /I/ had thought thanks to BB…

I see that you wait for extreme signals both from commercials and specs, hows that working so far ?

That is the safest time to take positions. Of course, I don’t necessarily take a trade based on nothing but extreme readings. I simply apply TA when I see such values.

[BBalazs]

Palladium

Net Positioning

COT Index

Non-Commercial: 78%
Commercial: 21%

Movement Index

Value: 18% (Unchanged)

Open Interest

Falling like mad along with Hedgers’ short & long positions.

I’m not sure that I did not mess up the formula in case of CP/OI and Willco so I won’t post them until I fixed it.

Conclusion: Sitting on the sidelines

I’ll post an analysis on Gasoline (RBOB) soon, since I’m planning to actually take action there.

[ForExchange]

Hi guys,

we always write for the others what we are currently testing. Even if it has not much to do with our thread. The advantage is to tell others maybe a method they have not heard of, discuss the success so they can also follow it if it turns out good or that they do not have to test it if we have bad experience with it.

I was thinking a long time ago to make a trendline from a swing low, but not connecting it with price action, but drawing it where the “price should go”. My argument was that no matter how news come out, the price will go where it would without the news.

Lets explain it: we make an assumption that price goes from 1.2700 to 1.2300 in two months for the EUR/USD. In this case it does not matter how we come to the conclusion, lets say we calculate simply on historical data. Now I was thinking that price can not go faster or slower in such a medium/long term TF than it “should”. If a great news come out for USD today, price may jump to 1.2500 which means that in the remaining 59 days, the price would only move 200 pips from 1.2500 to 1.2300 level. It does not matter if there will be a retracement or not, what matters is that price gets to the original 1.2300 level in the end of two months and as it already made 200 pips in 1 day, the remaining will be distributed on the other 59 days. This indicates a slow strengthening for the USD. On the other side, we can say there comes out a news very bad for the USD today, it loses 200 pips and goes to the 1.2900 level. I still believe that price will be at the 1.2300 level in two months. This is important because price moved against me (a retracement) 200 pips, which means it will advance 600 pips in the following 59 days (400 original and 200 lost today). This is again not important how many pips per day and which day it advances but for the right time it will be at the right place. This means, after the loss today, it will advance in the remaining 59 days faster to catch up the lost 200 pips. This advance and movement would be 3x faster than in the first example as price has to move 600 pips and not 200 pips. Now, in the ideal case with ideal conditions, in the third case without any influencial data, the price moves 60 days and gains 400 pips. This would be a continuous move without breakouts to either side.

Why is this all important? I was wondering what should be the degree for the trend line to draw. I could not come up with the answer. Today as I was reading my technical book, I was surprised that this theory exists and wide used. W. N. Gann invented it long before I was born and identified the trend line to draw in a 45 degrees angle.

All that said, I hope you understood my examples, I wanted to tell you guys that I will test this simple, but hopefully strong technical analysis on the GBP pairs as there are strong retracements everywhere and I do believe it can give me in a longer TF answer how this trendline works in practice.

As Balazs also said and as we discussed also with rookie, we do not like too many disturbing and fancy indicators. This is a very simple one and might give a good gauge for us to show if price is moving “to fast” and we should expect consolidation for a while, or price is moving “to slow” and we can expect a fast catch up to follow the trend in the right speed.

FE

EDIT: looking at the GBP crosses and using the Sept. 8 lows, I give a very quick recap if the price advanced too fast or too slow in the different pairs. Important is of course to have a bias for defining a trend. My trend started on Sept. 8. and is bullish on GBP for all 6 pairs.

[B]NZD[/B]: price moves faster than the trendline, meaning there should be a retracement or consolidation before moving significantly higher
[B]AUD[/B]: price moves faster than the trendline, meaning there should be a retracement or consolidation before moving significantly higher
[B]JPY[/B]: price is under the trendline, meaning it will have to catch up faster
[B]EUR[/B]:in line with the trendline
[B]CAD[/B]: price is under the trendline, meaning it will have to catch up faster
[B]CHF[/B]: in line with the trendline

Keep in mind guys, this is the starting period, later I might have to differentiate between currencies as some are stronger and others are weaker. This is the very first step to start the process.

[ForExchange]

Hi Balazs,

I do believe it is great that you are doing metals. With your coming you definitely brought „new color” in our thread, everyone is happy with your presence. We have never analysed palladium or platinum so it is just great to see your analysis about these markets.

I have a question on platinum. It seems like, you do have a great discipline. Looking at the chart, the net position almost extremes, the low OI shows me a turning point and it is hard not to jump in. For which evidence are you waiting as a confirmation for you to enter the market? Which data don’t you like there? I just want to study it carefully so I know what you are looking at.

Palladium is similar like platinum for me, I opened this chart the first time of my life today. Looking at the price action, support zones and the different indexes you provided, here I do not see any reason for taking action reason to enter a trade so there are also no questions.

If you post the gas charts to show us what you need as a confirmation to take action, it would be great.

Hope we will see you long in the thread!

FE

[peterma]

Hi Guys, just a quick little observation, it’s new to me so thought I’d record it here.

Late UK time on Fri FE posted re the Yen, I was price watching at the time and was aware of the Yen behaviour, figured just pre weekend positioning with geo etc.

Then something unusual, visible now on HR1, the cross AUD/JPY in the final two hours took a spurt down, likewise Aud/Usd, which had been steadily rising all NY session suddenly had a change of heart.

Then I read the COT, all was revealed, traders already buying Yen very quickly started to sell their AUD.

I find this interesting because we are always taught that the COT is a long term indicator, but on Friday it just showed it’s short term teeth.

Now I wonder what may happen on Monday, will there be more selling of Aussie in Asian and London or was this just a coincidence … lets see.

[BBalazs]

Gasoline (RBOB)

Here goes my last analysis for the weekend! By the way, I’ve read yesterday that PhilipPirrip asked me to provide the CP/OI Index (Willco) for currency futures. I’ll post them tomorrow.

COT Index

It takes no trained eye to spot that Commercials are buying the decline aggressively. Matter of fact, they are more bullish than they were anytime in the last 3 years. Now, that is something that piques my interest.

Should this be reason enough to go long? But of course not!

COT Movement Index

Nothing to see here. The reading declined from 7 to -3.

Open Interes

OI reading around 30k after rebounding from a steep decline. Commercials abandoning their short position while keeping their longs.

CP/OI

Commercials’ longs remain unchanged at 44% relative to OI for the third week. There’s a slight increase in shorts from 56% to 58%.

CP/OI Index (Willco)

There’s a drop in the index’s readings from the previous 100% to 90%.

Next, I’m going to show you what am I watching out for before I actually establish a position.

Since I only have 1 picture to attach to the post, I’m going to give you the H4 chart. As you can see, price has been bouncing back and forth between two descending trendlines (channel). There is also a support zone around the 2.3$ - 2.25$ area.

I’ll probably go long if price close above the upper trendline. But that story has yet to be told. Have a great weekend, I’ll post Willco for currencies tomorrow. Oh, and start studying the relationship between price and OI.

[flows]

Hi guys,

Mike, I’m with you about the JPY thingy. The index indicator I’ve been using shows that JPY has hit the bottom and bounced back from there. Since I’m still sceptical about the indicator, I check COT net positions in timingcharts.com for confirmation and find that both Comms and Large traders reach extreme net long/short positions in December, 2013. Those are the highest reading in 5 years.

Well, I realize that extremes may change from time to time, but since this is a multi year extremes, I hope no one rushes into any long term trades against JPY just yet.

Cheers,

[ForExchange]

Hi Guys, just a quick little observation, it’s new to me so thought I’d record it here.

Late UK time on Fri FE posted re the Yen, I was price watching at the time and was aware of the Yen behaviour, figured just pre weekend positioning with geo etc.

Then something unusual, visible now on HR1, the cross AUD/JPY in the final two hours took a spurt down, likewise Aud/Usd, which had been steadily rising all NY session suddenly had a change of heart.

Then I read the COT, all was revealed, traders already buying Yen very quickly started to sell their AUD.

I find this interesting because we are always taught that the COT is a long term indicator, but on Friday it just showed it’s short term teeth.

Now I wonder what may happen on Monday, will there be more selling of Aussie in Asian and London or was this just a coincidence … lets see.

Hi Peter,

hard to say what happened there. After the report there was only 90 minutes to react until the close of the market. I can hardly believe that people are as fast as you are with analyzing and reacting. It looks like more to me as coincidence, but of course I cannot know it.

I am also interested to see what happens with JPY. Well, we do not have to wait too long. Market open is in 103 minutes.

FE

[peterma]

I learned a long time ago about coincidences, even this very night I was reminded.

I happened to check a particular flight details, about an hour later, on a different computer, with a different account, my wife got a facebook advert detailing some discounts on the same airline for the same route.

She exclaimed, ‘wow what a coincidence!’

That’s the power of computing, some guys fear the weird world of HFT, (high frequency trading) or computer algo’s, the truth is they are just the result of human thinking, something akin to:

If COT is X, then do Z ( in this case it was AUD and then Sell), set up since we have gone home (or more likely to the local bar since it’s Friday)

BTW, fixed that little script that gave rise to the flight coincidence

I am watchful of Aud, just wondering if time ran out on Friday. The geo risk over the weekend seems to have been quiet.

[ForExchange]

@BBalazs

Gasoline (RBOB)

Here goes my last analysis for the weekend! By the way, I’ve read yesterday that PhilipPirrip asked me to provide the CP/OI Index (Willco) for currency futures. I’ll post them tomorrow.

COT Index

It takes no trained eye to spot that Commercials are buying the decline aggressively. Matter of fact, they are more bullish than they were anytime in the last 3 years. Now, that is something that piques my interest.

Should this be reason enough to go long? But of course not!

COT Movement Index

Nothing to see here. The reading declined from 7 to -3.

Open Interes

OI reading around 30k after rebounding from a steep decline. Commercials abandoning their short position while keeping their longs.

CP/OI

Commercials’ longs remain unchanged at 44% relative to OI for the third week. There’s a slight increase in shorts from 56% to 58%.

CP/OI Index (Willco)

There’s a drop in the index’s readings from the previous 100% to 90%.

Next, I’m going to show you what am I watching out for before I actually establish a position.

Since I only have 1 picture to attach to the post, I’m going to give you the H4 chart. As you can see, price has been bouncing back and forth between two descending trendlines (channel). There is also a support zone around the 2.3$ - 2.25$ area.

I’ll probably go long if price close above the upper trendline. But that story has yet to be told. Have a great weekend, I’ll post Willco for currencies tomorrow. Oh, and start studying the relationship between price and OI.

Hi Balazs,

thanks for the analysis. I wanted to look at the chart action myself and found out that Gasoline is not among the commodities at my broker… They offer everything but not that. I only have heating oil and natural gas. Looking at the analysis, is it not disturbing you that Commercials increased their short at the CP/OI index from 56% to 58%? I mean they should have probably decreased their short and increase longs, shouldn’t they?

Wish you good luck with the trade!

FE

[ForExchange]

@flows

Hi guys,

Mike, I’m with you about the JPY thingy. The index indicator I’ve been using shows that JPY has hit the bottom and bounced back from there. Since I’m still sceptical about the indicator, I check COT net positions in timingcharts.com for confirmation and find that both Comms and Large traders reach extreme net long/short positions in December, 2013. Those are the highest reading in 5 years.

Well, I realize that extremes may change from time to time, but since this is a multi year extremes, I hope no one rushes into any long term trades against JPY just yet.

Cheers,

Hi flows,

I did not exactly get why we shouldn’t have long term trades there. We are not at extreme levels at all, there is plenty of pips to be made. I only see problems with risk off sentiment which gives strong support for JPY. What is your exact reason to think that JPY will reverse? I would like to know it!

Thanks,
FE

[Nebula9]

Morning guys!

So I have short limit orders in for NZDUSD. Major support /daily/ on DXY was tested. And gold spot daily is reaching a resistance I bet this will be tested. Dollar correction is over. But I hope I’m not coming in too late.

One thing to note CRB index is reaching a major support on weekly so is AUDUSD /but on daily time frame/ so I’ll be playing cautious with NZDUSD trade kiwi likes to follow its brother AUD. I think there’s more correction :upward movement to come for the commdolls.

I’m also looking to short EURUSD , long USDCHF, USDJPY they haven’t given signals yet. Draghi is going to be giving yet another speech on wednesday and there’s going to be euro area economic sentiment and industrial production YoY figures to be published today I suspect euro will trade sideways until then, so I’m not even placing limit order for EURUSD I’ll see how it goes, as EURUSD and USDCHF are inversely correlated, once EURUSD turns down I’m in long with USDCHF.

As for USDJPY setup , I’m going to wait on how demonstration in Hong Kong unfolds into Monday morning. Apparently the protesters are to appeal to China in an open letter while they /China/ have been waiting for demonstration to run out of momentum.

I’m going to play smart from now on. No hurry :13:

[flows]

Hi flows,

I did not exactly get why we shouldn’t have long term trades there. We are not at extreme levels at all, there is plenty of pips to be made. I only see problems with risk off sentiment which gives strong support for JPY. What is your exact reason to think that JPY will reverse? I would like to know it!

Thanks,
FE

Hi FE,

Well, it’s more about the timing (if we’re going to short JPY for the long term). Like you said, we were not at any extreme level yet. I think there’s still room up. The weird thing I notice about JPY is that selling opportunities are usually when OI is low. This year’s lowest OI is 150ish while, currently, we’re at 220ish.

[MikeWolski]

Hey guys.
I just wanted to throw in my sentiment, (hopefully it will be same as all you guys) for the week.
So we have USD sentiment for long. According to the COT report, cause everyone is pretty much bearish.
And we had them correct last week, as the results showed they turned out as the weakest for the week. So making it a healthy correction. And fundamentally, nothing has been put out there that they are turning any weaker, like some real bad figures or rate hike talk to be pushed further.
We just have to wait to see a turn around or find a good point to take an advantage of a good run up. I haven’t checked, but is there a possible catalyst this week for the USD?

GBP. According to Philip we have some signals. Up on all except with USD. I just will be watching them for any breakout to the upside. Sizeable.

AUD. I know their not really in the cards guys. But I have them in mind. Look…for as strong as they were and have shown, I am pegging them as the underdog. I kind of view them as a sleeping giant. If the Comms decide to come out and play (risk comes back on) I kind of think it will be them leading the way.
I could be way off and wrong. Honestly. But that’s what’s going through my mind. Has been.

So, I would get in on one of those 3 scenario’s. Waiting on those opportunities.

Guys, I’m working on something. It’s gonna take some time. I tell ya…after the last 2 weeks with the NZD shenanigans, I’ve been wondering a lot. Also as I see the numbers I see everyday, weeks, months.
I have some back data to run first. And I plan on showing you what I’m talking about. I want to give proof to some facts. Actually it is a factor. I’m working on a factor that we need to factor in. It has to do with the “who’s dominating” sentiment. That changes. And it’s not always because of a fundamental reason. Things go back and forth. I guess it could be called a technical aspect. But I think it’s something else. I don’t know what to call it. Actually it’s along the lines of my so called “underdog” theory. In a sense, that is.
I believe this to be a factor. Something we need to consider, to some degree. Someone is on top, someone is on the bottom, and that always changes. Sure, over a longer time period we will see some things constant, like the EUR, JPY, but there is some patterns that we need to factor in, on “who’s dominating now, and for how long”.
Give me some time to get all the facts together. I’ll bring you proof, as opposed to randomness.

See you guys in the am.

Mike

[Nebula9]

[B]Mike…[/B] You got me excited on your ‘who’s dominating sentiment’. I already have a vague idea how I’m going to use that for my crosses system - I think it can be a great confirmation tool. But first off we /I/ need COT data for crosses that is going to be the foundation.

I agree with your view on AUD, but you want to play it with great caution. As for GBP I’m not bullish just yet, specs have been going from long to short and vice versa for the last 4 weeks showing indecisiveness. Probably not a wise decision to jump on board even on a breakout.

[B]FE…[/B] I am very keen on your system as well! I’m excited to see how everyone’s working on something. Throw in your ideas guys! we’re already learning a thing or two about futures market by looking at BB analysis so I’m hoping our transition into other markets will come easier. I’m thinking of reading a book on intermarket analysis I am fascinated by how all these are interconnected, if you’ve got spare time I suggest you to do some study on the subject, Peter has proved that it works and
it is logical.

PS: NZD is bouncing off so is his brother AUD just as I had suspected. Risk is back on ? specs have been selling kiwi during NY session last friday so I assumed the selling trend will continue onto asian session. The good news is I only got one small position running so I can keep it for a while and observe before putting a tight SL.

It really is a thinking persons game Peter :45: So I’ve decided to get Gayed’s book ‘Intermarket analysis’ think this should be a good start I will venture into Murphy’s book later. Apparently Gayed’s book is read by many hedgefund/asset managers or the professionals. Had great reviews despite being published in 90s.

[ForExchange]

Hi guys,

I am in contact with the babypips.com support. I already talked with Philip about changing the thread name. What do you think about the following name: “COT Report Analysis” - a thread on market sentiment

Maybe it does work out to change the name.

FE

[BBalazs]

Hi Balazs,

thanks for the analysis. I wanted to look at the chart action myself and found out that Gasoline is not among the commodities at my broker… They offer everything but not that. I only have heating oil and natural gas. Looking at the analysis, is it not disturbing you that Commercials increased their short at the CP/OI index from 56% to 58%? I mean they should have probably decreased their short and increase longs, shouldn’t they?

Wish you good luck with the trade!

FE

Yep, that would have made more sense. I was wondering that myself. The change is far from being drastic though. If you look at the bigger picture, it is clear that Commercials were buying into the whole decline, increasing their CL/OI from 40% to 47%.