COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
1607

Hi Team,

sorry, have not had the time to read the thread. I will do it tonight though, I promise. I just wanted to share you I was thinking during the day on the big picture. I see now how GBP news turned out. As I said, no specific news influences big time my overall bias. A series of news however does influence it. GBP looks very bad to me. I closed all the trades. I might even completely change my bias. I think the EU might pull down GBP long-term. Also the rate hike might be further and further away with such news. I am intersted if rookie already made his analysis on GBP or not yet.

I am also considering of closing all my long-term USD trades. I also see worse and worse news. Rate hike might be away if these kind of news do come out.

So what else is out there? Uncertain times. Maybe ranging markets in my opinion. I am still looking to go vs. JPY once the sentiment changes. No further planes at the moment.

I told you guys I work with visual stops. If they do confirm that my trade is not valid, I do close them. So I just did it.

Where am I turning now? I will even more look to commodities as I might see there more chance of success as in the currency markets. Silver and gold looks appealing and these days my thinking works better on S&P 500 than on currencies.

Good luck guys!

1608

You mean mental stops?

1609

Hi Peter,

in the last days you were writing quite a lot about USD/JPY and the intermarket connection with the different stock indexes. Can we make the following statement based on what you have written in the many posts:

You gauge the current sentiment on USD/JPY based on how the following stock indexes are doing:

Asian session: Nikkei 225
London session: FTSE 100 (+DAX)
US session: S&P 500

If you the stock goes down it suggests that JPY gets stronger. If the stock index goes up, then USD should go up. The strategy can also be applied to hedge positions.

FE

PS: I am starting guys to work on the thread.

1610

Hi FE,

You have summed up the Index leaders for each session. Maybe Iā€™d add DJIA, (some brokers call it Wall St) - simply because there can be better leverage with many brokers.

Post 1461 (page 147) I was just noting the hr1 similarity between Usd/Jpy and Nikkei

Then post 1579 (page 158) I mentioned that I had exited a small short on the Ftse (I think it was) - it was reaching a round number and a double bottom forming and also the DE and it was London/Frankfurt time.

It was reasonable to assume that if the index were to bounce, then so would USD/JPY (no news),
which is exactly what happened - to my horror I had a sell stop triggered, left on from the previous evening.

When I realized this I had two options, either take the now loss on the USD/JPY (as usual price just reached for my entry and reversed) or enter long on the index, I waited for the NY open, if S&P were to fall, the other indicies would follow suit and also Usd/JPY.

That didnā€™t happen, it was clear that the S&P was going to rise, so went long on that - when it went into profit exceeding the USD/JPY loss I exited the USD/JPY

I just posted that ā€˜liveā€™ example of short term intra market to highlight their significance, most traders know not to go long Gold and USD at the same time, but there are many others also.

Having said all that these nuances are for hr1 only and no news days, example had I just left my USD/JPY short as was, wait for the news then it would have been ok today.

There is one thing that Iā€™ve noticed also, the US10yr and USD/JPY, more research to follow.

1611

Good evening,

Rookie,

I tend to think that the support zone you attached for USD index has a high probability to be broken. CRB is a tougher one, hmmm I think that can be broken too. Might take longer though or the USD index. Hopefully you did not take your 2 trade setups. Ebola might come now to US which for sure does not help vs. JPY. I think flows is very happy with your USD vs. GBP comparison. On AUD I have similar opinion, except what you wrote about China. They actually also print quite bad numbers, just like the others. What GlobalMacro wrote is interesting. Maybe we should make a table and write down which central bank is looking at which index and pay attention only to those reports. Also, these kind of reports should carry than a lot more value than other tier1 events.

Peter,

I like the facts on USD/CAD. Oil prices can pull down maybe CAD in the long-term. I entered today AUD/CAD and NZD/CAD long for a long term trade. Your little examples were great as always! As I have very little knowledge on US10yr, I am excited to read your analysis.

Mike,

wow, it seems interesting and a lot of works. Just post it all when you are done!

Balazs,

yes visual stop means mental stop for me.

FE

1612

That was exactly what I was thinking FE. What a mess weā€™re having on currency markets , its amazing how fast things can shift. I had long AUDJPY and short NZDUSD going closed both of them during NY session they were both well over -100 pips.

Oil,silver and other commodities are in a free fall or a downtrend so I was thinking last night why not start trading other markets when all we have in currency markets is uncertainty and range bound trades. I might venture into other market probably sooner that I had planned.

Regardless I think its going to be a great experience , given all these risks and uncertainty surrounding the market if we learn to stay afloat during these market conditions we can most certainly get through anything just fine :51: my wishful thinking.

I donā€™t have a clear bias anymore. Iā€™m not bullish on dollar or any other currency at the moment. Up until this point I was trading with wide SLs and I would keep trades open for a day to a week. But now that things have changed weā€™re not in a trending market anymore I think Iā€™ll play it very cautious with tight SL.

1613

Hey guys.
Wednesday results.

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

Comms took this, just barely. +1
Back and forth. Same old song and dance. Nobody is dominating.
NZD had their chance today it looks like.

Well, my sentiment matches Rookieā€™s. Iā€™m with you man!
See, my point earlier (with what Iā€™m working on) is that things change. Itā€™s not whoā€™s necessarily strong that dominates. But, there is some kind of factor that we need to consider. I might call it the ā€œback and forth factorā€. Iā€™m working on it guys.

Hang in there!

Ohā€¦hereā€™s the 00 GMT shot.

2014-10-15_2000.jpg700Ɨ317 19.1 KB

Mike

1614

Mikeā€¦ I think what youā€™re working on will be ā€˜itā€™ for range bound market Iā€™m /weā€™re/ going to wait on that patiently!

No more trending market means Iā€™ll have to move onto developing a system for range bound market - I am counting on your project Mikeā€¦ Iā€™ll also look into commodities or bond is rallying while stocks are down. While I donā€™t feel good about being able make double digit returns month in and out I just love all this cycle - interconnection , and the challenge that it presents. You sure wonā€™t be bored easily trading the market unlike most jobs, it never becomes a routine as its shifting constantly.

PS: Check out the correlation that Peter has been talking of guysā€¦ Mike. You might want to look into that.

1615

Good morning guys!
Iā€™m also fascinated with the intermarket analyzing going on. Thanks to you guys.
If we shift into some other markets, Iā€™m definitely on board.

Ok. Hereā€™s the 0725 shot.

2014-10-16_0326.jpg700Ɨ316 18.4 KB

1616

Okay, here are a couple observations I made in the last few days about the thread. First of all, Iā€™m really happy for being a part of this group, you guys are really gems among the stones.

But I believe we are a little disorganized. I mean, the conversation goes on about everything but the COT report itself. It is just my opinion of course.

[I]I believe that in the name of progress, we have to point out the flaws of the thread as well as itā€™s strengths.[/I] :13:

So, with that in mind, let me share my concerns. When I first stumbled upon the thread, I was quite happy that I finally found a group which members analyze and discuss the COT reports religiously. I was looking forward to get in mix with like-minded people.

Anyway, in the last 2 weeks, I did not really see a report analysis. It is probably because the group is diversified. From what I examined, we are no longer concentrate on the COT but rather on FA and TA. In my opinion, that only confuse people.

It would be nice to have some serious studies on various instrument. I mean, we can throw around observations about the current situation but it would be more fruitful to approach the business of trading from a more scientific viewpoint. Studies with years of data, pictures and explanation attached. Now that would give us an edge.

Oh, and we should be less hesitant to give our opinion. [I]What you think of my trading, is none of my business[/I], as the phrase goes.

[B]Iā€™m just sharing my opinion, I hope you guys wonā€™t take it the wrong way.[/B]

Thatā€™s all for now, Iā€™ll come back afternoon and post my study on the relationship between the [I]S&P 500[/I] and the [I]Bond[/I] markets.

Have a great day! :slight_smile:

1617

Hey BB!

Iā€™m sure FE and the other guys will have something to add to this but hereā€™s what I think. We do analyse COT report ā€˜currenciesā€™ only on a weekly basis since most of us trade spot forex and report our findings on the weekends. FE covers specs and I do the comparison Philip does COT index for commercials and Mike brings his stats. As far as reports are concerned I believe weā€™ve had our trial and error along the way for the past 3 to 4 months and now have found the layout that weā€™d want to keep if anything weā€™ll only improvise.

Besides our main theme COT data analysis we do intermarket analysis /Peter does/ and fundamentals. And during the week we do share how our trades doing, setups that weā€™re looking at. And our opinions on the overall picture and ask for others at the same time. I do think this part had to be ā€˜inā€™. I have learned much by reading these kinds of posts from our team mates. Without it we wouldnā€™t have come this far in a short span of time. I do place high importance on this particular part and I donā€™t think this should be replaced or omitted all together.

So far up until this point we have been on with currencies only, most of us trade spot fx. And as you might have noticed when we analyse currency market we try to look at it from various different angles ; fundamentals, sentiment /COT/, intermarket analysis - rather than working up on a single piece of the puzzle we try to look at the big picture and that enablesus to put the puzzle pieces together - we /I/ consider this having an edge.

We have been talking of expanding our horizon and go into other markets but have been putting it off until we master the currency market first and foremost. Since we /Peter/ started doing intermarket analysis we have found that everything was interconnected one affects the other. We will venture into other markets gradually and some of us already have. I do see your point by the way BB! And I by all no means was offended or took it the wrong way. I just felt like we needed to explain our selves , what we do and the purpose better.

Give us some time BB! we will eventually start trading other markets ā€˜commodity futuresā€™ perhaps ? we will then be going in full force. We canā€™t do it all at once. We do need to take it step by step.

1618

That relationship live - see how the UK100 is falling, likewise AUD/JPY or USD/JPY.

If you had a live ā€˜indexā€™ of the Yen you would see it rise.

Moral of the story is that it would be unwise to be short Yen and Stocks at the same time, except for a hedging strat.

Then have a look at current 10yr - live.

There is a fundamental reason for all of this, deflationary environment is the underlying factor, will post some of that studies of data this evening.

1619

One other ways to use this is to consider which is strong right now, well there is a rising USDX and falling stocks and rising yen, so if in aud/usd there is usd buying, good chance maybe some aud selling, so then not trading the stocks but sticking with FX - hmmm, maybe a short Aud/Jpy

1620

And Finally :),

I know Iā€™m posting after the fact, so it is possible to anticipate the above action and maybe place a stop order?

Last night I mentioned the US10yr, I was looking at yesterdayā€™s action and it was very noticeable how bond prices had jumped during the day, so possible to anticipate a continuation the next morning?

Well not on itā€™s own, but if we could anticipate a fall in the DE and UK stock market at London Open, then the scene would be set on the Yen.

So could we anticipate such a fall? - this was posted before London Open, nice and early to set the orders.

Nikkei closes down -2.22% at 14,738.38 16 Oct | ForexLive

1621

Hey BB.
I hear what your saying. And Iā€™ll shoot out my 2 cents worth. Iā€™ll hit your points.
First off, Iā€™m not offended at all. All criticism (constructive) is good for the soul, and pocket book.
Disorganized. I do see where you can come up with that. We talk about a lot of things, other than the COT report. But I feel it falls under the category of ā€˜market sentimentā€™. And, in my mind, those words mean anything that the big players are thinking, and taking action, and learning why the market moves the way it moves. That can encompass many different things. Also we throw out many of our individual concerns on our trades. We feel we can learn from each other that way. (which I definitely have been)
COT report. As Rookie mentioned, they do analyze it on the weekend. And then report on whether things are bearish, bullish, or neutral. So as the week goes along, we just have in mind what currency (or 2) has the edge. Like FEā€¦he always points that out to us, that he trades only with with what the COT bias turns out to be for the week. I surely can agree that Iā€™m guilty of not keeping that in mind. I am all over the place at times. And they pick up on it and let me know, one way or another. I can agree with you that we havenā€™t explored the historical data of the COT report as much as we could. I even have thrown out there the fact of trying to find some kind of cause and effect of the report in relation to price action. But, there are only so many hours in a day, and I just havenā€™t gotten around to doing that. Iā€™m all about cause and effect. Thatā€™s probably why I give so much historical data, on a daily basis. Cause I need to know what has happened. Maybe if I would follow through and make some connections to what has happened we would have some real results. I know Iā€™m guilty of expressing my opinions about what might take place in the market. Like my ā€˜underdogā€™ theory. And on Mondays I do throw out there what my sentiment is for the week. And then I want to look back and see if my sentiment was what the marketsā€™ was. I will admit that thatā€™s not too constructive. Concrete evidence is much more constructive. (Iā€™ll work on that)
Also in this thread I have noticed that since there are only a few of us, as time passes we are becoming much more close. We have made good friends of each other and thatā€™ll entail a lot of feelings about ourselves. So your gonna have business coupled with personal talk at times. (surely you can understand that)
I think the bottom line is, in here, we do recognize the fact that we are developing. We all do know that there is so much work to do and our captain has articulated that. He sees where we want to end up as. Heā€™s a visionary. We all know that. And you have brought up some good points. But you need to understand that we are aware of many of these things. We all have jobs to do. And you would fit in just perfectly becoming an expert on the COT report. Remember, the words ā€˜market sentimentā€™ means more than the COT report. It means seeing the market from the big picture and moving on in, all for the purpose of becoming successful in our trading businesses. And again, that report is a crucial part of it all. They are the big dogs that can move the market. But I donā€™t think they are the only ones. (central banks)

We do have a lot of work to do here.
And so do you!!

Mike

1622

Well, the responses made a little clearer what this group is about. I guess Iā€™ll be able to make order from all the replies appears in the thread day after day. Anyway, I decided to take a peek into market correlations, so I picked up John J. Murphyā€™s Intermarket Technical Analysis book and started studying it. Itā€™s a huge topic, with many things to take into consideration, so it might take a while until I finish it. Who knows, maybe Iā€™ll be able to get something useful out of it.

Anyway, I promised to examine the relationship between Bond prices and the S&P 500. In theory, Bond prices should drag Stock prices with them. In other words, if Bond prices declining while Stocks are rallying, a break in Equities is around the corner.

Unfortunately, I was unable to find a single site where I could compare 10 years T-bills with the S&P 500 before 2010. So if you have any knowledge about a website where I can do that, donā€™t hesitate to share it with me. Looking at the 5 years data, the above mentioned relationship is not so evident. In fact, the S&P 500 kept on rising despite the fact that T-bills collapsed. (sign of a bubble?)

Untitled.jpg700Ɨ516 38 KB

What do you guys think? Is there a connection between the two?

1623

Hey Iā€™m reading that book as well, very interesting. I think Peterma will have all you need to know about market correlations. I think bonds and SPX also have an impact on USD/JPY

If you go to www.tradingview.com and click on charts, you can search for TNX and they will give you a chart for the treasury bills that goes way back. S and P is there two so you can compare the two.

I havenā€™t introduced myself, I have been trading for two years live. With the help of the guys Iā€™m working on creating a COT index for forex pairs (thatā€™s why I wanted the WILLCO value for currencies, but I managed to get the indicator now so no worries.) The system is now in the process of testing so youā€™ll hear about it from me every now and then.

Good luck with your research and keep us posted.

1624

Thanks Philip, thatā€™s exactly what I was looking for.

1625

BB has highlighted one of the keys to understanding correlation or market influences - market context.

Back last year I posted about deflation and referred to it as the enemy of business - there was general chat about the possibility of deflation in EZ in late 2013.

On May 13 I posted again about such possibility, and linked to this story:

ECBā€™s Praet warns of deflationary pressures - RTļæ½ News

The euro had just peaked 5 days earlier on May 8th at 3993.

So what was I seeing?

The answer lies in the CRB. By May 13th there were signs of a turn down on that index, I knew that that needed watching big time. By the end of May a H&S pattern was evident.

There was some relief in June, but by early July it was heading down.

So what was so big about this? - well if the raw material of business, that is commodities, are falling in price, and we already have low inflation, then further downward pressure will apply on prices. Itā€™s the very nature of business to be competitive, and if I can lower prices without lowering profits then I will do so.

So why now, why this week, why does a leading UK broker talk this morning of a ā€˜perfect stormā€™?.

Again the answer lies in the CRB, it broke those lows of Nov 2013 this week.

But there is one other thing - the US Bonds and the S&P.

Stocks have been merrily rising, regardless of the lowering prices on commodities, now in the past 2 weeks everyone saw the huge disparity, also being highlighted by the Silver/Gold ratio.

Both precious metals, all things being equal should be falling at similar ratio, but the industrial aspect of Silver vs the currency aspect of gold propelled silver to fall faster than gold.

The Bond market as personified by the price of US10yr, in the meantime, was happily ranging from a low in Dec 2013 to a high in mid Aug 2014 - all was well.

Then the boat got rocked, the seeds being sowed from Monday past.

US10 yr priced went above the Aug high, nothing much, but the high was now support - yesterday - the daily tells the tale.

Thatā€™s the past, are we seeing the beginning of a perfect storm? - I donā€™t think so, a lot will depend on earnings reports in the US, I suspect that the crb may slowly begin to rise, the S&P may continue to correct, Bond price will continue range and all will be well :slight_smile:

Silver/Gold ratio P149 John Murphyā€™s excellent book.

P180/181 for the current relationship between Bond Prices and stocks (Bond yields, the inverse of bond price, lead the stocks lower in 2010 and 2011)

Comparative charts free at

StockCharts.com - Simply the Webā€™s Best Financial Charts

CRB at Thomson Reuters - Jefferies CRB Streaming Chart | TR/J CRB Index Real Time Chart

Post here back in May:

http://forums.babypips.com/newbie-island/65908-there-anything-else-besides-price-history-help-us-trade-4.html#post627859

1626

Okay, Iā€™m completely new to this correlation stuff. So far (and correct me if Iā€™m wrong), I found out that a strong dollar (USD Index) negatively affects commodities (CRB Index) while help pushing Bond (yields?) higher which in turn strengthen Equities (S&P 500). Iā€™ll continue my research tomorrow as it is late already.

Thanks for the reply peterma, you seem to know your business well.