COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
1667

So, let’s see what the COT Report tells us this week. Very important that the percentile factors and net positions will always show the non-commercial speculators vs. data from the previous week:

[B]AUD[/B]: 24.34% current vs. 35.23% previous. Net position: -30 271 current vs. -26 271 previous.

[B]CAD[/B]: 40.76% vs. 45.65%. Net position: -16 167 vs. -7 452. As we see specs became a lot more bearish on the currency. Looking through the different charts, CAD price action is very mixed.

[B]CHF:[/B] 27.93% vs. 35.70%. Net position: - 17 553 vs. -12 419. Despite the not so good economic outlooks the currency made some nice gains lately because it served as a risk off asset.

[B]GBP[/B]: 48.40% vs. 49.42%. Net position: -2 837 vs. -1 075. Despite the bearish reading, we know that GBP turned around in the last two days of the week. Still, I am disappointed in the British economy, will be only long with it against the weakest currencies. I was bullish on it and it is one of the rare cases when I change my bias. I will either be neutral or bearish on the Pound.

[B]NZD[/B]: 44.24% vs. 49.75%. Net position: -2 384 vs. -100. Like all other commodity currencies, it is also one of the biggest losers in this risk off environment. Conclusions on the bottom.

[B]EUR[/B]: 21.82% vs. 22.83%. Net position: -155 342 vs. -146 212. The price action was very mixed last week, gains are associated with risk sentiment moves.

[B]JPY:[/B] 15.55% vs. 15.31%. Net position: -101 127 vs. -112 551. Well all know the more bullish view is there because of risk aversion and not because of better economic conditions. Looking at price action I tend to think that JPY might have shot all its bullets. I am in two trades already against it but this it the time when I might short it against the board.

[B]USD:[/B] I just leave this part to our index expert, [I][B]Peter[/B][/I].

Trade setups for the week:

We do not have any extreme reading based on net positions and COT index, but we should pay attention on comdolls, especially AUD and NZD. Those of you who like carry trade for long-term trades might see some low bargain prices to buy NZD and AUD. They both lost a lot in risk off environment. I think they lost even more than what their economy suggests. Especially AUD. NZD is really coming to an extreme net position reading. If JPY weakens again, stocks start rising, then we might see a nice comdoll rally. On the other side I have to say the markets are difficult to trade for me lately. It is a lot more difficult to make pips than it was a couple of months earlier. I try to be more cautious. I still check a lot to trade the board against JPY and after this report I see a chance to go long with NZD and AUD. Both of these are long term ideas. Besides that, I will take a look what Balazs has to say as I think with metals and indexes I see more edge at this environment than with spot forex. I am waiting for all your critics and ideas!

FE

PS: yesterday I posted a live trade. We often talked about seeing the big picture but cannot managing the trades good. I thought if I have time I might post some live trades based on my COT findings and fundamental view. Maybe looking at what I did good and bad, discussing the potentials to make these trades better we can all turn better traders with getting better in the managing skills. You can also share your idea on this issue.

1668

Well all currencies are at their 6 months extremes according to my report. Unfortunately however no currency producing a signal.
Last week we decided against buying GBP since the MA value was equal to two weeks ago and we wanted to see it higher. This turned out to be a good decision.
Sorry BB I guess you won’t see me do an in depth analysis this week either since we have no signal.

1669

Copper

As I mentioned last week, Copper piqued my interest. I’m not eager to pull the trigger yet though, still, it’s worth keeping an eye out.

COT Index

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As you can see, Commercials are still extremely bullish (90+ readings). That’s nice but Non-Commercials entities never reached such readings. In fact, they still pack some punches. Since Funds are the “fuel”, that means (in my opinion) that it is still early to bet on the bulls.

COT Movement Index

The reading decreased from 49 to 38. Copper is currently going down, so we are not paying attention to any of the positive readings.

Open Interest

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It is clear that the number of players continuously increasing. In itself, that tells us nothing. We can notice though, that the Commercials are adding to their long positions while abandoning their shorts.

But how much they own of the overall OI?

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Currently they have 51% of the long contracts and 31% of the shorts.

CP/OI (Willco)

The Index is still in the bullish territory with the value of 88%.

Despite the fact that the price is going down, I see a bullish picture. If we are to get a bullish Commercials extreme combined with a bearish Fund extreme, I might consider going long at the circled Support Zone.

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1670

Hi Philip,

very interesting. I do not really understand the methodology behind it, but from a technical perspective it does look good! One question I still have. This is about setting up the chart. I see that you use the 200 MA, just like you wrote earlier. I cannot choose under “indicators” the SMA. I only have “displaced EMA” and “MA Exp Ribbon” as a choice. So how do I do it?

Based on your system, the entry technique I like. However there are problems with exit. Or if the exit is ok, we do not need the VIX weekly anymore. I have seen that once you see a VIX weekly top, you basically do not need that chart anymore. You are keep jumping in and out of the market, all based on the 200MA. You do it until the next VIX top comes, meaning it is an endless cycle. So we do not need actually the VIX weekly chart. Right?

Thanks for sharing it! Please keep us updated, now I will also follow it.

FE

1671

Hi guys.
Well I can’t give you any up to date data from the week, yet. I’ve been waiting like 5 hrs this morning for my charts to show up. Broker probably doing some work on the site. Sometime this weekend, when things appear, I will shoot out the totals.
I do think it’s important to know what has happened, especially on a weekly basis, with details. This way we can at least go back and try to see any correlation between the COT report and what transpired.

Mike

1672

Hi Balazs,

this week I chose a different strategy so I can discuss with you your analysis. I chose to look at all metal charts at timingschart.com, make up my mind and only then read your findings. I saw that gold turned a bit and silver is flat, palladium and platinum showed nothing.

Then I got to Copper and got interested on the net positions and COT index. The net positions are almost at extreme levels and COT index give a buy signal. Then reading your CP/OI and Commercial open interest long signal shows me that the rally starts soon.

It looks a really good setup and what is even better, this commodity I can trade on my platform! BTW how is your gasoline trade going?

I post you my view on my area of ineterest where a strong support zone meets with a current channel. Either a support bound or a channel breakout seems to be a good entry to me. What do you think? Just like you, I do not like to complicate things for long term trades so I do not use any indicators (yesterday I had to because the S&P trade was a very short-term trade where indicators do play a very important role).

FE

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1673

SMA in trading view is ‘Moving Average.’

We only need VIX when it moves above its weekly 200 ma you are right. The logic behind that is this: VIX is a measure of volatility in S and P. Volatility increases when there is fear in the market, and there is fear in the market when prices drop. So when VIX goes above 200 ma, that means that volatility has reached an extreme, hence fear has reached an extreme, which in turn means the S and P is near a bottom and a rally must commence soon.

That same feature of VIX makes it impossible to use it as an exit strategy, so we are stuck with 200 ma as our exit for now. Of course if you think it took too long to be in the trade you have 2 options: 1) set a profit stop (get out after 100 pips etc.) 2) Use a lower moving average for exit, say the 100 ma or 50 ma.

The reason I shared this chart is because VIX has moved above the 200 ma again, so we might be on the verge of a unique opportunity.

1674

Hi guys,

as crude oil gets a lot of attention, I looked a bit after it, how it looks like in the COT report. Well, despite the huge fall we are not even close to extreme net position levels. Actually the extreme top was at $106, so we just missed that boat and have to wait for the bottom now. Based on the positions we are more in the middle of the range and not at extreme levels. This pretty much lines up with the fundamentals where we can read everywhere that crude is most likely to stay at current levels and do not rise to as high as it was in the near future.

Balazs, can you share us with your view and more in depth analysis with your database? I think though that you will also not see some kind of signal.

FE

1675

First of all thanks for posting this possibility for the S&P. Second, also thanks for explaining the logic behind the action.

And last but not least, it sound horrible but I think the problem lies that I do not find the right “view”. I think I am not in trading view as my chart looks other like yours. So this information would help me.

Thanks!

1676

FE is right re the Cot, although the discussion on here of late is exactly the things that commercials and specs have an interest in.

The commercials, commercial activity, specifically commercial prices is in a sense what the CRB is about.

The Commodity currencies, in particular CAD and AUS hurt when the CRB is falling.

Commercials would have been watching the falling CRB since June 20, when it peaked with a double top.

If we follow any of the major USD crosses at that point - USD was falling, and continued to do so until mid July - then direction changed up.

Why then? - well prices of commodities had just made a new low, a break of market structure (L Williams speak) occurred on July 11 with the crb closing down.

On the same day, July 11, USD/CAD went up, the low of that day not yet been revisited.

There was a saxo bank guy who sold AUD/USD at 9451 early the next week for a long term play.

(I used CAD as it is sometimes a currency proxy for the CRB)

Every commercial enterprise is keenly aware of commodity prices, even if they are not market watchers. An example for yesterday, a local re-cycler was bemoaning the mounds of cardboard he has in storage with “the price gone through the floor”.

The latest cot obviously is before the recent turmoil, but it is interesting that again the specs have again added to their CAD and AUS shorts.

CRB index:

BTW it was Bullard who made the noises re further QE, it was he who calmed the waters.

1677

And sometimes it can be helpful to see what maybe that saxo guy was looking at on July 10 after the close.:

1678

Hey guys.

This weeks summary.
(pips had against everyone)

NZD: +640
CHF: +606
EUR: +380
AUD: +290
JPY : - 89
USD: -317
GBP: -507
CAD: -1008

Total Major pips up against total Comms = +73.
So Majors took it, but by not much at all.

Hopes this helps some.

Mike

1679

Careful with the buy just yet. Commercials are tend to be a little early arrivals to the party. I like your falling channel (I did not noticed that), a break might be a great entry point or a bounce from the Weekly falling TL.

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My trade is underwater atm but still valid. I bought some more contracts at a more favorable price raising my risk to 0.5%. Anyway, as long as the support zone holds, I’m comfortable with staying in.

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P.S: I’ll post my analysis of WTI soon I just have to include it in my database.

1680

WTI Crude Oil

As ForExchange pointed out, there are nothing here that is significant according to the COT report.

COT Index

Both values are from from extreme, Commercials at 62% while Funds at 35%.

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Movement Index

Current value is 6.

Open Interest

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I don’t see anything that would catch my attention.

CP/OI

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Shorts are decreasing while longs are stagnate. (L: 35%, S:48%)

CP/OI Index

Currently at 71%.

Summarize: According to my analysis, I’m staying out for a while. I don’t see any reason to take a trade in either direction.

1681

Hi BB

I’d say there is a chance your trade will pop it’s head up next week.

A few traders keep an eye on $SPTEN whilst trading energies.

1682

I’d like that a lot :stuck_out_tongue:

1683

@ForExchange

Thank you for your kind comments about my recent posts.

I fully agree with your point that it is important for newbies to try to get “up to speed” with the main focus of this thread.

To that end, I would be happy to put together some notes as I myself go on that very journey, which could be called “What all newbies should know”.

When I encountered this thread for the first time recently, I could see that you were all hoping to collaborate on producing a robust, reliable, and profitable trading system.

Being on a bulletin board called Baby Pips I guessed that you were mostly concerned to trade forex, although @ForExchange has indicated in his last post that index trading might be included within a COT-dominated trading system, and I’ve seen mention of Copper and West Texas Crude in recent posts, so forex is not the exclusive instrument to trade.

You helped me realise the primary focus of the system revolved around “COT”.

Having used Google to find only beds for babies, I changed the search term to “COT commodities” and usefully ended up at Wikipedia, and learnt it meant “Commitments of traders”.

Commitments of Traders - Wikipedia, the free encyclopedia

Here it said:

[B]Purposes and Uses[/B]
Many speculative traders use the Commitments of Traders report to help them decide whether or not to take a long or short position. One theory is that “small speculators” are generally wrong and that the best position is contrary to the net nonreportable position. Another theory is that commercial traders understand their market the best and taking their position has a better chance of profit (which is pretty much the same thing as the “small speculators” being wrong).

There are about 168 pages of posts on this thread - should I go back to Page 1 and start reading there, or does this focus on finding a reliable trading system start at a later page?

Is there a book or webpage that summarises how your current system finds trades and decides whether to enter long or short?

Is there any software, spreadsheets or interactive webpages that help you find trades?

When you place a trade, which website URLs to you go to, i.e. who acts as the broker?

In the USA it is illegal to bet on financial trades, but I understand that in the UK and the Far East that betting on where a commodity or forex price will go, is legal, so you can also place your trades with a bookmaker there, as well as with a broker.

I hope I can produce a guide for other newbies, just by going on the journey to understanding myself.

If others would like to help, perhaps we could build the guide in a wiki, which I understand is the “go to” way to collaborate on writing anything.

I’ve never used a wiki before, so that could be a useful learning experience too.

LB

1684

In the past I had contributed extensively to a bulletin board on entrepreneurship.

When the service provider decided to charge a fee for the service, the bulletin board owner did not want to pay, and so all the threads and posts were lost.

Is there any chance that all these posts might disappear?

LB

1685

BB mentioned that copper and WT Crude showed nothing too remarkable in COT so I thought I’d show a few screenshots (see below) from the current Stockcharts webinar where the Canadian technical analyst explained his thoughts.

  1. Copper is poised on a horizontal trend line and I guess everyone is waiting for it to either decisively drop, or bounce up.

In the options world you can bet on either one of them happening by putting on a straddle - you go long and short at the same time.

But because the options on one side rocket in a magnified way when a big move happens, you get a net profit.

Further, he believes that a strengthening USD will cause copper to fall off its current perch & go down.

  1. 2 charts of the Nikkei - the upper one weekly; and the lower one showing the incredibly consistent trend line along the diminishing peaks over the last 25 deflationary years.

He feels the Nikkei is looking rather fragile, and fears the global repercussions if the Nikkei, the Japanese bond market and the Yen all fall over together.

  1. West Texas Crude - here we see 3 trend lines broken in the recent hasty descent, and the close 2 weeks ago just holding above the 4th trend line. If it continues down further, the 5th trend line is at 75.

With an amazing collapse like this, does COT currently show everybody is short?

Were 95% short back in June when the collapse started?

Did the Commercials indicate that this was going to happen?

(Please remember I’m a newbie - COT is a whole new world for me - but it would be interesting to examine how predictive it was, of such a major and sustained rout, of such a key commodity. Will they predict the bottom, and the subsequent bounce?).

Will the final trend line from the 2009 low (at 75) hold the key?

Timings for the video appear at the bottom of each screenshot if you’d like to hear what he said about each picture, and I think he also covered gold, silver and natural gas in the commodities.

This video is available until Friday, 24th October 2014 when they hope to talk about particularly forex charting capabilities on Stockcharts.com

http://stockcharts.com/webinars/schnell/webinar.mp4

Do most people on here think technical analysis can have a role, or is it largely dismissed?

(Sorry the image is so small - I can’t work out how to let you see it at full size).

LB

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1686

Good weekends guys!

COT data - 14 Oct 2014

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The commdolls
AUD, NZD and CAD

Non commercials: Specs have added on to their net position /shorts/ across the board while reducing their longs. Specs have been adding up their net position /shorts/ on AUD and CAD for the 3rd consecutive week, and the 2nd for NZD since they changed their net position from net positive to net negative on 30rd Sep.

Commercials: Commercials have added on to their net position /longs/ across the board. Commercials have been net buyers of commdolls for a month now since they changed their net position from net negative to net positive. AUD up from 0.8748 to 0.8768, NZD up from 0.78 to 0.7849, CAD up from 1.1163 to 1.1193.

The majors
GBP and EUR

Non commercials: Specs have added to their net position /shorts/ on GBP for the 2nd consecutive week but their net position has been fluctuating up and down without clear bias. As for EUR there was an increase in net position /shorts/ , specs have been adding to their EUR net position /shorts/ for the 3rd consecutive week. EUR all time net negative position extreme was at -214418.

Commercials: Commercials have added to their net position /longs/ on both EUR and GBP last week. They have been net buyers of EUR and GBP for a while now. GBP down to 1.6055 from 1.6151, EUR up to 1.2669 from 1.2656 against dollar respectively.

Safe haven
JPY and CHF

Non commercials: Specs have reduced their net position /shorts/ on JPY once again for the 3rd consecutive week currently stands at -101147. All time net negative position extreme was at -143822. Specs have added to their net position /shorts/ on CHF for the 2nd consecutive week.

Commercials: Commercials have been net buyers of CHF and JPY for a while now. Last week however commercials have sold off some of their yen longs while adding to their franc longs. CHF down to 0.9556 from 0.9559, JPY down to 108.16 from 109.20 against dollar respectively.

Conclusion

AUD - Bearish
NZD - Bearish
CAD - Bearish
EUR - Bearish
GBP - Neutral
CHF - Bearish
JPY - Bearish