COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
2388

Hey FE.

You know, you need to remember what I wrote last week about the JPY. I think they are still on a roll. They took last week, being the strongest. And as I uncovered back in the end of Sept, they had a good three week long run. Yeah, on Friday they corrected, but I think they are still on their kick. I do think their not done. Probably till the end of the year. They are catching up.
We need to keep things into perspective, and not forget what the sentiment is. And it’s not a surprise to me that they have kicked everyone’s butts. And the USD is not weak either. They are only even against EUR, CHF. And down against JPY. But against all the others, they are having an up day.

So, remember the market sentiment.

Mike

2389

Yeah, Monday can be difficult enough at times, more so pre FOMC statement Wed.

I posted early today about risk and S&P/10yr/and USD/JPY, I was noting the market at it’s best when correlating risk.

The problem up ahead is FOMC interest rates, if there is a tone of - heck here is the best analysis that I’ve seen on the subject in a long while, and it’s only 10 mins old :slight_smile:

Why this market needs bad news | ForexLive

2390

Hey guys.

Monday’s results.

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

Majors took it. +4

2391

Mike,

If we were in with at least one pair for the long haul. That would have been it. Keep adding more positions. What I can see from your stats looking back decades, is that there was always the dominant currency - or a prominent trend.

Browsing through my charts. I see that GBP is losing its ground to a lot of pairs. Going down to lower TFs I see lower lows and is struggling to break above major levels.

Well the underdog theory AUD is struggling to break above major levels. Bad manufacturing data from China and mixed future economic outlook could be one of the reasons for weak AUD. And on top of that given AUDUSDs weakness, barely managing just above major support that shouldn’t be a surprise. What I’m looking at currently or the new underdog is EUR.

I’m looking forward to the continuation of your studies !

PS: I’ve just been trying to find a pair where I can ride along for the long haul. And so far I don’t see any. Dollar seems overbought. Pound is losing ground. AUD the underdog is struggling. I’m focusing on EUR for the moment. Not to mention EURUSD is reaching a critical level we might see commercials coming in causing a rally - a bottom ? I’m not so sure as of now just yet. EURAUD broke out of its range and now trending up is telling something. EURGBP is still within the range.

As for jumping short on yen pairs, Ive got a fear that yen might range for a while. Theyve been going down against everyone for years now.

2392

Hey FE,

We’ve talked about this before. Personally I’m not doing fundamentals as much as I used. Not necessarily because I think its nonsense and of no value. But because the more I do this the more realize how true dow theory is that market discounts everything. So the price or the chart that you see has already absorbed past present and future. Murphy’s book helped me to put things into perspective and prioritize certain things .

I would still prefer to look at headlines from time to time although I don’t do it as often as I used to. But I don’t go in depth. If I had some leisure time I would most certainly, but for now I want to focus on my trading - certain things such as entry , exit and trade management. We already have a good idea as to how the world economy is doing by now. We’ve got a good foundation. By the way I think you must have a good foundation to begin with ! and now its all up to the individuals to decide if you want to leave it there or explore further. Leave it there doesn’t necessarily you completely ignore fundamentals - like I said its good to know whats happening around - just in case.

Coming back to dow theory where market discounts everything - look at EURAUD broke out of its range trending up on most TFs. Does that say something about the weakness of AUD and the strength of EUR ? I didn’t know exactly what was up behind the weakness of AUD neither, but I’ve seen few bad headlines for AUD and bad data from China is always no good for the aussie or the world economy just in general.

I think its good to have certain news but not everything, and always integrate what you have read with the charts - because thats where all the action is going on. News just a perspective told by some one else.

And last but not least, I’ve heard this plenty of times. Trade what you see not what you want to see. Brilliant advice ! Well its taken me almost a year to finally realize how true that statement was.

2393

Hi Peter,

reading the different DJ averages in Murphys book, I wanted to setup my charts on some DJ averages. I took a look at the Market Summary - Free Charts - StockCharts.com link for abbreviations. Now, I am not quite sure what we see under “US Industry Indexes”. Is it what Murphy is talking about? It is not so clear because for Transportation I do see on the top Dow Transports and down Transportation. So here it is clear to see what to use. But I do not see Dow Retail, only Retailers down under and I am not sure if I can use that one or not. It is hard to setup a DJ chart with different indexes if the site does not have them (only Transport, Utilities and Composite). If you say I can use the US Industry indexes then I can start that right away.

Thanks,
FE

2394

I agree with you. I tend to discard Fundamentals entirely, that’s why I wish to know more about COT and Intermarket analysis. They are the real power behind the moves IMO. I bet 99% of the time, the journalist just come up with a random reason to explain even the smallest move.

2395

That is what I think now. And I see it as Rookie too. I just do not believe in these “talkers” with explaining everything USD profit taking. What a joke. Profit taking before NFP, after NFP, beginning of the week, end of the week, before holiday, after holiday etc. My god, when everyone is always profit taking then actually who loses and in which time is there normal trading? Haha. I think from now on if I do not get something I just tell myself it was profit taking. The currency which is in trend but has a retracement is for surely profit taking? What else could it be?

Mike, I am happy to see you are in the work again!

FE

2396

Hi FE,

The absolute best place to begin research is on Stockcharts support page, Under symbol or name just put in “transport” for example and there will come up a list of every etf and index associated with transport.

Site Search - Support - StockCharts.com

Many of the indexes are indexes of the entities that are referred to as ‘commercials’ in the cot report, e.g. I posted before about $XNG - and index of the shares of the big players in Nat Gas.

By checking this index it is possible to see how investors view the near term future of these commercials, whether those investors are buying into those companies.

One thing to remember, investors are generally already rich, they, or their highly paid advisors, have access to info, bulletins, reports that we or many of the talking heads on web sites do not, if you were to see them piling into a particular group of companies then there is a valid reason.

$XNG as of EOD yesterday:

2397

Wow Peter that was a killer post! Basically as I see it also invalidates the Nat Gas trade. Thanks for the detailed explanation. I will concentrate more on these indexes in the future.

FE

2398

I do agree with some of the things in the post and disagree with other things. Firstly, to me I think fundamentals as the state of an economy and not economic data. I agree with you that fundamentals cannot explain what happens in the forex market everyday, but they do give me a bias.

I stick to this bias like its a law. So yeah Jpy is beating USD at the moment, but to me fundamentally the USD economy is better than Japan so this is a good opportunity to buy.

All I need now is a good technical system that helps me enter with the least amount of risk and the least amount of drawdown so that I can make consistent profits.

2399

IMO you are all correct, Fundamentals seem off key, as Philip says The US economy is in a better place than Japan, fundamentally the trade is USD/JPY long.

But I keep harping on about risk, and of recent times how the Yen is again measuring risk as it often does.

So Russia has taken dramatic measures to push Rub up - hmmm… market says still too risky.

One big concern now is where will oil stop, China data has not helped.

So why not flight to gold … hmmm … market says risky, commodities falling because of oil.

So then flight to mighty USD …hmmm… market says a possibility of interest rate increase …hmmm… that’ll knock the stock market and possibly knock the fledgling US recovery into the bargain - so much risk.

So what does the nation who are recognized as the most astute of investors, not only that but are generally savers and not borrowers, what do they do with their money… they take it home.

In such situation it is not wise to sell Yen, well at least until after Wed’s news.

2400

And to see in in action - there’s a story re Kerry being conciliatory towards Russia, so up goes S&P, down comes US10yr and up goes USD/JPY in response - all about risk perception.

2401

Hi Peter,

I am getting there but a bit slowly. I checked the link. There are 7 sites full of indexes. This is good, on the other side it is not easy to use that list. It might sound strange but I have never heard most of the companies. So the question goes how you navigate yourself on that list. Unfortunately there are no sectors defined, only for a small portion of the indexes. I wanted to see a company on sugar or cotton but basically I have to know the name of the company because there is no sector given for the indexes.

Any idea how to sort them?

Thanks as always,
FE

2402

Hi Peter,

I try to put it together live with the indexes, please tell me what I see right and wrong. Russel 2000 turned up strong a couple of hours ago. That can be an early indicator for S&P. I checked S&P. Actually it also turned up. It looks already better for S&P then if Russel is in the same direction. Then I check the S&PAD Line and the NYAD Line. They are both heading up today. Another strong indicator of an uptrend. I went to W/S, it crossed the zero line but the trend was down. Still, the signal is valid because it came from an extreme reading.

Ok, now you can say what was I false interpreting or missing. I could have looked to USDX and Gold but I do not know if they play a very important role here.I think they showed what they supposed it show: USDX up, Gold down. Makes sense.

Thanks,
FE

Philip: I think we all agree on your good summary! The main bias is important to know but the single reports are not really. We just have to be aware of them for increase volatility.

2403

Hi FE, hope you saw all that risk return in action just now. This is why w/s is good, I noted previously that using USB10yr or USDJPY as the influencing markets is almost identical - they worked well in the past 2 hours on the S&P.

I usually exit at 16.00gmt, but stayed on for an extra 30mins - flat now.

Re Stockcharts - I look first with the query “Natural Gas”, then I look at the exchange heading - first is CME and the spot price, not what I’m looking for as it is yesterday’s EOD.

Then there are ETF’s listed, maybe on AMEX, forget those, interested in NYSE only and only big ETF’s

Then I see XNG, I look it up on say investopedia who tell me more.

Then maybe I want to find a large ETF which tracks Nat Gas (ETF’s are traded like a company, again preferable on NYSE, and also the bigger the better (i.e. more funds invested). With the ETF you will get real volume which helps in analysis.

Remember an ETF is the lazy man’s way to invest, a more difficult way is to choose individual companies in a sector, the index is great for viewing those companies shares in general, an ETF tells us how the ‘quickie’ investors are acting.

It’s a little like If you have say $10 million and you wish to invest it in Nat Gas, you have chosen that product for a reason. You do not want to take on extra risk by choosing perhaps the wrong company in that field, the way to go is buy into a large tracker ETF - your transaction will show up in the volume, and the ETF will rise as a result of the buying…

It takes a little digging to find the larger ETF’s, although Murphy does list some of them, e.g. GLDX

I don’t follow Nat gas, but just checked here for which ETF:

Top 9 Natural Gas ETFs

The largest is UNG, so back to stockcharts - Aha! they use the same symbol UNG and look what I get:

See the falling price complete with falling volume, not too much interest from investors there.

2404

Hi Peter,

a very nice post. I have to say honostly it is a bit high level at this moment but I try to follow them as I think it gives an edge. So I tried to find sugar. I found two, which would you suggest to use?

http://stockcharts.com/freecharts/gallery.html?$DJASB

Gallery View - StockCharts.com - Free Charts

Actually there were more hits but I chose this two.

Thanks,
FE

2405

FE, you have summed it up, I only had a quick glance to Gold, but it’s sidelined a little due to commodities.

There was a sudden change in risk atmosphere so the Russell and S&P turned up, The Bond price started to fall and the Yen buying suddenly changed. I didn’t look to the USDX since it favours the Euro and there was some good Euro news out, my focus was S&P only.

When I saw the Kerry story I could then have traded any of the above 4, I don’t trade the bonds, USD/JPY was a long way from it’s 50sma, the Russel is very much choppier if you want to keep drawdown low so that only left the S&P which also happened to be reasonably close to it’s 50sma, more so than USD/JPY.

On the broken yellow line, that was there from yesterday and extended over today, I exited at that line because price stalled there and took maybe half hour to cross, when it did I went back in again.

S&P HR1

Yeah, just checked on the 15 min where you can see the hesitation, it seemed an eternity but I would not re-enter until that line got crossed, if it didn’t then great, I’ve got the top, if it does then I’ve given up some points, but that’s ok also.

This is just one that went ok, that’s all

2406

FE,

Yes, SGG seems to be the largest.

Actually an interesting chart, I see some volume yesterday.

2407

Hi Peter,

I was learning a bit those charts at stockcharts.com. I found something interesting but I am not confident 100% to analyse it. Can you share your view what you can make out of it?

Thanks a lot,
FE