COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
2952

OK guys, since everyone is having a little nap I figured I’d think out loud, just to waken you up :slight_smile:

Risk on/off, the ever ending cycle, fear/greed, buy/sell - sometimes when you get in sync with that mood then you seem to choose the correct direction.

Some traders fear the algo sytems, the black box. These algos are usually written by super smart maths geeks (bad word), the algos are good, try selling the new 12 day low and there is a chance that the algo will buy from you, it’ll buy the next x number of lows and then it’ll start to buy the retracements - suddenly the shorts have to cover, the algo will happily cover those and then some more.

Can the algo be beaten?

Yep, algos are mechanical, they have to follow their programmed rules, there is no room for discretion, they seldom look for risk sentiment, numbers are king (remember being programmed by a maths geek).

The only discretionary part is whether to engage or pull the algo.

So how can the get beaten? - volume of orders (order flow) - try telling an algo that it will win by buying the lows if Greece exits the Euro, or if the Fed announce a new round of QE.

Well those would be major events, how about the humdrum of the market, how can we gauge the likelihood of the algo getting it wrong.

This is this evenings TLT hr1, the continuing fall in price means a fall off in buying bonds, a fall off in buying bonds either means that investors are becoming afraid the Uncle Sam will not repay (non existent risk) or that there are fewer buyers of the less risky bonds.

If there are fewer buyers of safe investments, then there is a good chance that those guys will be buying the more risky stuff, like the S&P.

But would you buy the S&P tonight?, well see the volume, is there a chance for success for the algo?

2953

That was the sort of negative way to look at risk, so a more positive way to look at risk is the SPY.

The SPY is much better than VIX, the ETF gives you a sense of the now, here is SPY hr1 right now, then have a look at the S&P and see the effect.

Then again check the volume on SPY, then imagine a new high - what would the algo do?

2954

And finally…

Taking this over to FX and more specifically the USD.

USDX has fallen on Thursday, and no recovery today.

So on that basis would I look to, or think about selling USD next week?.

First thing I would do is check UUP, to the right of the blue vertical is Thur and today, I have alook at the volume, hmmm… not much conviction on the part of the sellers.

2955

Hi Peter,

awesome topics, well I never have ever read an analysis like this before! Just great! So please go on. I do not know how you got the idea to share your algo experience but it is very interesting and I do not know what it will do but you can share with us. I am not a math professor and never went deep into this subject so I am interested. The topic is also interested because we only always read about what retail traders do at different level, and only in this post do we discuss what banks do (basically we do not discuss but you share your experience). But I never read anywhere what banks do. So now you bring algo in it and it is fascinating.

Can you please read and answer short my post about commodities and the USD? I would be interested to see what you think about it.

And I have one more question. You never talked about Chinese shares. Murphy writes in his intermarket book about the crucial importance of Chinese shares. Do you follow them sometimes?

Have a nice weekend to everyone,

FE

2956

The Peter course continues! I have the first subscription!

2957

Hi guys,

as the market is closed then my slow internet charts were good enough to check the COT report with charts.

Actually I could copy paste my findings from last week. Let’s see what I see:

  • gold and silver are falling as the report suggests

  • JPY looks like to have still a sell signal

  • crude oil is giving a sell signal

  • I still do not understand but follow sugar

I checked all instruments and did not find anything else. Mike, I guess you did not see that I wrote you a pm a couple of days ago.

Have a great weekend everyone,

FE

2958

Hey guys.

This weeks results.

[B]Total pips////Total % averaged[/B]

NZD: +660///+.94%
GBP: +836///+.72%
CAD: +141///+.24%
EUR: +321///+.17%
JPY : -27/////-.05%
USD: -381///-.43%
AUD: -696///-.57%
CHF: -757///-1.02%

P.S. FE…clear out your box.

Mike

2959

Hi Mike,

the weekly results do surprise me quite often. NZD on the top and AUD nearly on the bottom. Interesting.

Inbox is cleared.

FE

2960

On the Dollar commodities discussion, I do have an opinion that I want to share.
Trend in Dollar is bullish this is plain and clear. But all trends correct, that is also a clear thing. If you switch the DXY to the monthly chart, you will see that the Greenback is yet to correct. That correction is coming sooner than most traders think in my opinion. I’m talking about a multi-month decline in USD (2-5 months for example). During that time Commodities and commodity currencies will also correct (but to the upside.)

This a scenario were the trend will be up in both dollar and commodities in my opinion.

But who is the biggest winner? Pound.
Towards the end of that inevitable correction the Bank of England will get a chance to correct its rhetoric (inflation is better, the rest of the data are good). The correction also helps the Fed sort out their own inflation. Eventually we will have the USD and GBP diverging from the rest.

This is basically my view on 2015 in a nutshell. I have charts to back it up as well. May be will share it latter.

2961

FE, commodities and the USD.

When I think of the current trend I seldom think about the “when” things will change, but I often think about the “why”, the reasons for any possible change.

To halt an increasing USD the first port of call has to be the Euro, I know there are a few other ports to visit but Euro is still the first.

I am delighted that EZ finally introduced QE, despite all the rumpus from Germany. I expect that QE will bear fruit first in the Northern EZ countries and then spread to the rest.

There is the hurdle of Greece, the worst case scenario is a Grexit which may be in the best interest of all concerned, the market could take such a view after the initial knee jerk.

A strong Euro would put pressure on the USD, and in turn put upward pressure on commodities, on two fronts, an increased demand from Europe and a falling USD.

GBP is also a port of call, but it has to be remembered that the UK is heavily dependent on EZ, they share the same fortunes. There will be a long a likely bitter campaign to have the UK come out of EU, the debate and the referendum could well have a negative impact on GBP.

On China, most market participants are very aware of the Chinese market, I check their stock index close each UK morning, it often helps, along with the Japanese index, to set the scene on risk for Europe. But I do not trade anything Chinese as yet.

2962

On the algo thing, again thinking out loud - ever noticed that the point where you decided to buy, MT4 will paint a dotted line, right at that point price will make it’s high, it’ll go into a small profit and dither, then it’ll fall.

It would seem that this may happen even more often if you entered at market, such an entry usually means ‘heat of the moment’, price has just broken resistance and there is an urge to buy.

Maybe price was in a tight range, lots of talking heads were calling it up, you wait with patience, you set your SL below the range, finger ready, the news is imminent, it comes out.

The news is 0.001 better than exp, price shoots up, you hit the button to buy.

The Market Makers’ algos have kicked in. It’ll take your buy, it’ll also take your SL.

This is the “why” behind the saying about planning the trade. Only two things beat the algo - volume or deep pockets.

Commercials/banks/institutions have the deep pockets on their side, winning retail traders have volume on their side :slight_smile:

2963

Can’t agree more with that !

2964

Think I’ve finally just solved the puzzle piece. “The volume!” excuse that Ive been repeating myself over and over again I can’t help it :-). Its almost equivalent to Newton shouting “Eureka!”

I see that S&P just made a new high at last fridays close, breaking above the previous swing high or resistance. I would certainly jump long on S&P on the premise that it broke previous high, but then again after reading your post I was reluctant to jump on board, I want to study the volume, if it has potential to resume higher, if there’s enough momentum. I want to know how you’d analyze the situation ? Or are you long already ?

would you do the volume analysis when market opens, any specific time frame : 1H or daily ?

2965

Hey guys.
Hope you’re all having a great weekend,

This week I’ll have to repeat myself, not much has changed. After a bit of filtering I’ve come up with the same signals. AUD, NZD, CAD and EUR still in a correction phase.

Gold, silver and sugar did give a sell signal few weeks ago. I’ll be looking at silver and sugar taking gold as a lead if I see a volume coming in to the downside I’m short.

As for currencies I’ll most likely look for opportunities to long dollar.

2966

S&P volume analysis

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Screen Shot 2015-02-15 at 8.35.52 AM.jpg700×293 33.1 KB

I only had daily or weekly as an option on stocks chart. So I went with the dailies. As far as I can see, the volume on SPX has been flat pretty much although price managed to erase previous swing high last friday. The volume on SPY however has been declining ‘somewhat’ to me that concludes, wait on that longs just a bit until there’s a pick up on volume. But what I’m wondering is that, after that big jump in volume wouldn’t it be already too late ?

2967

Mornin’ guys! :44:

Silver

After sitting out the huge sell-off on NFP Friday, I’ve been keeping an eye out for Silver. I want to hop in as a seller, but first I need the price to approach minor resistance zone around 17.600.

The composite index stays within the overbought region for the week.

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Well, that’s about it. No other signals I’d be willing to act upon.

Note: I’ll start studying different Composite Index look-back variables in-depth.

2968

Hi Team,

very nice analysis on commodities from Philip and Peter, the usual summary from Mike, and great COT discussion from Rookie and a BB.

I would react here on Rookies post as there is something I find interesting but not so clear. It is volume. Peter uses it regularly to make his decisions. Rookie shows the charts and highlights the difference in volume but I find from these posts the very important missing information: “But what exactly does that tell us? What is the story behind it?” I can’t answer because I am myself not that good at volume but I think this is missing from many posts. We see the highlighted points that volume is increasing, decreasing or flat but until we discuss why is it important and what it means… well those arrows do not mean much, at least for me.

As far as I tried to put together Rookies two charts with volume, I highlighted in the comment the sentence I agree the most. Actually (only as I see) if there is not much volume it seems like to me the trend continues and when a huge volume comes then there is a trend change. At least the two tables above show me this.

Maybe Peter could tell some volume stories or make a newbie course on volume. As far as I see everyone either ignores volume or makes unsure posts as besides Peter no one really gets it, but everyone knows it is important.

FE

2969

I for one, don’t find volume to be useful. Of course, that is just me.

2970

Ah, volume - there is almost a certain mystique about volume, I’d guess there are volumes of writings about it :slight_smile:

I have this simplistic mind about trading, in my mind I have condensed everything, absolutely every single aspect of the market down to one word - risk.

If risk is higher in my mind then I am fearful, chances are that some others are likewise.

If risk is lower then I am filled with optimism ( yep, I have chosen a nicer word than greed).

For me the important element of those last two sentences is the “er” on the end of low and high - I view risk in a comparative manner, for example the fallout of a Grexit may have lower risks attached than a Grexit a couple of years ago.

Then how is it that I associate volume with risk? - well for me I am always seeking momentum, it seems that momentum will cast aside anything in it’s path - if all fundamental and technical reasoning say that we should be buying and if price is falling rapidly - well… momentum becomes king.

I often wonder what precedes momentum, what indicator can I use to tell me there is an increased chance of momentum. Maybe what Williams says about short range days followed by long range, maybe the idea of ascending triangles or bull flags.

Or maybe a clear signal from the market that there is an increased interest from market participants in a particular asset.

Anyways, I just did a quick search to check what some of the professional day traders look for, this came up in the first hit.

2971

Rookie,

Your analysis on the S&P is spot on, yes I held long overnight this week, but with Ukraine and Greece there was zero chance that I would hold over the weekend.

There is obviously a technical risk also as per the daily.

Monday will be of interest at the open - my plan is to look for momentum or any indication of likely momentum - in which direction yet to be determined :slight_smile: