COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
3838

Do you see what I’m seeing ?
I maybe wrong, but I’m seeing a possible reversal of trend. The more I look at the charts, the more I’m starting to think the hype over Fed rate hike debate is going to have little to no long lasting effect now.

Whatever the outcome is regarding Fed rate hike situation, I think like I said there’s going to be more downfall to come in the stock market across the globe especially US and emerging markets (I agree with Phil that its going to be a great opportunity to buy the dip especially emerging markets). Maybe like Peter said that’s why investors are rushing into gold and safe heaven currencies. I assumed that it was going to be temporary. The gold rush. But now that I’ve compared the charts, I’m starting to have doubts. Are we at a turning point ?

Yeah Phil, I’ll be eyeing on those pairs from Monday and onwards :slight_smile:


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3839

Welcome back lagoonboy

Great podcast. On his forecast though I don’t agree with him 100% then again its a guessing game.

3840

It is definitely interesting that we get long signals in Oil and gold while a sell in Dollar all at the same time. Just remember that the trades might not work :slight_smile:

This system has no predictive value at all. What it does is helps you control your emotions because it mechanically tells you how the market works. Basically in a trending market price makes an impulse moves, pulls back, then it either extends or fail to extend and reverse. Now if it reverses, it will again pull back before extending or reversing.

So what the system does is get you in an area of least risk; you enter in the pullback area so if price extends you’ve made the maximum amount of gains and if it reverses, it will likely pull back very close to the area you entered at originally.

However for the purposes of analyzing what price might do next, I look at the weekly and monthly charts. It is basically a multiple time-frame analysis. If you look at posts no. 3784 and 3797. You will see levels that I mentioned for Gold, USDJPY and EURUSD. All those levels were basically the 20 and 50 EMAs on the weekly and monthly charts of each pair. Now even though these levels were meant to be a general guideline area, if you draw them on the daily chart for example you will see that price reacted to those areas as support and resistance.

As I said before, I agree with your view on what’s likely to happen. But I have to say that having gold, oil, stocks and Dollar all rallying at the same time really concerns me.

3841

I wasn’t going to take those signals but rather was trying to forecast a possible turnover. In my view, things still are uncertain. The fear of possible crisis in China is there. Many stock markets advanced and emerging alike are in a bubble. To be completely honest in reality I don’t know how bad the situation is in China, some say its alright while some seem overly pessimistic. But one thing that I’m sure of is when there is a fear I think further downfall is very likely. And when that fear turns into panic we’re in trouble. So I’m cautious as to how market response will be like whatever the actual situation is, the market is driven partly by emotion if not entirely.

The slowdown in China however seems to have become imminent. I just looked at a 4h chart of copper its interesting how copper is making an attempt at a new high on 4h despite concerns over China. In a situation such as this Fed and BoE will be hard pressed. I don’t expect much from Jackson Hole symposium btw.

I’m just trying to think of a setup given the current market condition. You seem to prefer AUDJPY, NZDJPY pairings, comm and franc crosses also look good. But I’m concerned about the safe heaven status of yen and franc. If stock market decline is to continue further (with global economic outlook) which I think is more likely than not, there’s going to be flow going into CHF and JPY however SNB wants franc down, btw I think in that scenario I prefer CHF pairings over yen pairings with comms because at any time SNB might intervene. On the other hand, since USD and GBP are overbought selling them against AUD, CAD and NZD also seems like a good idea. Or buying yen against USD or pound might be good too.

But we’ll have to wait and see what the reaction will be to Fed. Although I said the debate over Fed rate hike is no longer of any significance anything dovish over at this Fed meeting might just further trigger and provide some more momentum for the signals that we have so far spotted on dollar, oil and gold. Besides the dovish clue from Fed, further flow out of stock market into gold may set the context for an actual turnover to happen.

On Dow Jones, it appears to be in the process of topping. I want to see if there’s going to be potential sellers at the area that I’ve highlighted on daily chart.

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Looking forward to test intermarket correlation finally :slight_smile:

3842

Hi Rookie and Philip,

interesting discussion. I agree with many things, but of course share my view on the points where I might have a little other view.

One is about the possible reversal on oil. I remember how oil bounce back this year to mid 60-s and everyone thought we have found a bottom. It was a large move, even on daily. After that we have seen oil to make new lows. So only because the 4H chart is trending high it really does not mean anyhting to me. Just like Phil pointed this out, the higher TFs are critical. It still looks to me as bottom catching. Fundamentals for me are still down for oil. It does not mean of course at all that there is no bottom. It only means that having a strong move on a 4H chart does not carry so much value for the long term for me.

Something very similar happened earlier this year with gold. We were discussing with Phil that we have seen a bottom. Well, time showed us it wasn´t a bottom at all.

I agree very much with Rookie, it is not wise to go against a central bank, so I would definitely not buy CHF. SNB wants it to depriciate.

On the other side I would not sell USD or GBP. I agree, rate hike will be pushed back and big correction might come. Still, the commodity related economies are doing a lot worse than UK or USA so fundamentally there is no reason to go vs. the long-term trend. Of course if this was more a short-term trade then it is another question.

Have a great weekend,
FE

3843

I have to say I agree with almost everything there. From a fundamental point of view we are still bearish commodities and long dollar. But like Rookie used to say timing is the key. The thing is trends in currencies are not dependent on the economy’s performance. It is dependent on interest rates direction (up or down).

This is an important distinction to make because as an economy, emerging economies like China, India and even the GCC area are doing better than the US in terms of growth, trade and employment. But because interest rates are rising in the US, the entire world is facing a problem trying to sort out their dollar carry trade. They borrowed dollar for nothing and now because they haven’t hedged against dollar strength, all their gains are at risk. So the devaluations in many currencies, and the lowering of interest rates is to reduce the outflow of the dollar in anticipation of the Fed’s tightening policy.

If that tightening doesn’t come in September and with no clear time table of lift off then the selling in emerging markets will seem overdone. Only until we approach lift off again hahaha.

For now let’s see what the Fed will do first.

3844

There have been many instances where I went how did I miss that ?
Sure thing Phil, timing is key. I’m trying not to repeat that again so I’m on the lookout for early indications.

FE, I agree with your view. I doubt if DXY will make a new high from this point on we’re talking about the monthly chart. Look how far it has come “on the anticipation” of rate hike. I’m not bearish on USD just yet, but I’m open to the possibility that a turnover may happen sooner than later given the context. Couple of months ago, when you thought gold and oil had finally found a bottom there wasn’t imminent threat from China like it is now. So possibility of Fed hiking rates in Sep or even in Dec remains very uncertain. Even if they did, like I said given the context if our assumption turns out to be accurate its going to be short lived. And there we have a turnover.

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Yeah Phil compared to advanced economies emerging markets are and is going to be attractive. But on the article I was reading earlier, the author showed concerns over China’s debt and mortgage and that something similar to 2007 financial crisis may happen. If thats going to be the case, buying the dip so soon may not be a wise move.

3845

Hey fellas.

Well, sorry it took so long this weekend to finally get all my data straight. Sunday, mid morning now, and here’s what I have.
I’m puzzled. I can think of a couple different scenario’s to play out. I’m going back and forth in my mind about what direction the market wants to go. And the more I think about it, I always come back to this…
What’s going on right now?
I’ll leave the future up to you guys.

So, I’ll start with what happened this week. This is the progression, snap shot. Hope you can understand this table I’m about to show you.


On the first left column, is last Friday. It’s the line-up. I have them rated against one another from the strongest down to the weakest. This is in the perspective of the weekly time frame. In other words, who has the most trending highs against the others, (my determination of strength).
Then we have how the days played out. The numbers in the days are the rated ones. For instance, Monday,
Japan (rated #4 at the start of the week) came in first that day. EUR came in second, CHF third, GBP fourth, USD fifth, CAD sixth, AUD seventh, NZD last. And that would be determined by how much a percentage they were up on the daily time frame numbers. And I have grouped the colors to tell them Comms apart from the Majors. And the last two rows (maybe hard to understand) tell me how much of the trend was followed. OK…here goes again.
I only look at who comes in first, second, third, sixth, seventh, last. So, looking at Monday, (forget the 11 and 11 numbers on the left), we have had almost a perfect trend following day. The number 5 (top row, all green) is how many currencies that day followed the trend, from where they are rated at the beginning of the week. 5 of them did—second place, third place, sixth place, seventh place, last place.
Then I account (which is the last row, all red ) for those who counter trended. And that will equal none of them. I determine that by looking at the first 3 places. Are there any 6’s, 7’s, 8’s up there? No. And at the bottom are there any 1’s, 2’s 3’s? No. So that number is 0. And the most it ever can be (100% trend following) is 6. That means in the top 3 places there will be sitting the numbers 1, 2, and 3. And at the bottom will be sitting 6, 7, 8. I add them up to be 6. But what we had is a 5. That’s about a 90% trend following day.
Now let’s look at Wednesday and Thursday. We had counter trend following days.
Wednesday. In the first 3 positions there were no 1’s, 2’s or 3’s. And in the last 3 positions there were no 6’s, 7’s or 8’s. So that means that is a 0. BUT…let’s count the counter trends. In the first 3 positions we had 2 of them (# 8 and # 7). AUD came in first, and CAD came in second. And in the last 3 positions we had three of them there. The GBP, CHF, EUR. So, all of that adds up to be 5.
And Thursday turned out to be the same. A counter trend day. MOSTLY.
And the numbers 7 and 16 are the total added up trended, counter trended days. We can easily see that this week was counter trended.
Also note what happened on Friday (I mentioned this that morning). What happened? Well, one currency trended with the trend (CHF). And 3 counter trended (CAD, GBP, EUR). And also we can see where the Comms placed.
The last column is my new line-up. That’s at the end of day Friday.
Japan moved on up to the top.
The Comms stayed at the bottom.
The GBP dropped within the Majors.
The CAD rose within the Comms.

Now the question should be asked…if it was counter trended, then how does that reflect in the new line-up?
–Well, I see that the JPY rose up to the top from the middle of the pack.
–The USD rose up to the top 3, from the middle also.
–The GBP fell from the top 3.
–The CHF dropped from the top 3 also.
But, we still have the Comms on the bottom. Although the CAD rose up. The NZD dived back down to last.

I think we can summarize all of this by saying that the safe haven JPY took most of the money.
And the Comms are still not making any head way above the Majors.

Did oil boost up the CAD for a bit of a correction? Only?

I don’t know.
All I can see is at the present moment, there is just not enough of a push for the Comms (in the weekly time frame perspective) to turn the tide.
But I think this week ahead will help a lot with some direction (AUD in mind, economic indicators).

What do you all think?

Mike

3846

Mmmm…very, very interesting. Now I like your data and its presentation a lot. I’m not sure how you arrived at all of your conclusion though. Firstly, there was only one trend-following day based on your table, Monday. Then the remaining four where between non-trend to counter-trend.

Then you said that JPY came top during that week. I do not know how you reached that conclusion, it seems to me that Cad came top.

There are two ways I looked at the data: Method A) You gave a number of points to the currency based on its ranking. If it came first for the day it gets 1 point, if it came second it gets 2 points,…and so on.
The currency with the least points performed the best. In that case, CAD is the best performer. In fact JPY comes fifth behind CAD, CHF, AUD and NZD.

Method B: Which can be closer to the method of your final two columns. At the end of each day, I gave 3 points to the best performing currency, 2 points to the second best and 1 to the third. The bottom 3 get -1, -2 and -3 points respectively. Those who are in the middle get 0, neutral trend.
With that method, JPY actually came dead last. In fact only CAD, CHF and NZD managed to get positive points.

The two methods actually back up your own data which said this was a counter trend week.
So kindly share with us how you made the judgement that JPY came top of the pile.

3847

Hey Philip.

Those line-up’s are simply what I have determined by looking at the weekly time frame charts. Everyone separately. I do that at the end of every week. So, it’s the strong down to the weak based on how many trends each one has.

And I don’t understand about the points you have said there. At the end of every day, I tally up the %'s. And have the daily strong to weak. And that’s what the daily line-up looks like.

Sorry, I don’t have much time now.
Got to run.

Mike

P.S. — I do have who placed first down to last for that week. But, I didn’t note that.
All I have there is the placement for the days.
The beginning line-up is the weekly strong to weak, and the end is the line-up at the end of the week.

I can note the strong to weak for that week only. Will do that later on today.

Hope you can understand all that.

3848

You can get back to me when you have the time :slight_smile:

You said “I see that the JPY rose up to the top from the middle of the pack.”

I’m saying “How did you see that, when your very own tally showed that JPY wasn’t the top performing currency? it wasn’t even top on any single day.”

3849

Hey Philip.
I’ll try and explain again.
The end of week line-up is the weekly time frame look. I find the JPY the strongest now. I have determined that by noting if they are either trending high (+), ranging ®, or trending low (-) against everyone.
Now, I know your not gonna fully understand this, but this is what I am looking at. I’ll give you the August data. Below.
Those are the 5 days within each week. Top line across is the long term determination (monthly chart look).
Medium term (weekly chart look). And short term look (daily chart look). And the first column is Monday, then the next column is Tuesday, etc…








3850






The green shaded ones are only on the medium (weekly chart look) term ones. I would trade only those pairs. And the red colored letters mean it was a down day, black means it was an up day. And I only did that on the medium term trends.
And I have put them in order from the strongest to weakest. You can see that the JPY has 4 trending high pairs going into this coming week. On the weekly time frame look. That is very important to distinguish.
There is a big difference in what perspective you are talking about.

Maybe you can take a look for yourself and see if you agree with my determinations.

Mike

3851

Ok, its a bit complicated. But you’re basically saying that the end of the week line up is not the result of what happened just during that week. Is that true?

3852

Its a risk on day so far. Shanghai composite opened down. To combat this and prevent another round of heavy selling Chinese government is asking brokers to buy back shares. Wonder if this will have any major impact. I think there’s going to be more corrections to come.

Great post Mike, its interesting how JPY ended up on top. Looking at current PA I think I have made a premature assessment on comms, it could just be correction not a turnaround just yet. Judging by current market developments and sentiment I’m thinking JPY may end up at the top for this week as well and AUD,NZD,CAD dropping back to the bottom.

With regards to RBA, I’m not that positive on any remarks on the upside especially with possible downside risks from China.

Peter, I wonder in a risk on situation why does EUR do well ? is it because of its correlation to CHF or is there something else so far EURUSD is up about 50 pips.

3853

That is true Philip.

Here’s the results of last week.

JPY : +12.03%
USD: +10.61%
CAD: +9.96%
CHF: -2.86%
EUR: -3.72%
GBP: -4.65%
AUD: -4.9 %
NZD: -16.47%

3854

Hi Rookie,

low yielding currencies do well in risk off situations, EUR definitely qualifies for that. But what might be more important is safety. USD, CHF, JPY: what is common in all three? They are stable economies. And we can of course argue about Greek situation and some economic reports, EU economy is still a lot more stable than 90% of the economies around the world.

That is just my take,
FE

3855

Yes, FE is correct, also unwinding of Usd/Jpy longs had an effect on Eur/Usd.

3856

I was wondering Mike. Did you ever think of trading the overcross?

Like you said for example CAD crossed above AUD, did you think of shorting AUDCAD. I’ve used the compare feature in trading view and did this today.

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UPDATE: closed for +66 pips

3857

Hey fellas.

Check this article out.
Peter might really like this.
It’s about the world economy. And of course something I never heard of.

South Korean exports, August 2015 - Business Insider

What do ya think?