COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
21

Hi Dunstan,

thanks for the answer. Actually I use the same report with same link as you do. But now I see which values you use. That was actually my problem because if you write “Light Sweet” or “Crude oil” in the search box with the link, then there are more light sweets or crude oil hits. I wasnt sure if I used the right one.

Your writing is interesting about options since I never traded options and it is good to look into it a bit. I will first master COT, have enough to do still and then I can will look after these futures :wink: However I think I will only look for opportunities to buy.

Have a grood trading week!

22

No problem, it was my pleasure! Just let me know if you have any questions.

I also wish you a great trading week!
All the best,
Dunstan

23

Hi everyone,

before looking at the new COT Report, lets take a look how the trades from last week worked:

[B]NZD/CAD short at 0.9200:[/B] -67 pips, stop loss activated at [B]-50 pips[/B]
USD/MXN short at 12.8525: stop loss would be activated
CAD/CHF long at 0.8245 (this week started at 0.8257): -87 pips from the beginning (this week: -75)

Well, we can say it was not my week. The CAD got a large hit and both CAD trades were going the wrong direction. With [B]NZD/CAD[/B] I had a tight stop loss and I am out.

[B]USD/MXN:[/B] it is hard to say how I would have finished this trade. As I mentioned earlier I do not know this pair, I was only watching the action and did not participate. I think though that the break of the channel (Forexunlimited wrote about the technical bias of this pair) would have activated the stop loss. Here is the question of MXN really weakens or it was only a breakout because the sentiment is still bullish for MXN with 84.31% non-commercial total long positions in the new COT Report.

[B]CHF/CAD:[/B] I have to rethink this pair the next week. The fact is that CAD is still bearish from the non-commercial point of view but the long positions for CHF also dropped which means the pair looks more balanced at this time. I will stay for at least 1 week in the trade.

Soon I post the findings of the new COT Report.

24

Take into consideration for last weeks’ action, that it was the first week of the month where key reports were published which always create a huge volatility in the market:

Now here are my findings for the following week:

AUD: although it does not look to be completely in an extreme position, 61.68% non-commercials are long, AUD had gained hundreds of pips since February and Fundamentals are not helping AUD either. I think latest in a couple of weeks, AUD will be turning to the downside. I will look at it closely to get in at the right time.

GBP: although the Pound gained again this week, 64.10% of non-commercials are already long, looking at the Cotbase.com graph and interpreting the news it looks like GBP is loosing its steam. Just like the AUD, it might not yet been in a turning point but it this will come soon to the downside!

CAD: as you might know, I am bullish on CAD and I am also in a long trade vs. the CHF. My bullish bias stays with CAD, maybe I should change the setup though and not trading against CHF but against another currency. Non-commercial net long positions are 37.05%, fundamentals were not great this week but I think CAD can rebalance and will gain some pips again.

EUR: people got quite negative on the EUR within 5 weeks of time. Of course it is logical as the currency lost almost 400 pips vs. USD. 38.78% of non-commercials are long and the interest rate cut does not help the currency either. I rather stay away from this currency. COT makes slowly a signal to buy, on the other side my fundamental bias is more to sell.

JPY: if I am getting really bullish on a pair, it is the JPY. Only 12.65% of the non-speculators are net long, so it is getting to a COT extreme. USD/JPY is in a tight range since half a year. On my opinion it is only a matter of time when JPY breaks out and get strength. And for this time I do not think that we have to wait long!

CHF: it looks a lot more balanced as last time. It is still not really bullish though, and as I said I will stay in my CHF short trade but might change it in a week.

USD: just like the last months, the USD is producing all kinds of mixed reports, quite balanced currency without clear directions. I do not see good trading opportunities tor the currency.

NZD: I would compare the NZD to GBP and to AUD. It has a long period of strengthening behind it and it looks like steam is lost and the downside starts. What is different to AUD and GBP though the NZD started already the downward movement in my opinion about a month ago. It retraces of course and still show strength however 82.14% net long positions of non-commercials show that there are not too many possibilities to grow and the decline will most likely come/is already in decline.

BRL: this week we have to travel to Brasil for an exotic currency setup. The BRL has a net long position of non-commercials of 75.07% and open interest raised about 20% this week. This shows that volatility and action is about to come!

Instead of giving tipps to exact currency pairs this week, I rather tell my medium- and long-term view on the different currency:

Bullish: CAD and JPY
Bearish: AUD, NZD and GBP.
Neutral (including currencies with slightly bullish and slightly bearish): USD, EUR and CHF.

I wish good luck to you all and I am interested about your opinion what your medium- to long term bias is on the currencies!

25

Hi everyone,

the new COT Report did not come out yet, but the values and conclusions from last week can be already analysed. I guess I can say that everything was going fine until the NZD rate hike and BOE Speech from Mr. Carney last night. Both of the were market mover, the question is how long.

On the long term I still have a bearish bias both on [B]GBP[/B] and [B]NZD[/B] however I have to say this week they gained against my expectations, mostly because of the mentioned fundamental reasons.

[B]AUD[/B] showed a mixed picture this week. Just like [B]CAD[/B], which was gaining nice against some of the currencies but was consolidating against the stronger currencies. I think it is a great indication that CAD is getting stronger in the long-term.

If someone is looking for a completely mix picture of a currency then the [B]JPY[/B] is the right choice. Gaining, losing and consolidating against its counterparts in the same week.

[B]EUR[/B] is mostly bearish as expected and [B]CHF[/B] is going down with it.

The [B]USD[/B] is not producing good reports and is losing the whole week against most of its counterparts.

Lets see what the new report brings to us tonight!

26

COT Report 13.06.2014.

Yesterday I wrote how I found the market action last week based on currencies movement. So, lets see what the COT Report tells us this week. Very important that the percentile factors will always show the non-commercial speculators:

AUD: 64.70% long shows that AUD is losing steam slowly. There were positive Chinese data out there this week, however AUD could only gain on weak currencies like the USD.

CAD: now the CAD looks more and more extreme as only 35.77% of the non-commercials are long on the pair. The strength of the CAD can be most seen that it was probably the only pair not losing much against NZD and GBP last week!

CHF: 43.19% of the people are long which is quite balanced. Charts tell us that CHF lost against most of its counterparts, this has a lot to do with weak EUR and that SNB would like to keep its rate steady with EUR, which means if EUR weakens, CHF weakens too!

GBP and NZD: GBP has 63.31% long and NZD has 85.19% long. There is a reason why I have both of these currencies together. I think in the long term they will both lose values as most of the traders are already long on these pairs, especially on NZD. Especially the NZD, which is almost in a COT extreme. It is important to say though that it might take some time still as both of the currencies got very bullish fundamentals the end of the week (rate hike for NZD and earlier rake hike possibility for GBP). And in this moment it is also very important to mention that the COT report shows the situation until Tuesday evening which is a 3 day relay to our current standing. And as both currencies gained a lot int he last days, we can assume that they are actually on a more COT extreme then what the report shows.

EUR: it is a tough situation with the EURO. The Fundamentals are clearly bearish for me and sentiment is also bearish with only 30.23% long from non-commercials. However exactly this 30.23% shows in the sentiment that very many people are already short and on cotbase.com it can be seen by EURO that the currency is already in an extreme short position.

JPY: if last week the currency was bullish, then it comes to an extrem position slowly with only 11.22% long positions! Against some currencies it is close to an extreme COT situation (AUD, NZD and GBP) while against some others it started already its journey to strengthening (USD, EUR, CAD and CHF).

USD: no clear tendency. It is ranging (CHF) against some of its counterparts, but gains (EUR) or loses (GBP) as well.

Open interest: there is a quite large open interest compared to last week for the following 3 currencies: GBP, JPY and AUD. This indicates that we have to have special attention for these currencies!

As I look into this report every week more in details, combining it with fundamentals and entering based on technical signals, it looks like a great strategy!

The CAD/CHF trade that I took earlier made a very nice movement this week so I will definitely stay in this trade.

27

So, the analysis of the COT Report comes from me only on Sunday or Monday, today I look how my forecasts of the currencies worked out from last week.

[I]The CAD/CHF trade is doing great and I will stay in it for a longer time.[/I]

[B]AUD[/B]: just like I thought, the AUD is weak, only gained vs the EUR and shows weakness.

[B]CAD[/B]: as you might know I am very bullish on CAD. This last week CAD gained on all of the majors, it had to do though a lot with the very positive report readings today.

[B]CHF[/B]: usually CHF does not get as much attention as this week. It had to do with the SNB statement and CHF gained vs the majors besides vs CAD. I was bearish on CHF and my bias stays bearish, but I will watch out to change my bias if needed.

[B]GBP[/B] and [B]NZD[/B]: I put these two currencies in one category last week and I do the same this week. GBP issued negative fundamentals this week, but two hawkish currencies like GBP and NZD should have shown a better weak than it did. As I wrote, I am bearish on the currencies and despite rate hikes, the currencies did not gain this week or they showed a very mixed picture. I think it is a confirmation that a trend reversal might come very soon. In case you are bullish on these currencies than in some pair there is a retracement now so it could be a good entry point for you.

[B]EUR[/B]: as my fundamental bias is short with EUR but COT gave more a bullish signal I stayed away trading this currency. Looking at the performance against the majors, the picture is quite mix and no real tendency could be observed. I am excited what the new COT report will show us!

[B]JPY[/B]: based on the COT report I got most disappointment from the JPY. It has been extreme bearish and a trend reversal is expected quite soon. JPY however either lost vs majors stayed in a range but did not gain against its counterparts. It has a lot to do with the bearish BOJ statement but still…

[B]USD[/B]: now for the Greenback I wrote that there is no clear tendency at all. This mixed bias stayed for the past week and we can make the conclusion as USD was either ranging or losing against other counter currencies. A clear tendency still cannot be seen. The FOMC statement did not sound like very optimistic though…

That’s it guys for the movement of the 8 major currencies for the past week. Altogether I am satisfied with the analysis; I did not get the right picture for JPY and have to pay more attention for CHF movements.

Have a nice weekend!

28

It is already Monday so it is important to see the COT report analysis from last Friday. Please do not forget that the percentile factors in the analysis mean the non-commercial large positions.

AUD: based on the COT report and on Cotbase.com the AUD looks quite weak, and shows a mixed picture among the majors. 64.20% are already long so I would either short the currency or stay away from it.

GBP: the pound showed a mixed picture and could not gain much even though the rate hike announcement. 67.73% are long so the reversal should come sometime soon.

CAD: I am still most bullish on CAD and it gives me good result against other major currencies. Still only 38.12% are bullish so there is plenty of space for improvement and strength. Interesting is that large speculators are still bearish while small speculators are very bullish on this pair. We do not see very often such a great difference between these two groups as at the moment.

EUR: based on the report the currency gained some strength since last week. Both large and small speculators are very bearish and it is on quite an extreme level based on the cotbase.com table which means we should buy the currency. However fundamentals are bearish so this mixed result makes this currency difficult to trade based on the market sentiment and fundamental reasons. On a long term I will still have a bearish view on this currency.

JPY: I am expecting the Yen for trend reversals every week as only 17.19% are long on the currency. The weak fundamentals do not let though the currency to gain strength. The currency is stuck in a range in most pairs; I am still more bullish than bearish on it.

CHF: the Swiss Franc had some gains last week and more than half of large speculators are long on it (56.50%). The currency still gives a mixed bias and as the Franc would like to have a relatively stable rate with the EUR and the EUR is weakening so CHF might be weakening in the long run too.

USD Index: USD lost against many currencies and it is not a surprise if we look at the fundamentals and speeches from the Fed. I also do not expect any difference in the upcoming weeks.

NZD: probably this currency is the most interesting this week. There is a huge sentiment change for NZD! A week before 85.19% was long and this week longs are only 54.71%. This is especially interesting because NZD has the highest interest rate and further rate hikes are expected.

Gold, Silver and Crude oil: as you might know, commodities are very dependent on geopolitical risk. As Iraq and Syria are basically in war, the price of gold and silver rose right away. As Iraq has a large oil production it affects the price of crude oil as well and as production has problems at the moment it helped to increase the price of oil. All 3 commodities were bullish last week and this might stay like this in such a geopolitical situation.

My current analysis shows the following results:

Bullish: CAD
Neutral or slightly bullish/bearish: CHF, USD, JPY
Bearish: AUD, NZD, GBP and EUR.

Let’s see what happens this week!

29

HI
thank you guys for the useful info.
Cheers

30

Hi ForExchange,
Thanks for very useful analysis, I am doing fundamental trading and also considering stronger/weaker economic factors to open positions.

The [B]GBP[/B] is still looking strong, I would expect it to move even higher, as long as the interest rate outlook is positive.

The [B]AUD[/B] may still hang that high for some time, especially after the recent China PMI. Commodities (including iron ore) are rising, and aussie will pick up at some point.

Good luck,
CxInvestor,
Funamental Trader

31

Hi Abdul and CxInvestor,

you are welcome, hopefully you can use the info in your analysis. You can also discuss your trading here, based on fundamentals or market sentiment.

What you about[B] GBP[/B] wrote, it is true, it is still looking strong. But watch out because lately it is not reacting so strong for positive news as before which means there is not so much steam in GBP. Make tight stop losses. In the long term besides the rate hike, I am bearish on it.

The [B]AUD[/B] looks a bit more complicated in my opinion. Do not forget when you are bullish that AUD economy is producing negative fundamentals lately. More than that looking at the Chinese economy, it is slowing down as well. And very true, there are some positive Chinese news out there, but the tendency shows something else.

I will post you guys some useful links in a couple of minutes when I find them.

Good Luck to you as well!

32

In case some of you do not have much experience about [I]Market Sentiment[/I], in the School of Pipsology there is a very good explanation at: What is Market Sentiment | Market Sentiment | Freshman Year | Undergraduate

Also on this site is the descrition about the [I]COT report[/I]. It also makes sense to read it Commitment of Traders Report | Market Sentiment | Freshman Year | Undergraduate .

Of course you can then widen your horizon and learn a lot more about it, but with these links you will have a quite good overview on what is going on with Market Sentiment and COT report.

33

Hi forexchange ,

First off thanks for bringing this up !

I have completely disregarded market sentiment up until I stumbled upon your thread.

I think it should play a crucial part in your analysis. As we retail traders only compromise so little las opposed to big institutions who actually move the market like hedge funds, banks and governments. It’s wise to know what you’re getting into prior placing a trade rather than basing off of pure technicals.

By that I mean you want to know which side they’re on. Or the market sentiment. It’s inevitable that fundamentals and market sentiment do affect the market. Though you may argue it’s pretty much laid out there on a chart. And anything that goes beyond just viewing charts like actually researching and analyzing furthermore might seem waste of time.

However, I think besides just trading with market sentiment you want to include fundamentals that drives the market sentiment and lastly technicals.

I think they should all have it’s part , and I think they do affect the market in one way or another.

:by the way I’m looking to short AUD/USD and NZD/USD

Market sentiment seems bearish on both of these pairs and as for fundamentals Aussie dollar is losing it’s heat (bullish force is slowly fading away) so I’m waiting for next resistance area for bearish confirmation and I’ll go in short. (I have gone short with Aussie dollar couple of times already and have made plenty of pips but it keeps pushing to the key resistance level @0,94 I believe who knows it might shoot higher later in the future. But market sentiment and fundamentals so far tells me to go short on this pair.

As for NZD market sentiment tells me to go short as well it is reaching a key resistance level soon so I’ll be eyeing for entry point to go short on this pair as well. However prior doing so I probably should look at the fundamentals.

Happy pipping ! :smiley:

34

Hi rookie39,

thanks for your post.

I do agree what you wrote about the importance of fundamentals and technical analysis. If you followed the whole thread I also wrote that market sentiment basically only tells me what non-commercials do which is a great help to choose the right decisions, however I do not enter any trades based on market sentiment. I add these market sentiment stories what I find and try to get into trades where I match up a strong- against a weak currencies.

However when I find such pairs I do not automatically get into the trade. I will check the fundamentals as you also wrote. If fundamentals confirm my story then I go to the technical analysis and look for a good entry point. If fundamentals do not confirm my story based on market sentiment then I do not enter the trade.

The best example is the USD. Based on market sentiment I completely agree with your USD trades mentioned above and I believe they are both good in long term. I still do not buy the USD because fundamentals do not give the right signals for me at the moment.

If you look at my analysis I also write currencies where I mention that I rather stay away (I am not involved at the moment in too many USD and CHF trades).

I am mostly bullish on CAD and on the JPY and bearish on AUD, NZD, EUR and GBP. We will see how they will work out but besides GBP/USD short all my trades are doing actually good.

You can follow up market developments and share your comments after my weekend analysis every week. You can write down your trade ideas and we might find great trading opportunities. I would like to ask though to write your opinions which has something to do with market sentiment or if you agree/disagree with what I wrote in my market sentiment analysis.

Good luck to you!

35

Hi everyone,

so lets see how this last week worked out for me based on the market sentiment (COT) analysis.

This was my prediction:

[I]“Bullish: CAD
Neutral or slightly bullish/bearish: CHF, USD, JPY
Bearish: AUD, NZD, GBP and EUR.”[/I]

Well, the week turned out pretty good for me. I was bullish on CAD and it turned out that [B]CAD was rocking[/B] the whole week against almost all majors (with EUR and NZD it was neutral).

My [B]bearish GBP[/B] bias was also a good decision, even if you read everywhere how bullish GBP is. I remained on my bearish GBP bias and it turned out to be the right decision.

The [B]EUR was weak[/B] just as expected. It surprised me a bit though that it basically show only strength vs USD.

NZD was definitely the suprise for me. I was thinking for a move like the GBP, a downward movement. [B]NZD produced bullish signals[/B] though, and I still have to wait for a reversal on this currency.

[B]CHF was mixed[/B], just like the expactations.

[B]USD was a lot weaker[/B] than I thought. I do not trade USD pairs anyway too much lately and I gave mixed signals in my last weeks’ analysis for the USD. It was a clearly bearish movement as USD was one of the main losers of the week.

[B]JPY was mixed[/B] as I thought, I am bullish in the long-run still, but I will definitely wait for more confirmation before going long on it.

[B]AUD was also mixed[/B], trading in a tight range, I was definitely bearish on this currency.

I am quite satisfied with this last week and lets see what the COT report brings us for the next week!

Check the thread latest on Sunday to see the news and analysis for the first week of Q3!

36

Hi again! Forexchange

I’ve checked the official CFTC website but it was just simply too hard to interpret for regular folks like me. Fortunately my broker had this simplified COT version that I find very useful actually on their website though I’m kinda skeptical about the reliability. But I thought hey they do get their profit from the spread so whether we loose or win they still profit. I guess that justifies me that I can resort to my broker for that sort of information.

Anyways you mentioned that if fundamentals doesn’t match up with market sentiment you wouldn’t enter a trade even when market sentiment tells you so you would rather wait. Well as much as I agree with your cautiousness, I think it is in our best interest if we put market sentiment prior everything else especially if you trade on longer time frames for instance daily and above. I’m sure you’ve seen cases where a fundamental news event that was supposed to cause an uptrend for a specific pair ended up causing a downfall. Or the aftereffect /what i’d like call/ of that specific event doesn’t last that long. Market sentiment usually comes in once aftereffect runs dry. Putting much emphasis on fundamentals can sometimes be a tricky business given the fact that there’s so much news being released every single day.

At the end of the day, its reaction that it matters isn’t it? whether or not fundamentals should come at a same level of importance as market sentiment or any other facet of your analysis. In a way I see market sentiment as a reaction to whatever fundamental that is being released everyday or just general economic condition of that country. And yes it is based on off of non commercial positions. They literally move the market. So it only makes sense to be on majorities side. Thats just my idea feel free ro contribute! I would be more than happy to hear your view :slight_smile: and I will be following your thread closely!

37

I’m currently keeping an eye on three pairs AUDUSD NZDUSD and GBPUSD

I’m bearish on AUD,NZD and GBP as well though I haven’t placed any trades on NZDUSD and GBPUSD respectively. I think all of these pairs closed with a bearish candletsick at a key resistance level near the end of london session not sure what happened afterwards during NY session. However I’m looking for a short entries on both of these pairs next week.

I won’t be placing any trades yet until next COT weekly report due on next tuesday. And i’ll look at my charts for some bearish price action. If all falls on my side I’ll place a trade. I’ll keep them updated!

I was long on USDCAD as it was nearing a support and with lack of bearish force I went in and of course that ended in a loss. Not touching that pair for a while. I think there was some major indecision and my SL tight so I got closed out after a negative USD news release :54:

Glad you went well with CAD pair !

38

Hi rookie39,

first of all on the COT website what you need is Chicago Mercantile Exchange and the short format of it. To understand how to interpret it, check out the Babypips School on market sentiment, I have posted the links earlier in this thread.

About hat you wrote on fundamentals vs. market sentiment. I actually trade the way you wrote, maybe I did not express myself right. When I write “fundamentals”, I do not mean any specific news. As you wrote yourself there are way too many news out there and market sentiment is not for a short-term trade, it should bring hundreds of pips so I cannot change my view 5 times a day :slight_smile: What I meant to say is basically with your words is the “overall economic situation” or “my fundamentals”. I build this view up on the news of many weeks.

For me is most important also market sentiment but do not jump into trades without my fundamental bias. Do not forget what on the Babypip site is for market sentiment: “Every market extreme is a market sentiment extreme, but not every market sentiment extreme is a market extreme!” It was with my own words but the meaning is the same.

39

And I go on with the 2nd answer :slight_smile:

I am bearish, just like you on NZD but if we look at the charts it is still going high quite sharply. This has 2 dangers: 1. if you jump in now you can lose hundreds of pips before the market turns (if it even turns, I mean we can always be wrong as well), 2. our win is going to be less with the couple of hundreds of pips! So why not to wait until a confirmation and jump in short for a better price?

Of course it can also happen happen that we jump in into a trade and it still goes the other direction hundreds of pips and we lose. With NZD I believe in the turning point but I am still waiting.

The USD is the other surprise for me. I was also waiting for strengthening but it is just not coming. It has to come though, but it is the same case for me as the NZD, but of course the opposite direction. However I still wait here, made pending orders but do not jump in on market until it loses value every day. I do not like to give “present pips” for the market. They try to take away our money anyway :slight_smile:

In general though I have the same big fundamental picture like you.

You wrote though a mistake what you have to consider though. There is a reason why I post my COT analysis on the weekend and not on Tuesdays! The fact is that COT report is a “lagging indicator”. The report contains data always until Tuesday night but it comes out always Friday night European time. So it is 3 days behind the market what you have to consider of course.

USDCAD looks like to me not the very best trade. I am long for CAD almost vs all currencies. I think it is one of the most (if not the most) bullish currency and I can now move safely my stop losses on it to break even because they worked out lately that great.

The key is for you not only to enter the right side of the market but make smaller lot size and rather greater stop loss so you give yourself room if the pair moves against you in the beginning.

The new COT report is already out, but I do some other things besides trading on the weekend as well so I post the analysis tonight or tomorrow night.

Have a nice weekend!

40

Thanks for pointing out the update of COT. I’ve managed to compile a traed plan for the next week :44:

As far as market sentiment is concerned NZD and GBP is bearish at the moment as it nears key resistance and GBP reaching a new high.

With important news releases due mid next week regarding USD and AUD. You want to be cautious especially with AUD/USD. AUD is almost about 50/50 nor bearish or bullish.

As for pairs GBP/USD and NZD/USD if there’s bearish PA confirmation might want to look for a good entry to go short next week. However with NFP data due on 3rd July again we want to be cautious. Whether that means you have to have a wide SL or pending orders on the opposite side of the trade.

I myself will have two orders one is market execution to go short pending order to go long on GBPUSD NZDUSD in case if NFP and some other high importance news releases regarding USD comes out negative at least I’ll get to cover my previous close outs if I place trades earlier before the news release. :33: