COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
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COT Report 27.06.2014.

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

AUD: the currency showed a mixed picture against the majors and fundamentals were not so positive lately in my opinion. Both the economy is not doing great and Chinese slowing economy hurts the AUD. This week however some positive news came out and it is still the 2nd best currency with carry trade. Still 67.11% are long and I am more bearish than bullish on AUD.

CAD: there is a huge sentiment change in CAD! Last week only 38.12% of non-commercials were long, this week this proportion was changed to 46.92%! It shows the strength of the CAD and that means it might have quite a lot of pips to go.

CHF: if the COT Report gives a mixed and not so useful signal for a currency, then this award goes lately to the Swiss Franc. The percentile change between the different weeks is huge, showing that sentiment changes quite often. Two weeks ago long positions were 43.19%, last week 56.50% and this week only 38.57% long. The Franc is bullish on some pairs and bearish on others. The overall trends are mixed and you have to look absolutely unique on the CHF in the different pairs.

GBP: the British Pound just does not give it up! There are still 66.98% long, with very little difference to last week. On the chart at Cotbase.com we can see that small speculators are on COT extreme but large speculators are also very high. I just cannot change my bearish expectation on this currency.

NZD: although NZD is very strong, it is still not on an extreme COT level. Only 57.06% of non-commercials are long. A few weeks ago the currency was above 80%, now it is 57% and it did not lose much value. I will place pending orders against NZD but I think it will get some strength still so jumping in at market price is not what I do. The carry trade gives a huge advantage for NZD and helps to the currency to go even higher. This currency is tougher to turn around than the other currencies. I will stay away from this currency (only planning pending orders well above market price) and wait for bearish confirmation. Very long-term I am bearish but I change my medium turn bias to neutral.

EUR: the EUR is not so easy. Fundamentals are very bearish on the currency and it is continuously losing value. However on cotbase.com you can see that short positions are on COT extreme and only 32.84% of non-commercials are long. This shows me that more weakness is still in the cards but the huge short rallies on EUR might be over and we might handle the situation with more caution and have tighter stop losses.

JPY: I wrote yesterday in my weekly analysis that JPY showed a mixed picture. Well this is true, but which currency is on a COT extreme if not the JPY? Only 11.23% of non-commercials are long, which means there is not too many commercials are out there who can still go short! A turning point should come pretty soon!

USD: the USD is definitely a disappointment for me. In the last months I was waiting the whole time for better economic outlook but fundamentals and Fed are just not giving the signals. I change my neutral bias to bearish and look for short opportunities. I will stay flexible though and if major changes are coming then I will be ready to react with a plan.
BRL: Brazilian Real is definitely not one of the most traded currencies, but you might pay a little attention on it. Open interest increased about 30% since last week and long positions reached also 79.33%. I did never trade this currency, but if you have experience with it or want to try something new then go for it.
Open interest: a main change was seen by CAD where open interest decreased from 132 209 to 103 193. It shows that a large proportion of the people who wanted to enjoy the show already jumped in.

My current analysis shows the following results:
Bullish: CAD, JPY
Neutral: CHF, NZD
Bearish: GBP, EUR, AUD, USD

Let’s see what the next week brings to us!

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Interesting thread, ForExchange. I recently began to add sentiment analysis to my tools. Besides using the COT report, have you looked at OANDA’s or Alpari’s open orders? They provide a snapshot of retail sentiment. Since retail usually loses money, I think they can function as useful contrarian indicators.

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Hi Kevin,

I checked the Alpari website. Before I started to analyse COT Report I looked different websites and forums and experienced that the overall view is to look for the large speculators as retailers are not so significant.

I checked the Alpari site though and like your point of view. Can you maybe write a short overview of the site? It would be great to know your experience and get some tipps and tricks from first hand. It is always good to learn something new and use it in the future. I am sure the thread readers could benefit from it!

Good luck with trading the next week!

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Hi FE,

Just wondering why you place such significance on the specs in the futures market.

Sometimes I think about the market itself, how it came into being and what it is that sustains it.

In a market it is often helps me to think about the driving force, what it is that propels it, the instigators so to speak. Sometimes when I can figure their thinking then I can see the way ahead a little clearer, or at least I can get a sense of where price may be headed.

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Hi peterma,

I give such a significance for specs because I do not know any better measures for market sentiment measurement. Do you use any other one or do you have a better suggestion?

I am still reading other books but soon I have to come to the two books you suggested earlier.

Until now the COT analysis work very for me with my fundamental bias and technical entry points. I have to say though that my sample size is not too large.

And the endline is I have to observe it for a longer time to decide how useful it is. I believe in it so I do it and we can discuss it here. This analysis is no more and no less!

Wish you good luck and I am always happy to read your comments!

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OANDA’s website provides retail sentiment data for the last year. I spent yesterday using that data to determined how much price moved in favour of (or against) retail sentiment for each day of extreme sentiment. If you traded in favour of retail sentiment, you would’ve lost pips.

Forexiation - diary of a Perth forex trader: The statistical edge of trading against retail sentiment

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The other 2 traders/educators place much emphasis on the commercials. Williams has a good chapter on reading open interest, both are good on reading the comm’s extremes and their changing positions.

Good luck for the week ahead to all.

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Hi Kevin,

is it your site? Great backtesting and interesting results!

Keep up posting your results and experiences. It can contribute great to the thread!

Good luck with it

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Hi peterma,

I give great emphasize on non-commercial, for this reason do I check the COT Report :slight_smile: As far as I know non-commercials (large speculators) are usually on the winner side.

I do believe though that it worth it to try new ways and always learn something. I find the analysis of Kevin valuable and good to look after. If he would keep such a record of retail traders above 65% extremes then I do believe we could observe it and might find it very useful in the market sentiment analysis. It could be a confirmation of the overall marketsentiment or the fundamental view of the market.

Maybe comparing my commercial results with his retails findings would work out great. What do you think?

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Yeah that’s my humble blog. I usually post my thoughts and findings once or twice a week. I spent today looking at OANDA’s data for all the other pairs listed on the site. The results are almost consistent - you’d lose pips trading in favour of retail sentiment.


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Trading based on market sentiment do work sometime as the its most effective for a short period, and you have to hit that moment.

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Great work! The results show me to look for such currencies (pairs also) where the large speculators and retailers are on the different sides and go with the large speculators. Large speculators and retailers are usually on the same side against the commercials. When large speculators (also known as non-commercials) are on the same side with retailers then I guess they have to be both right since large speculators are usually right and then on the other side of the trade is only the commercials.

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Hi Traders,

the first week of the month is always hard for market sentiment because many main fundamental reports do come out and the short term reaction of traders are based on the results of fundamental news.

However we can use the fundamental news to our advantage to see how strong or weak a currency is!

For this reason I decided to make another kind of currency analysis to evaluate how my analyses were this last week. I will compare to the currencies to the USD and how their reaction was to the better than expected Non-Farm Employment Change Report (also known as NFP Report)!

[B]AUD and EUR showed weakness[/B] just as expected. Both currencies of course lost pips after the NFP Report but what is more interesting: they did not bounce back to their “before the report level”. The bearish economic developments also did not help these currencies last week.

The GBP is just my enemy. It is a long time ago the currency which causes me a problem. I wait for the COT report this week and I might change my overall bearish bias to neutral. GBP strength can be seen as the currency lost value (just like all other currencies) after the NFP Report, however it erased the losses and even made some extra pips in the session! This is definitely an indicator that [B]GBP has strength[/B], even if I think this is more a short than a long-term tendency.

Now the NZD is more interesting. Some weeks ago people were very bullish on this currency and I am in a waiting mode when NZD starts to weaken. Now there are some signs as [B]NZD showed neutral signals[/B]. It still gains against weak currencies but is even against some other and is losing against CAD.

The [B]CAD[/B] is still my favorite investment as it [B]shows strength[/B] across the board.

[B]CHF is mostly bearish or neutral[/B], this currency does not move much and my mixed bias will stay on this currency (except against the CAD where CHF loses continuously).

The JPY just does not want to get any stronger unfortunately. Japan brings out just way too many negative fundamentals and does not give the opportunity for its’ currency to get some strength. [B]The JPY was mostly bearish and neutral[/B].

I can not evaluate the USD this week for the sentiment analysis. The way better than expected NFP report made a huge gain on the currency. Against some majors it could hold to the gains and against some others it couldn’t.

This week we can say in 5 currencies the analysis worked well even though the many reports and the GBP and JPY got tricky against me. I have to watch out with these two in the future.

The COT Report comes out tonight so make sure to check out the findings of it on the weekend! If you are a US citizen then enjoy your long weekend.

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CAD is just on fire. Good numbers one after another. The feds been trying to talk as if they’re dovish, but hey, us traders aren’t stupid lol.

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Hi Kevin,

do you have a new article or analysis to share? I guess you have nothing better to do on the weekend than to make some great analysis for your forex friends! Just like myself :slight_smile:

Share it if you have something new

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(IMO) I’d exercise major caution betting that CAD strength will continue in med-long term.
Seeing major stopping/exhaustive volume on the CAD pairs that I watch.

Looking @ Daily Charts:

USDCAD.jpg700×587 35.9 KB


USDCAD- From 3/20/2014 highs; Saw almost 3x daily average volume 7/3/2014, @ the bottom of the move with new lows non-existent and price almost parabolic off the 20EMA. This is smart money buying into immense weakness and looks like the beginning of a distribution campaign to me. Who would be selling here?

CADCHF.jpg700×587 36.8 KB

CADCHF- Not so much stopping volume here as exhaustive price action. 7/3/2014 printed the highest single day of volume since the 3/20/2014 lows. This has the signs of a bull trap to me. Look @ the breakout of 8367 on the H1 chart. The supporting volume just isn’t there.

NZDCAD.jpg700×587 36.8 KB

NZDCAD- The 9320 level is holding off massive volume and what looks to be a false break to the downside.

That “strength across the board” delineation is enough of a red flag for me to be cautious. There’s no better environment for retailers to get sucked into weak positions, than when a single currency is showing a ridiculous amount of strength. Upon deeper analysis, in my opinion, going long CAD in any pair (given the current price action) would be a greed-induced decision: exactly what smart money is hoping for.

Then again, I could be wrong and I’m open to that. Just sharing my $0.02. :slight_smile:

Jake

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Hi Jake,

thanks a lot for sharing your thoughts! Very interesting and informative charts. Where do you get/find these charts? I do not have those but would be interesting to see them more often.

It is always important to look at many factors and at the end make decisions comparing everything but not get easily influenced by others:-)

I will get my trailing stops tighter to get ready if there is a major trend change like you predict. I do not trade based on other opinions but your charts are quite good I guess on sentiment. I am still bullish but like I said if it does not go my way then my trailing stops are there.

Share your charts more often or tell where we can find them while it might be another good indicator to use when making the final decisions!

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yes. we need follow market . we can make better signal. we can have opportunity . we can earn big profit in short time.

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Yep! I’ve only been examining the AUDJPY though. Volatility last Friday was very low, so I expect big movement on Monday. Friday’s low will probably be broken before price bounces off between 95.200 and 95.000, and head up to the 96.000 level. Alpari’s retail sentiment is 50/50, and the AUDJPY looks to be stuck in a range, and is currently near a support level. I interpreted the RBA’s decision to hold interest rates last week as bullish, so to me the macro fundamentals + technicals + neutral retail sentiment = buy at support and trade the range. Just my 2c. I could be completely wrong of course.

Capture.jpg700×597 40.7 KB

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Hi Kevin,

thanks for the findigs, I will look then for the range setup. However it is important to mention what you also said, it is a range trade which means more of a swing trade in the cards and not a position trade.

In my sentiment analysis I also see mixed picture for these two currencies which means a longer-term trend is not easy to catch here.

What is this “2c” saying? Does it have a meaning actually or you guys just started to start using it on Babypips.com forums? :slight_smile:

Good luck with your trades. I guess you will not make it on the 50/50 retail sales sentiment though :slight_smile:

If you have an article about it on your blog, just post it always.