COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
1185

Hi Peter,

don’t scare me with such posts! I check the COT this weekend and might put some stops out there. In the afternoon there was another strong USD run.

I also see some difference though between GBP and USD. GBP had its fall after a long bull market, USD made some strong gains in the last months but had lost very many in the past so I think there is more room to go. Still, an extreme is an extreme so I guess we will have to watch out for it.

It is definitely worth writing about it so we can analyse it!

EDIT: one more thing to add why at this time USD “might survive” better than GBP. In the summer only EUR was weak. Now people turned to have negative bias on AUD, NZD, JPY so it is hard to beat USD on a big time when there is no economy who is doing good out there. So I think it is great what you said, I make the mentioned stop losses, but as you said, the trend is our friend and until it does not change but brings the pips, I will also not change my bias. After all I think the huge position sizes I have I can always liquidate them :slight_smile:

1186

FE, you have summed it up.

I thought long and hard before posting - the absolutely worst thing, the very thing that has caused me to cancel so many posts - the thought that one of my posts may cause someone to change their outlook.

It is refreshing to discuss ideas and thoughts on this thread without the feeling that you are causing someone to lose :slight_smile:

Now back to my contrarian outlook - if you could open a daily on EUR/USD and maybe zoom way out.

There are 3 significant days on that chart - July 23/24/25 2012

The context was that the demise of the entire Euro experiment was imminent. Grexit (Greece exit) was a definite, and the others dubbed PIGGS were to follow.

Many businesses, including my own, were making contingency plans, most were emptying their Euro accounts - like they say ‘the end is nigh’.

On July 21 I watched a youtube video, a trader was looking at Euro COT and price of EUR/USD - he was saying something to the effect ’ a change is coming’.

Never forgot that.

That said, I’ll still just follow the trend.

1187

Hi Peter,

the COT is out there, it is even more important to analyze then! So I have a question though from yesterday or a day before yesterday. I still think you are the only one who was a trader at that time already. I have to say one thing without the COT though, the specs were far away of being on an extreme level last week. I know, we have to follow the commercials but still, it shows that specs might be still willing to push the price more down and commercials I would think welcome the opportunity to buy further for very cheap!

Do you know what happened to AUD in 2008 September? I have never seen a fall like that.

1188

The one thing that I remember when looking at comms vs specs. The comms ‘cause’ the futures.

The specs respond - if they perceive the risk in their favour, their test of that risk is most often price, more specifically trend - they are trend followers.

I often view that the comms (in fx often the banks) do the pushing, sometimes a few hundred pips above a level, to entice the specs yet further - (see one of those reports that S. Briese spoke of.)

Back to 2008 - ‘the credit squeeze’ - see this - ‘the risky bet’ and ‘key points’ maybe sums up best the outlook at the beginning of that year.

I often think that looking ahead in economics is exactly like weather forecasting - the further away, the more vague it becomes :slight_smile:

http://www.dailyfx.com/story/currency/aud_fundamentals/2007/12/31/AUD_USD_2008_Outlook_1199120466582.html

1189

I agree with Philip Mike! with specs COT alone I’m making 500 pips easily in a month /by adding more onto the winning trades/ and I know there’s more room to make more. So think about it, COT index for crosses on top what you’re going for is rather modest. You can be a little aggressive than that but that doesn’t mean I’m suggesting you to be greedy. With everything we’re doing here from fundamentals to COT index it’s not 50/50 anymore. Thats how I see it. I’m thinking of doing things that way as well. To be a little bit more aggressive while not taking excessive risk.

We’re getting there guys… I’m happy :slight_smile:

1190

We’ve been waiting for a post like this Peter! right on time I don’t want to scare you off FE but while I was on bloomberg tv the other day analysts were sharing their concerns on the possible consequences of strong US dollar on few areas - a strong currency will reduce inflationary pressure therefore there might be some revisions coming along the way as to when Fed should raise rates. Or they might simply revise the inflation targets.

Thats what I wanted to post yesterday on USD rally , something that we should be wary of. There’s nothing that describes forecasting economy better than what Peter has said its much like weather forecasting, indeed it really is. So don’t be alarmed by this FE and guys… I just wanted us to keep that in mind while going along with the trend.

1191

Hi guys,

Thanks Mike for the interesting read, and Peter for mentioning the guy trading only cable. I think I’m having new role models to look to :smiley: Oh, and Mike, yes, expect more monthly pips once adding to winning positions is mastered. My experiment with cable gave me 1000 pips (from 500 pips drop in cable since September 19). I’m sure luck had big role in it, but I think we need a system that makes adding to winning positions possible. As for the dollar, I agree with your takes Peter and Rookie. One question though, where can I get the number for USDX? I was thinking it was from ICE Future, but then it was off :smiley:

1192

Well I actually like your call on the dollar Peterma. The Fed has so far been insistent on keeping “considerable time” in the statement regarding interest rates. The last speech by Yellen was very neutral, certainly not Hawkish. We have a case where the market [I]thinks[/I] Fed will raise rates. But the market could just as easily change our mind. We have been trying to implement a mechanical system that helps us figure out what the market thinks and hopefully the system will help us.

Having said that I do think there are some things to note; 1) The drop in GBP is a good opportunity to buy it in the future (except buying cable). 2) The market was wary of the referendum and so anyone who saw the GBP rally and was our of the political situation knew that the rally wouldn’t last to September.

Having said that I think the performance of the US economy in the third quarter will be an important factor in this dollar run. If we see the same strong performance in Q3 and Q4 then there will be nothing to stop the dollar rally for well into 2015. However if Q3 is just average then we will probably have to move on to something else. This is because the economy’s performance was just abysmal in Q1 that we need to see outstanding results in the second half of the year for something to happen.

1193

Here are the results for the system this week. We took four trades; GBPJPY, EURGBP, GBPCHF and GBPNZD
GBPJPY: -84 pips. This is our first-ever loser, yaaaay! :slight_smile:
GBPCHF: +82 pips.
EURGBP: +67 pips.
GBPNZD: +468 pips.

Total pippage for the week after swaps: +523.84 pips.
Total pips after three weeks of trading: 1,593.84. Where would that rank us on Zulu [B]Peterma[/B]? :slight_smile:

I remember FE saying that 300+ pips on EURUSD long term trade was the highest single trade profit he made. I think most of us are the same. But if this system is the real thing, we will be making that amount of money easily every week and not every couple of months. :slight_smile:

EDIT: I think Mike would have higher values than mine on almost all the trades. He got in after me for a better price. GBO gapped up this week and I think Mike entered the trades when GBP was bridging that gap.

ANOTHER EDIT: FE!! you wouldn’t want to hold a silver long if your sentiment remains bullish on dollar. There is an inverse relationship between Silver and USD.

1194

[B]The 1 minute trader system[/B]

Almost all currencies are at a 6-month extreme. The exception are AUD and CAD. Despite that, only GBP produced a signal. That signal is of course to buy it.

Moving to the currency crosses, the system recommends buying four pairs: GBPJPY, GBPCHF, GBPNZD and sell EURGBP.

I’ve also done some technical analysis for you; GBPCHF and GBPJPY produced buy signal on the 1 hr TF for the counter-trending with the trend system.

1195

Hi guys,

good posts out there. One thing Mike. We (including me as well) suggest you to make more than 200 pips/month. Still, do not let yourself influenced by us. We say what we think, we are joking as well, but in the end it is only you who knows why exactly the rule is 200 pips. We do not want you to aim 600 pips and maybe lose the 600 pips next month and then 3 months of work is away. Think it over and maybe slowly you can later increase your goal.

Philip, thanks a lot for the Silver/USD relationship. As you guys know, I have not invested much time in correlations so as sad as it is I did not know about this one. I will analyse for me today the Silver situation in the COT too.

Philip again, did you get exactly the same signal like last week? You were fast with the analysis for sure! It is only interesting that signals came only for the same pairs.

I do my part of the analysis and share my thoughts.

EDIT: one thing before I do the analysis. What I really like in our system is that it produces signals perfectly in line with our fundamental bias! We are bullish only on GBP and USD. If the USD reversal comes then there is only GBP left from the pack with bullish signal. That is also what the system showed. It also exactly made the setups where we have a bearish bias: JPY, EUR, CHF and NZD. Isn’t it great? If I miss one setup it would be the GBPAUD.

1196

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

[B]AUD[/B]: 54.85% current vs. 62.43% previous. Net position: 8 347 current vs. 22 140 previous. Price is getting to extreme levels but positions not. There is room to go. Since we follow the reports though (since May) this is the most bearish net positions reading. What a change in sentiment in a couple of weeks.

[B]CAD[/B]: 52.93% vs. 55.61%. Net position: 3 064 vs. 7 544. Open interest: 76 530 vs. 110 275. The numbers confirm Dr. Rookies negative scenario for CAD. Peter, some thoughts on the huge decrease of open interest? One third of the open interest was lost in one week!

[B]CHF[/B]: 27.76% vs. 34.67%. Net position: - 13 375 vs. -11 396. I think we agree on CHF (some weeks ago we were divided on it): there is no reason to be bullish on it.

[B]GBP[/B]: 49.51% vs. 47.20%. Net position: -1 050 vs. -6 584. Specs got more bullish from last week. Because of the huge recent falls for GBP; it does give us huge potential for a rise, any kind of COT extreme is thousand miles away.

[B]NZD[/B]: 55.19% vs. 53.02%. Net position: 1 841 vs. 1 120. Specs got a little more bullish, I do not know why. Interesting, timingcharts do not have NZD, so I could not check our signals there. As I remember NZD was until now always presented on that site.

[B]EUR[/B]: 23.03% vs. 26.85%. Net position: -141 965 vs. -137 149. Is there about any positive news out there? Extremes are far away. Smells like pips.

[B]JPY[/B]: 17.50% vs. 23.74%. Net position: -105 422 vs. -83 182. Although I was not in the JPY rally, I did enter a trade on Friday. I bought GBP vs. JPY. Hope it will function. The COT extreme (net position) is still far away -143 822 although almost every spec is bearish on JPY so if already everyone is bearish then who can push it all the way down?

[B]USD[/B]: I think it is the USD index why Peter made his conclusions for the trend change. We are at extreme levels and we will watch out so we do not get hurt.

[I]USD/RUB[/I] got significantly stronger on net positions for the first time since many months. The weakening of the RUB stopped for one and a half week. Still, in the last of the week (which are not included in COT) the RUB lost ground again and reached new historical highs.

[I]USD/MXN[/I], I had a wild thought and clicked through all exotic currencies and found out HUF was mostly correlated to MXN in the last year. Hmmm two countries in the completely other side of the world! It is not that I would jump in to trade exotic pairs, just that MXN in the COT report and might give then signals to… :slight_smile:

Trade setups for the week: this week I make my setups a bit different. I do not make pairs, I make a ranking from strongest to weakest. It shows basically then all 28 possible setups. Keep in mind, we watch out for the USD, still until the reversal is not there I will be bullish on the currency as COT is not a timing signal. I am ready though to change my bias anytime. It is great that we discuss it. The best way how we can see the strength of the USD is to see how it reacts to news and what happens if there are weekend gaps!

Here is my ranking (starts with strongest) for my current view of currencies: [B]USD-GBP-JPY-CAD-CHF-EUR-AUD-NZD[/B]. Comments: the only point where I was not sure in the ranking was the 6th place between EUR and AUD. The view is based on price action and fundamentals. NZD could have been maybe a bit better but not much. You are mostly surprised on JPY I guess. Yes, you guys can look the charts. They tell quite a lot. JPY loses vs. GBP and USD but that is all. I jumped maybe too early in the JPY short, vs. the COT report findings and this makes me angry. If I close my JPY short trade then I stay away from it again.

That is it guys! I did my best and I am ready for your “attacks”! Philip challenged me last week, hopefully now I get even more challenges!

1197

I really liked your analysis and I think your currency ratings are a good idea. BTW your trade GBPJPY is recommended by our system in terms of extremes and timing for a reversal. Even though that sounds good, I want to warn you that the systems only loser was a GBPJPY. :stuck_out_tongue: I am looking to buy GBPJPY and GBPCHF to keep my AUDUSD and EURUSD trades some company.

Looking at it, those four pair look like a cute blend of strongest vs weakest in terms of sentiment.

Now we wait for Mike’s and Rookie’s reports so we are ready for the trading week. The market just closed and I just can’t wait to go.

EDIT: FE regarding your question, Basically I looked at the currencies individually. While many of them where in an extreme, only GBP had the 52 MA movement necessary to give a signal. Dollar did not produce that movement despite being at fresh new extreme highs.

So I moved on to our crosses system. And the currency pairs I mentioned were the only GBP pairs that were in an extreme and produced a buy signal. Now its up to each one of us to go back to our charts and look at the best area to buy these pairs. I made my recommendations and you seem to recommend buying GBPJPY also. So bring on next week!

1198

Hey guys!
Good morning and good weekend!

FE…I just read your post right before I’m gonna throw out my strongest to weakest. Interesting.
Well, I’ll give you what happened this week. Then give out my determined overall strength line-up.

Monday///Tuesday///Wednesday///Thursday///Friday
GBP///////GBP///////AUD//////////JPY/////////USD/////
JPY///////EUR///////CAD///////////GBP////////CAD/////
EUR//////CHF///////USD////////////USD///////CHF//////
CHF//////USD///////NZD////////////EUR///////AUD//////
USD//////JPY////////GBP////////////CHF///////GBP//////
NZD//////AUD///////EUR////////////CAD///////EUR//////
AUD//////CAD///////JPY/////////////AUD///////JPY///////
CAD//////NZD///////CHF////////////NZD///////NZD//////

Monday//Tuesday//Wednesday//Thursday//Friday
M +15///M +15///C +13///////M +15/////M +4

Majors took this week.
Ok, so for the month of Sept.
Week 1 = C +27
Week 2 = M +52
Week 3 = C +24
Week 4 = M +36

How about the 3rd quarter.
[B]July[/B]
1st = M (+5)
2nd= C (+8)
3rd= C (+2)
4th= M (+15)
[B]Aug[/B]
1st =M (+20)
(1st) = M (+6)
2nd = C (+18)
3rd = C (+23)
4th = C (+17)
[B]Sept[/B]
1st = C (+27)
2nd = M (+52)
3rd = C (+24)
4th = M (+36)

(just compare the +'s…shows by how much)

Here’s the pip count for the past week.///Against the other team.
[B]GBP[/B]-- +1227////+1133
[B]USD[/B]-- +1034////+667
[B]JPY[/B]— +835//////+605
[B]EUR[/B]-- +143//////+519
[B]CHF[/B]-- -1//////////+314
[B]CAD[/B]-- -591/////// -758
[B]AUD[/B]-- -636/////// -780
[B]NZD[/B]-- -2011////// -1700

This is my line-up.
[B]Long term[/B] (determined by trending against others on weekly chart)
USD
CAD
GBP
CHF
JPY
EUR
AUD
NZD
[B]Short term[/B] (determined by trending against others on daily chart)
USD
GBP
CAD
CHF
EUR
JPY
AUD
NZD

You really have to put it all into perspective. That’s why I have broken it up into those 2 catagories.
So FE, we just have determined our respective line-ups a little differently. But, that’s ok. As long as we put it into perspective, and into context, we’re good.

Ok my brothers!
We’ll be in touch this weekend.

Oh…before I go…I wanted to give a response to your comments about my plan.
I am completely excited about what you guys think we can do with the new strategy. This is really monumental for me. But…I know it sounds crazy, I just do not want to deviate from my plan. Maybe not until things are really rolling month after month. You guys are really making the possibilities for me much easier. Meaning it should be no problem achieving my goal. And I do have in mind the possibility of assuring that I make 200, and if I reach anything over to be able to play with those extra pips. Like accumulating them for the next month. You know, just to make sure I will always end up with at least 200 every month.
You see…there is great importance for me to achieve 200 a month. Because I plan on compounding the position sizes every month. I have levels to attain. So it’s gonna be some serious pip management. And I just hope that I will have the problem of dealing with too many pips rather than watching how much I can lose.

PS…Rookie…we ARE destined to be together here. Great things are gonna happen!!

Mike

1199

I always look forward to your weekly tally Mike. You did not tell how your demo account did last week with the trades you took.

1200

Here was an interesting little post back in 2005, pity he didn’t elaborate a little more.

It shows the timing element though - it took maybe 6 months for a massive prolonged fall in usdx to follow - right into 2008.

COT at unprecedented levels for USDX

1201

Also a good resource for learning intermarket influences is at stockcharts.com - they have a good free section where you can plot overlays on one chart, example:

http://stockcharts.com/freecharts/perf.php?$SPX,$CRB,$USD,$UST

Edit: Short summary as taught by Mr Murphy here:

PerfCharts - StockCharts.com - Free Charts[IM]

1202

This is an interesting one for me. We agree on the dollar at extreme part. I think we actually also agree that there is time for that to keep. Honestly, and even from a technical standpoint, I don’t think the Dollar index will have any trouble getting to 90.

1203

Hi Peter,

Thanks for the links! I too have some suspicions on USD. Both AUD and NZD fell sharply last week, but the weird thing is specs just wont (or cant?) short them. Instead, they go bullish. This is just against their trend following nature isn’t it? Now, I figure, [B]if[/B] USD falls, where will the most profit be? (I try hard not to get excited as I’ve found it does harm to my trading, but I just can’t help it) :53:

PS: I was wondering if I could get the raw net positions number for USDX in CFTC website. Is that possible?

Edit: I meant only NZD.

1204

Yes, completely agree. I was thinking of the no.4 guy on Zulu - had he been aware of the earlier extreme reading on COT he would have recognized the turnaround was in action, then instead of steadfastly buying as he had been doing he would have flipped and sold.

He would have probably been no.1 now.

Some of his followers were screaming at him regarding the change in Market Structure to bearish, Cot was also saying things have changed, but he kept looking for the buy.

The way the index is weighted means that 90 is easily attainable, there will be more pressure on Euro in the coming weeks/months.

I suspect that EUR/USD may get to 2000 around the same time as USDX gets to 88.50 , we will keep an eye on COT in the meantime.

Any pullbacks on Mon and Tue will be good for buying.

I just had a look at Oanda’s open positions - surprised to see the longs on Euro and Yen.
Foreign Exchange Positions | Forex Open Position Ratios | OANDA fxTrade