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Trading against the 90% that lose! Contrarian COT Index and Retail Positioning Analysis
The Commitment of Traders Report is created by the CFTC –
The Commodity Futures Trading Commission and is published weekly every Friday.
This body gathers and publishes the open futures positions on all publicly
traded US
futures contracts as well as the corresponding options. The data consists of 3
main categories.
Commercial
Traders – These are the bigger players in
the markets, the smart money and consist of large firms that actually use the
commodity being traded, includes companies like…BP in the Oil and Gas Market,
Nestle in the Cocoa
and Sugar market. The main function of these traders is to hedge the price of
the commodity that they trade in.
Large
Speculators – These consist primarily of
commodity fund traders and are mainly trend following. The position sizes of
these traders tends to be in tandem with the movement of price.
Small
Speculators – The little guys, individual
traders and small firms, these are the traders that tend to be wrong in the
market at the tops and bottoms of markets.
How
do we use this data? We believe that the COT Index offers
a good indication of market sentiment and future direction. The key is to
follow the smart money (Commercial) and trade against the other 2 groups when
they are at an extreme.
Extremes in the data are figures below 30.00 and above
70.00. The ideal situation for a short position is a low reading in the
Commercial COT and high readings in the Large and Small trader numbers. For
example the Commercial COT Index reads 5.97, this means that the net
commercial position is strongly biased to the short side. The Large and Retail
(our main contrarian focus) are reading 97.70 and 100.00 respectively, meaning
they are the most long side biased they have been in the last 6 months. For
traders this means that their focus should be on short side trades, the goal is
to follow the commercial traders. This is the ideal alignment of the
groups for optimum success.
This
weeks COT Index Review
e-mini
S&P 500: Optimism in the S&P COT
has remained and has been strengthened further. Commercial traders as a group
are net long by the highest amount in 6 months. Large and Retail traders on the
flip side, seem to be affirming their short positions, overall Bullish strength
remains strong. This view is further compounded by the Nasdaq COT which is also
very bullish. Get Long, Stay Long! Says the COT
Signal: Bullish
EURUSD: Commercial traders have remained
consistent on the short side. The only surprise is a weakening in the Small
trader long strength which is now mid ranged according to the net COT position.
Ideally we would prefer the smaller retail traders to have a stronger long
position. However the net bias remains firm to the downside.
Signal: Bearish
GBPUSD: The strength of the Commercial short
position has been weakening in the last couple of weeks. With all groups
heading towards more neutral ground. The overall view is still bearish with
Commercials short and larger traders long, as with the euro the pound is seeing
a more neutral small traders position
Signal: Bearish
USDJPY: Commercial traders remain firmly
short this pair, with large and small traders taking a very opposing view. Bias
for the USDJPY still remains very bearish. (This was our opinion from last
week, very little has changed)
Signal: Bearish
Retail
Trader Position Analysis
Also known as the Long-Short ratio this is a tool primarily
offered by Forex firms, we haven’t been able to come across the same data in
the futures as yet. The data is based upon the collective trades and trading
direction of many thousands of retail traders (the average Joe). This group of
traders is notoriously wrong at predicting market direction, market tops and
bottoms with some simple analysis we can look at this data and take a
contrarian view, for example if over 70% of retail traders are long USDJPY this offers us ashort bias. Savvy traders should then
be focusing there energies on short side trades.
USDJPY: Short. Short. Short. Retail traders
have been getting increasingly long this pair for a long while now. Stay short.
EURUSD: Retail positioning in the Euro
remains fairly neutral
GBPUSD: Retail positioning in the pound
remains neutral again this week
Pivotfarm –
The Home of Support and Resistance Trading
»
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This is an irrelevant after fact, looking at data that's a week old doesn't help you to make trades in real time.
Look at where momentum is diverging and look at price levels. That's what actually helps to trade real-time.
also, smaller firms tend to be more right for two reasons.
1. market making outlets are small firms.
2. smaller firm implies less capital to manage. Given smaller amount of capital, if you've made a mistake, it's easier to reverse or partially hedge it due to lesser market impact (due to smaller size of positions)
"Commercial Traders – These are the bigger players in the markets, the smart money and consist of large firms that actually use the commodity being traded, includes companies like…BP in the Oil and Gas Market, Nestle in the Cocoa and Sugar market. The main function of these traders is to hedge the price of the commodity that they trade in."
Shockingly naive!!
What is the information content in perpetual shorts used to delta hedge derivative writes??
Answer - not much!
well, i don't know nothing, but this website just keeps gettin' crazier and crazier every day, no kiddin
No crazier than the rest of the world. educate yourself and be less crazy than the norm. fun and cute is OK but only when you are wiser than how you are acting.
well F U, big horse.
Chinese laborers, first a few immigrants, then tens of thousands, began settling in Prato in the late 1980s. They transformed the textile hub into a low-end garment manufacturing capital — enriching many, stoking resentment and prompting recent crackdowns that in turn have brought cries of bigotry and hypocrisy.
Chinese Remake the ‘Made in Italy’ Fashion Labelwhere the hell does he get this info? I show commercials 62% long and 60% short. whats up with the "100%" and a number of "5.97" ???
Its an Index number 0-100 not a percentage
I think I've seen stuff in the past that the small traders are much more accurate than the commercials.
Is a longer term investment strategy? I just don't see how the contrarian play will have a greater probability of being profitable in the short term. If anything, I would think the opposite.
anyone have a link to that COT info? thx
http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm
thanks, but i don't see anything that resembles the stuff pivotfarm posted?
Hi Pat, thats the raw information we use, however we analyse the crap out of it : )
China and the far East is fine and so the US/Europe follows - until they're not.
This are still historic low interest rates and historic high debt with banks/central banks (Fed) sitting on historic high toxic debt. The market might keep going up until it doesn't, the underlying fundamentals have still not changed.
DavidC
+10
+10
Funny how much one & a half weeks and 70 S&P points matter... Going long or shot without a definite signal and nothing more but noise is my definition of chasing the market rather than ... investing or trading.
And what do you consider a definite signal? As volatile as this market has been and continues to be the trader receives signals almost daily. With the advent of increased government intervention - or PPT or whatever you want to call it - investing has become an almost archaic term. Nimble is the word. Do not trust any one trade method. If you can't watch it don't play.
There are two clear signals that might indicate the beggining of the next mini bull run:
Ether one of those will work:
a) Increase in total credit outstanding.
b) Increase in the business expenditures.
The market is a complex system. As the result it's neither chaotic nor orderly but fluctuating in between. So those patterns that could work when the positive feedback reinforces itself, will not work when chaotic stage predominates.
Hence only significant change in the long trend indicating economic fundamentals is a clear indicator, rest is just noise (at this moment.) And noise is only made times x100 worse by the government interference and rush by HFT to take perceived TA levels and averages.
Remember, everything goes up - until it doesn't.
Keeping an eye on those currencies, Asia opens in two and half hours.
Another post calling for further upside. ZH regulars will not approve.
I do approve. It's all good. Confirmation bias is contrary to my nature, so I like all perspectives. Some of the frothing-at-the-mouth commentary is what I live for.
Couldn't agree more. I maintain its logical to have a longer term view about what asset price values should be, and to also have a shorter term view on the direction of asset prices in the immediate future. The two are frequently not aligned. Position oneself accordingly etc.
Just like Cramer said, buy "C" , he says it's mouth watering under 4. Does he like yellow rain ???
Bovane on bloomberg said "C" is a buy, as well.
TraderTimm is on the mark. A smart vs. dumb money contrary strategy is effective, until the dummies stop behaving like...well, dumb. My persective right now is that this has happened because a large segment of the dummies have finally woken up from being bitch slapped by their helpful politicians and the finance elite and / or an external force has intervened and has prevented them from behaving dumb (i.e. they lost their job 2 years ago and are going broke).
to be right you need to have the funds that can influence the market.
Just like 20K can influence a pink sheet.