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Weekly 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, with the other 2 groups at opposite extremes. This is the ideal alignment of the groups for optimum success.
This weeks COT Index Review
e-mini S&P 500:
Commercials remain long the S&P, with small traders still relatively neutral in their positioning, so only 2 green lights for the S&P.
Signal: Bullish
We’ve made some changes to our index calculation method for the forex based COTs based upon back testing results.
EURUSD: Euro bulls remain full steam ahead, with 6 month peaks in the commercial longs.
Signal: Bullish
GBPUSD: The pound also much like the Euro remains bullish.
Signal: Bullish
USDJPY: The bears remain in control, with a slightly weakening position, however the bears remain very much in control for the moment
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 a short bias. Savvy traders should then be focusing there energies on short side trades.
USDJPY: Wow. Intervention, What Intervention? The USDJPY is around 25 pips away from pre-intervention lows, levels we have visited in almost 15 years!
EURUSD: Retail traders have been getting absolutely burnt and been increasingly building short positions over the past few weeks. We’re heading towards that magic 66% number.
GBPUSD: Retail positioning in the pound has strengthened to the short side and is now approaching the 60% level.
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Thanks pivotfarm and ZH for this, this is better than most of the other COT reports because it explains what the numbers mean even if you don't know how it works
this is so exciting to read and know you guys know what it means.
P U L S E. you all, can read this things pulse. I can't, that is why it is such a turn on.
a veritable "heartbeat of America." now what did you do to woody?
Who exactly are the commerical traders for the S&P and the currencies.
if the commercial are companies hedging exposure to currencies, i am not sure how they are going to be the smartest of the group.
Not sure what even count for commercial for the SP futures. Insurance Co getting expsoure for guarantees. Mutual funds trying to minimizing transactions in actual stocks.
The only thing that would make sense for them being smart money is if it is hedge funds getting exposure through banks that then hedge away the residual risk in the futures market.
Yep, we're at the end of the second diamond patern, so there's a 85% of a severe drop in the next few weeks.
Umm, all the commercial traders are short in cable not long?
http://img829.imageshack.us/img829/7218/sp3220101003221414.gif
Comm: 2, Large 90, Retail 100 long