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	Commercial Traders	Large Traders	Small Traders
6 Month COT Index	96.66	61.78	19.10

e-mini S&P 500: We are seeing a continuation of strength confirmed by last weeks COT Index analysis on the S&P 500, (a 60 point move so far from the lows) Commercial traders are close to the most bullish COT Index levels seen in 6 months, Small Traders continue to be bearish , with Large traders slightly bullish. Follow the commercials and fade the retailer is the current COT view.

Signal: Bullish

 

EURUSD	Commercial Traders	Large Traders	Small Traders
6 Month COT Index	22.17	80.18	47.96

 

EURUSD: Commercial traders remain bearish on the Euro albeit with a weakening position. Large traders remain long, with retail traders currently neutral. Small traders are in a fairly neutral position with a mid-range reading of 47.96. We will follow the commercials and fade the large traders, so continue to look for opportunities to get short.

Signal: Bearish

 

GBPUSD	Commercial Traders	Large Traders	Small Traders
6 Month COT Index	23.76	75.19	72.19

GBPUSD: Commercial traders remain bearish on the pound, with large and small speculators still long. The strength of these opposing positions has weakened since this scenario first presented in early August, however short side bias by following the commercials and fading the large and small traders remains.

Signal: Bearish

USDJPY	Commercial Traders	Large Traders	Small Traders
6 Month COT Index	4.18	97.82	70.51

 

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.

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

80.29%

19.71 %

 

USDJPY: Retail traders have been strongly long the USDJPY for months now! We maintain our short bias on this pair

 

EURUSD

47.77%

52.23%

 

 

EURUSD: Retail positioning in the Euro remains fairly neutral

 

GBPUSD

44.70%

55.30%

 

 

GBPUSD: Retail positioning in the pound remains neutral again this week