Best Thread Follow the Smart Money / COT Analysis

[Dunstan]

Hi everyone,

The latest Commitments of Traders review is out (here)

Silver
The size of change was again larger than average. Market participants have started to move towards their bearish extreme levels, although we are definitely further away from these levels than for example in Platinum.

Platinum
Large Speculators have reached an all-time net long position, which is an extreme COT signal, but as said in the review, the picture is not the same as in the previous two cases. The volume and open interest total score being 16 is a bullish signal and the fact that other metal markets are not at their COT extreme levels yet, suggests that the rally could continue, but we should be at the lookout for a possible down-turn.

Cocoa
The reason why it has been mentioned is the size of change that happened in Commercials’ positions, but what is interesting here is that Small Speculators are near extreme levels (COT Index 97%). The picture is becoming bearish.

I wish all of you good luck to this week’s trading,
All the best,
Dunstan

the original COT report --> here
COT charts --> here

 

[Dunstan]

Here are the major currencies:

AUD
The change size in the positions market participants are holding was the largest in this market and it was a bullish move. You can see on the chart that a COT extreme has been achieved two reports ago and we are moving away from those levels. If prices can stay under the recent top which corresponds to the mentioned COT extreme, meaning that the downtrend continues, I would be expecting the continuation of the moving away from the recent COT extreme. On the other hand, this change signal could push prices above this top, which would result in the break of the COT extreme signal and could mean that we are headed towards an even greater COT extreme = stresses in this market continue their rise.

Summary: the recent top in prices is a crucial point. If we can rally above it, I believe that the COT extreme could widen even more --> LS would start to increase their net long positions and prices would continue their move up. Even though, I think that the risk on the long side would be greater in the medium to long term, since the stress level in the market is relatively high.

GBP
SS are closer to their upper extreme levels (COT Index – 69%), but LS and C are basically neutral both a bit net short. The picture suggests the continuation of stagnating prices, no larger moves are indicated in any direction by the COT report.

CAD
We are becoming more and more extreme in this market, getting closer to all-time extreme levels: COT Index: C - 20%, LS - 90%, SS - 56%. We still have place left for prices to continue their rally, so I would not be surprised if prices continued their upward move for another few weeks. Said this, I think being long at the time is the place to be, but one should monitor the changes in COT report closely, cause as stress levels are building up, the chances of a change in the up-trend is becoming larger and larger.

EUR
LS have continued their buying and as we are moving away from the last COT extreme it seems that prices have started to react to it. Since in the long term LS are the ones who are leading the direction of trend, it is logical that being on the long side of the market these days is a better decision. Following the report, if we start seeing LS cutting back on their buying activity and experiencing the COT extreme widening again, this could easily push prices towards (or even under) their recent lows.

JPY
None of the participants are showing clear signals, but we can conclude – looking at the COT Index (C - 29%, LS - 72%, SS - 61%) – that the picture is a little bit more bearish than bullish.

CHF
Similarly to JPY it is difficult to read clear signals here also. In such cases I recommend to look at LS, who as we know by now are the ones who we should follow in a trend. They are currently buying the market, but my remarks written in EUR can also be applied here.

MXP
Similarly to CAD and AUD, the COT extreme in this market suggests a bearish move in the medium to long term range (COT Index: C - 25%, LS - 75%, SS - 68%).

All the best,
Dunstan

 

[Dunstan]

two more charts

 

[Dunstan]

Hi everyone,

The latest Commitments of Traders review is out (here)

Copper
The size of change in C and LS positions was HUGE (!): 41% & 42%, but it was in a direction away from the recent extreme levels. This pushed market participant’s positions towards a more neutral zone. The hard question here to decide is whether to act on the large COT change signal and exit longs or even go short, when LS – the ones who we like to follow – are buying the market and actually just turned net long. Well, the change was definitely significant, so it should be considered a meaningful signal --> we should be careful in further buying the market, but on the other hand, we know that metals tend to correlate with each other. Let’s have a look at all the metal markets to see – by looking at the COT report – which ones are stronger and which one are weaker compared to each other:

Gold
SS signals in gold are usually pretty accurate, so the fact that they are at COT Index 96% is an exciting situation. I have indicated on the chart previous cases, when SS were at such levels to see what happened to price back then.

Silver
Although we cannot talk about an All-time or close to all time extreme picture, you can see on the attached chart, that in case of the last two relative tops in the market, market participants where at such levels.

Platinum
LS and C are at COT All-Time extreme levels, but SS are not at such levels yet. The picture is still more bearish than bullish.

Palladium
The COT Index shows us that neither participant is in their extreme zone. The Volume&OI score is the largest here. I would consider this market to be the strongest amongst metals.

Even though, we do not have a super clear picture (I would say all-time or close to all-time extreme levels amongst all market participants and all metal markets), overall, I think that we are becoming more bearish in metals day-by-day.

I wish all of you good luck to this week’s trading,
All the best,
Dunstan

the original COT report --> here
COT charts --> here

 

[Dunstan]

palladium

 

[Dunstan]

Hi everyone,

Just wanted to update you on metals, which I have analyzed for you in my last post. It looks like prices have started to decline, so it could be that my assumption on the general bearish picture in metals was correct. As the examples brought to you, showed clearly that we are not at all time extreme levels everywhere, there where relative extremes, which in the past had the strength to effect prices. It’s not an easy play, but I guess the Risk/Reward of taking the recent report’s signals was(is?) pretty good.

All the best,
Dunstan

 

[Dunstan]

Hi everyone,

The latest Commitments of Traders review is out (here).

USD Index
Very large Change in positions of C and LS --> 58% and 62%. This signal together with the COT extreme picture (see attached chart) suggests a bullish move in prices.

Coffee
The COT change signal that we had here points in the opposite direction as what the COT extreme picture suggests, but of course we should know by now that while a change signal has a faster effect on prices – if at all – extremes give you a better understanding on the wider picture. In this case Commercials being net long – as the review says correctly – is a bullish signal. If you look at the COT index, we can see that it confirms this --> C at 87% and L at 14%.

I wish all of you good luck to this week’s trading,
All the best,
Dunstan

the original COT report --> here
COT charts --> here

 

[Dunstan]

Hi everyone,

The latest Commitments of Traders review is out (here).

Cotton
COT Change / C-27%, LS-20%, SS-25% /
COT Index / C-88%, LS-10% /
The COT report suggests that there could be an increase in cotton prices in the near term and even in medium-long term as well.

Crude Oil
The change signal suggests a bullish move, but the general picture looks bearish.

British Pound
Small Speculators are at an All Time extreme level (their most optimistic mood ever), but also Commercials are heavily selling the market--> bearish picture.
I wish all of you good luck to this week’s trading,

All the best,
Dunstan

the original COT report --> here
COT charts --> here

 

[Dunstan]

Hi everyone,

The latest Commitments of Traders review is out (here).

Natural Gas
COT Change (52W) / C-31%, LS-32%, SS-13% /
COT Extreme / C-230, LS-255 /
COT Index (3 year lb.) / C-0%, LS-100%, SS-69% /
The near term picture looks bearish, since the more than 30% changes that we can witness in C and LS positions are stronger than average signals. In medium to longer term (let’s say up to 6-9 month), I don’t see such an extreme picture yet, that would suggest the end of this increase in prices that started in mid April.

Cotton
COT Change (52W) / C-31%, LS-30% /
COT Extreme / C-281, LS-281 /
COT Index (3 year lb.) / C-100%, LS-0% /
The COT report suggests that there could be an increase in cotton prices in the near term and even in medium-long term as well.

Platinum
COT Extreme / C-All Time, LS-All Time /

Gold
COT Extreme / SS-All Time /

I wish all of you good luck to this week’s trading,
All the best,
Dunstan

the original COT report --> here
COT charts --> here

 

[sambazone]

Hi Dunstan, I mostly trade options on currency futures on CME and as such, would like to ask you regarding EUR. I see on cotbase site that EUR is trading at 130. Is 130 some agregate index of EUR against a basket of currencies?

I mostly trade EUR against Dollar. Does cotbase have COT report on EUR/USD cross?

Also, I take it that Commercials is Central Banks when it comes to currencies. Do you agree that postion net change of Comercials in COT is not that imprortant when it comes to currencies as Central Banks usually settle cross boarder transactions rather than participate in currency markets (unless we are talking intervention like Swiss Central Bank is doing now)?

 

[Dunstan]

Hi Dunstan, I mostly trade options on currency futures on CME and as such, would like to ask you regarding EUR. I see on cotbase site that EUR is trading at 130. Is 130 some agregate index of EUR against a basket of currencies?

I mostly trade EUR against Dollar. Does cotbase have COT report on EUR/USD cross?

Also, I take it that Commercials is Central Banks when it comes to currencies. Do you agree that postion net change of Comercials in COT is not that imprortant when it comes to currencies as Central Banks usually settle cross boarder transactions rather than participate in currency markets (unless we are talking intervention like Swiss Central Bank is doing now)?

Hi sambazone,

130 is 1.30. EUR price charts show you the continuous futures contract’s chart.

CFTC publishes COT reports on the EUR futures and also options. Since the correlations between EUR futures and EUR/USD 1:1 (the minor difference can be found due to the interest differential between the two currencies) you can use the COT report on EUR futures to trade EUR/USD.

Commercials are companies, who do business internationally and require the usage of different currencies than the ones they have at home, so they are exposed to currency risks. Commercial signals in currencies are as effective as in any other market. I had a post not long ago concentrating on COT reports on currencies --> post #59

I hope I could answer your questions!

Have a nice day,
Dunstan

 

[Dunstan]

Hi everyone,

The latest Commitments of Traders review is out (here).

Dow Jones-30
Vol/OI Total Score /-15/
COT Change (52W) / C-26%, LS-22%, SS-33% /
COT Index (3 year lb.) / C-22%, LS-79% /
Although the Change signal was large and we can see some examples in the past, when prices reacted to it, what is concerning for me on the long side is the volume & open interest score and the COT extreme picture. Both of these are showing a bearish picture.

Australian Dollar
COT Change (52W) / C-19%, LS-17%, SS-25 /
Another example, when the change signal is pointing in the opposite direction as the general picture. Two weeks ago there was a close to All Time extreme COT picture that was a strong sell signal and started to push prices lower. Last week’s COT change signal could stop that decline and even redirect prices to higher levels. It could easily be, that prices continue their rise for a few days, but the fact the LS are heavily exiting their net long positions is a warning signal.

Platinum
COT Extreme / C-All Time, LS-All Time /
The picture has not changed, we could witness another All Time COT extreme this week. Stress levels are super high and this suggest a price decline soon.

I wish all of you good luck to this week’s trading,
All the best,
Dunstan

the original COT report --> here
COT charts --> here

 

[Dunstan]

Hi everyone,

(sorry for the late update, I was away for a couple of days…)

The latest Commitments of Traders review is out (here).

Cotton
COT Change (52W) / C-25%, LS-17%, SS-25% /
COT Index (3 year lb.) / C-88%, LS-10% /
The 25% change in Commercials positions could be considered a stronger than average signal and as we can see it by now (Wednesday) prices have declined on it. On the other hand, the wider picture shows an extreme in the market pointing in the opposite direction, upwards.

Heating Oil
COT Change (52W) / C-20%, LS-25% /
COT Extreme /SS-692report/
COT Index (3 year lb.) / C-5%, LS-79%, SS-100% /
A great example of multiple COT signals --> COT change and the extreme are bearish signals. From all the signals this week, I would consider this one to be the best opportunity trade (close resistance level, great Risk/Reward trade).

Platinum
COT Extreme / C-All Time, LS-All Time /
We can see the prices have started to drop heavily, so anyone following these signals could have made some serious profits by now.

I wish all of you good luck to this week’s trading,
All the best,
Dunstan

the original COT report --> here
COT charts --> here

 

[sambazone]

Hi Dunstan, couple questions.. Is Comercial Interest important when it comes to commodities ? After all companies drilling for gas or mining for gold will always be sellers...

There is one exceptional scinario (market extreme scinario):

Comercials might unwind their short positions at REAL market extremes when the cost of drilling for gas ,for example, exceeds the cost of gas futures. (as happened in Henry Hub gas futures when it hit the buttom 2$ USD)

Can you please clarify from your experience?

 

[Dunstan]

Hi Dunstan, couple questions.. Is Comercial Interest important when it comes to commodities ? After all companies drilling for gas or mining for gold will always be sellers...

There is one exceptional scinario (market extreme scinario):

Comercials might unwind their short positions at REAL market extremes when the cost of drilling for gas ,for example, exceeds the cost of gas futures. (as happened in Henry Hub gas futures when it hit the buttom 2$ USD)

Can you please clarify from your experience?

Hi sambazone,

Thanks for your question! First of all… commercials are not only producers of a commodity, but also users of it as well --> for example gold: there are the mining companies, but also the jewelry, electronics industry that requires this commodity… or energies: drilling companies - airlines etc…

Let’s analyze a recent example, where we can find a large – all time - extreme, platinum. What is happening mainly is that producers of this commodity are selling to large speculators, who think that prices will continue their rise. As more and more LS are buying in fewer are left at the “side lines” with additional buying power… Of course commercials are more than willing to sell to anyone who wants to buy, so it’s actually not them that generate the bubble, more the LS --> when there are no more buyers left (even those few on the side lines bought in) then prices start to decline, LS start to unwind their net long positions and commercials start to buy back their sold contracts. If you look at platinum this week you can see that it has dropped significantly soon commercials will start to decrease their net short positions.

Commercials have much greater buying/selling power generally so they can go on for pretty long… it is the Large Speculators (LS) that get caught on wrong side of the market at bottoms/tops. There are rare occasions, when commercials loose power --> see post#8.

I hope I could answer your question, but let me know if I wasn’t clear enough!

All the best,
Dunstan

 

[sambazone]

Dunstan, your explanation makes perfect sense but for Comercials to be net sellers, producers of metal have to sell MORE THAN consumers of metals. Correct?

If above is true, extreme short levels in Comercials during high prices tells us that consumers of metal are not buyers while LS are piling in?

Also, in regard to your example in Platinum, to me, it looks like prices can fall much further as Comercials are heavy sellers right now while LS have piled in on Platinum to the extreme level?

 

[Dunstan]

Dunstan, your explanation makes perfect sense but for Comercials to be net sellers, producers of metal have to sell MORE THAN consumers of metals. Correct?

If above is true, extreme short levels in Comercials during high prices tells us that consumers of metal are not buyers while LS are piling in?

Also, in regard to your example in Platinum, to me, it looks like prices can fall much further as Comercials are heavy sellers right now while LS have piled in on Platinum to the extreme level?

The COT charts that you see below the price charts are all net positions, so of course there will always be commercials who will be long and ones who will be short. Companies who use a specific commodity in their daily business will buy futures on them if they fear that higher prices later will diminish their profits, while producers of the commodity are fearing that prices will fall and they cannot sell their commodity with profits… it’s all about risk management, hedging activity. Of course these players are not balancing each other out so the net amount of positions they hold all together will not be 0. Your assumption though is correct --> if Commercials are net short is means that the majority of them (possibly miners) are selling more than consumers are buying.

Based on the report itself, it is not so easy to predict exactly how long a commodity will drop (or rise) after an extreme, but following the report weekly, you will be able to find the correct time to exit your positions. Analyzing the history for similar occasions can also help you approximate the possible size of decline or rise. In case of platinum we cannot see signals against the continuation of this decline, so if you are in it, stay in!

All the best,
Dunstan

 

[Dunstan]

Hi everyone,

The latest Commitments of Traders review is out (here).

Cotton
COT Change (52W) / C-55%, LS-43%, SS-32% /
It looks like I have to mention cotton again, because of the huge change size that happened! This time we can witness a 55% size change in Commercials positions. As the review says, this last two report’s changes pushed Commercials from long 20.000 contracts to short 20.000 contracts. Of course as we know by now, these changes could affect prices in the near term, but the longer term picture is still bullish. If we look at the 10 year chart we can see what happened to prices in the past when Commercials started to decrease their net long positions and go into deep short territories.

Japanese Yen
COT Change (52W) / C-27%, LS-22%, SS-38% /
COT Index (3 year lb.) / C-69%, LS-39%, SS-11% /
Whenever we have witnessed such changes in C-LS-SS positions in the past, they usually ended in a COT extreme that resulted in a bottom in prices. We still got some space left for this trend to continue and really get a COT extreme picture, so prices could continue their decline.

Platinum
After a couple of weeks of continuous All Time signals, market participants in Platinum have moved away from their extremes. As we can see it now, it was wise to follow this market, because it turned out to be again a valid example of how affective COT analysis really is. Looking at the past similar cases, we can expect prices to continue their decline.

I wish all of you good luck to this week’s trading,
All the best,
Dunstan

the original COT report --> here
COT charts --> here

 

[sambazone]

Hi Dunstan, can you please clarify situation on Cad futures for me. It seems to negate the value of COT report.

In Mid Sept, COT report shows extreme demand for CAD futures, so the CAD reached the levels of extreme strength (USDCAD trading at 0.96).

Fastforward to present time, USDCAD touched parity couple days ago (big move for USDCAD) while the unloading of CAD futures has been rather slow (down 10% from 100k to 90k) .

Can you please clarify.

Thanks

 

[Dunstan]

Hi Sambazone,

I have attached a 5 year chart on CAD for you where I have indicated some extremes that coincide with tops/bottoms. The picture should be pretty clear --> after the last extreme, prices have started to decline. Until we reach and an opposite extreme or relative extreme (commercials net short <25-30.000 contracts), I would expect prices to continue their decline.

All the best,
Dunstan