Follow the Smart Money / COT Analysis

Hi everyone,

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

Orange Juice
COT Change (52W) / C-16%, LS-13%, SS-23% /
COT Index (3 year lb.) / C-49%, LS-49%, SS-62% /
The relative cot extreme signal from two weeks ago that started this latest price decline is in my opinion still in place. The change that we can see now is not that significant, but of course could affect prices for a few days, and we have close support levels if we were to consider a long trade. My guess is that the decline should continue.

Oats
COT Change (52W) / C-13%, SS-22% /
COT Index (3 year lb.) / C-76%, LS-34% /
I don’t necessarily agree now with this latest review… of course it is true that the best buy signal would be, if Commercials where to become net long, but a relative extreme exists – as the COT Index shows correctly - that may trigger a rally.

Palladium
COT Extreme / C-All Time, LS-All Time /
I don’t think it necessary for me to talk too much about palladium, the picture is pretty clear and if you’ve been following my thread, you should know by now that All Time extremes are the strongest cot signals. The only important remark that needs to be carefully dealt with is the fact that these extremes could widen for some weeks before they trigger a price reaction. I’ve said it before a couple of times that it is best to combine cot analysis with regular TA tools and risk management tools. What is nice in this market now is that resistance levels are very close so taking this signal and going short would have a very nice Risk/Reward ratio. So the conclusion is that we don’t know for sure that prices will fall from here, but the odds of this happening are high – thanks to the high stress level in the market – and the risk taken on a possible trade would be low.

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

the original COT report --> here
COT charts --> here
 
Hi everyone,

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

Orange Juice
COT Change (52W) / C-27%, LS-31% /
COT Index (3 year lb.) / C-68%, LS-25%, SS-61% /
The change size this week was greater than the previous week, we are moving away with large steps from the last cot extreme that started this latest decline. As this is happening, we get closer to a relative extreme that will have a bullish signal --> look at the previous couple of bottoms in price correlating with relative extremes in COT.

USD Index
COT Change (52W) / C-27%, LS-25%, SS-27% /
COT Index (3 year lb.) / C-69%, LS-32%, SS-27% /
The last significant cot extreme happened two weeks ago, when Commercials were net long almost 15.000 contracts. Following this signal, prices started to go higher and commercials have cut back from their long position. In my opinion if prices decline below 79, we could see a widening of this mentioned cot extreme, seeing net long positions of >15.000 contracts for commercials. Till that happens, the cot extreme from two weeks ago is in place and we should be expecting higher prices.

5-Year Note
COT Extreme / C & LS-143 report extreme /
If you look at the longer chart of 5-year note, you can see that almost all the time, when Commercials were net long / at the net 0 level, that coincided with a bottom in prices. We are witnessing this again, furthermore we are at an important support level that would give us the opportunity to use close stops --> giving us a good Risk/Reward for the trade.

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

the original COT report --> here
COT charts --> here
 
Hi everyone,

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

Coffee
COT Change (52W) / C-28%, LS-27% /
COT Index (3 year lb.) / C-77%, LS-24%, SS-60% /
The change and the relative cot extreme (looking at a 1-1,5 year period) suggest a price decline. On the other hand, if we open a longer chart, we can see that the longer term picture is bullish. Commercials are net long and when that was the case, we were close to a bottom in prices.

Platinum
COT Change (52W) / C-17%, LS-15%, SS-20% /
COT Index (3 year lb.) / C-13%, LS-86%, SS-55% /
We’ve witnessed some great cot extremes in the past few weeks without any significant price reaction. Looking at the cot charts my guess is that the rally could continue until we see another All Time COT extreme (Commercials net short, while Large Speculators net long >50-55.000 contracts and Small Speculators net long >7-8.000 contracts).

Mexican Peso
COT Extreme / LS-All Time COT extreme /
We have again an All Time Extreme in Mexican Peso. The last one (few weeks ago) was not able to stabilize a price decline so we are witnessing the widening of the extreme. Of course as stress levels are getting higher, so does the chance of a top in prices.

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

the original COT report --> here
COT charts --> here
 
Hi everyone,

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

Live Cattle
COT Change (52W) / C-32%, LS-31%, SS-20% /
COT Index (3 year lb.) / C-77%, LS-10%, SS-100% /
COT Extreme / SS-387 report COT extreme /
All cot signals have a bullish bias this week. The change in trader’s positions was pretty large and dynamic, while Small Speculators are at an extreme level. It would be an even stronger bullish signal, if also Commercials and Large Speculators were at such extreme levels (perhaps Commercials net long would fulfill that), which could easily happen at the next report.

Cotton
COT Change (52W) / C-22%, LS-21%, SS-26% /
COT Index (3 year lb.) / C-5%, LS-100%, SS-82% /
Large COT change combined with a relative cot extreme: to me this picture is bearish. It is definitely a very exciting market with interesting signals. I recommend you to watch to the remarks told in the review!

British Pound
COT Change (52W) / C-20%, LS-13%, SS-30% /
Although GBP was mentioned because of the relatively large COT change in trader’s positions I have marketed a few very nice points (tops & bottoms) on the chart that coincides with cot extremes. Another great example how well cot analysis can be applied for currencies!

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

the original COT report --> here
COT charts --> here
 
Quote from Dunstan:

Hi everyone,

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

Live Cattle
COT Change (52W) / C-32%, LS-31%, SS-20% /
COT Index (3 year lb.) / C-77%, LS-10%, SS-100% /
COT Extreme / SS-387 report COT extreme /
All cot signals have a bullish bias this week. The change in trader’s positions was pretty large and dynamic, while Small Speculators are at an extreme level. It would be an even stronger bullish signal, if also Commercials and Large Speculators were at such extreme levels (perhaps Commercials net long would fulfill that), which could easily happen at the next report.

Cotton
COT Change (52W) / C-22%, LS-21%, SS-26% /
COT Index (3 year lb.) / C-5%, LS-100%, SS-82% /
Large COT change combined with a relative cot extreme: to me this picture is bearish. It is definitely a very exciting market with interesting signals. I recommend you to watch to the remarks told in the review!

British Pound
COT Change (52W) / C-20%, LS-13%, SS-30% /
Although GBP was mentioned because of the relatively large COT change in trader’s positions I have marketed a few very nice points (tops & bottoms) on the chart that coincides with cot extremes. Another great example how well cot analysis can be applied for currencies!

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

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

you use this to trade currency at all???? take a look at the extremes going on in the yen ..
 
Quote from cdcaveman:

you use this to trade currency at all???? take a look at the extremes going on in the yen ..
More...


You are absolutely right that the cot extreme we had in Yen not long ago did not trigger a rally, but if you read through my earlier notes in the thread, you will find an explanation on the so called “Commercial Capitulation” that happens rarely. I guess this is what has happened in yen and that’s why we see the continuation of the decline. I was short AUD/JPY a few weeks ago (beginning of December at All Time COT Extreme levels) and got stopped out of the position --> made a small loss. I wouldn’t consider COT analysis to be absolutely useless after this one example. We all know that there isn’t an indicator or trading system that is correct 100% of the time, so of course cot signals also generate sometimes false signals. To tell you the truth, I actually went short JPY (Long USD/JPY) after the 1st report in 2013 with a smaller than usual sized position, thinking that what we are witnessing now in Yen is actually a commercial capitulation. If you look at the example in which this was explained, you can see that cotton when through a HUGE rally after this happened. I’m expecting something similar to happen with Yen.

All the best,
Dunstan
 
Quote from Dunstan:

You are absolutely right that the cot extreme we had in Yen not long ago did not trigger a rally, but if you read through my earlier notes in the thread, you will find an explanation on the so called “Commercial Capitulation” that happens rarely. I guess this is what has happened in yen and that’s why we see the continuation of the decline. I was short AUD/JPY a few weeks ago (beginning of December at All Time COT Extreme levels) and got stopped out of the position --> made a small loss. I wouldn’t consider COT analysis to be absolutely useless after this one example. We all know that there isn’t an indicator or trading system that is correct 100% of the time, so of course cot signals also generate sometimes false signals. To tell you the truth, I actually went short JPY (Long USD/JPY) after the 1st report in 2013 with a smaller than usual sized position, thinking that what we are witnessing now in Yen is actually a commercial capitulation. If you look at the example in which this was explained, you can see that cotton when through a HUGE rally after this happened. I’m expecting something similar to happen with Yen.

All the best,
Dunstan
More...

commercial capitalization... Whats that mean... banks in this case?
 
Quote from cdcaveman:

commercial capitalization... Whats that mean... banks in this case?
More...

Not commercial capitalization, but commercial capitulation. Here is what I wrote about it on the third page / second post of this thread:
“
The last interesting signal I would like to show you, is actually relatively new to me as well, I’ve read it here, the so called “Commercial Capitulation”, let me quote what they said about it:

Commercials hedge the most when they believe that the actual price is very favorable for them to hedge their future production. While they have an information advantage, they still cannot know the future. Sometimes, major shifts occur, that forces Commercials to unwind their hedge positions. Since they generally have deep pockets, their stress barrier is high, but not absolute. As the losses grow to critical levels on their trading accounts, they have to liquidate: buy back short contracts or sell the longs. These trades further fuel the steep price moves that caused the unfavorable situation, so the positive feedback loop leads to parabolic price rises.

It happens very rarely, but I think it is good to know about it when you look at an All Time or close to All Time extreme situation, where you are thinking of a big trend reversal… it not always happens!

I’m attaching the cotton example here, but on a longer, five years chart. I have indicated with a red line the place, where there was a very large COT extreme case, Commercials were at roughly 70000 contracts short, so at the time one could have thought that it’s a good short opportunity… Well it turned out that it was one of these cases and prices just skyrocketed from there.
„

When we want to know who commercials are on different markets, we have to first understand the very basic fact about them: They are market participants whose trading activity is not aimed firstly to make profits, but rather to hedge against their normal business’s risks. Once we understand this concept, we can start thinking of logical businesses, which can be considered commercials. Of course in case on commodities, like crude oil for example, it’s not that hard to find out who they are. They are the producers and users of this commodity (ex.: airline companies, who need to hedge against fuel prices). In case of currencies, we are talking about large international firms who do business overseas in foreign currencies. Let’s think of an example… How about this: A big car dealership sings a contract to buy 50.000 vehicles in x month. The contract buying price is in a foreign currency to the buyer. Of course payment is made only when the cars are delivered, but until that happens, the buyer is taking on a pretty large risk. What if that currency starts to rally before he makes the payment? So he decides to hedge that risk by buying/selling futures contracts or buy buying/selling options. His aim is not necessarily to make money on this trade, just to compensate against possible losses arising from the volatility in the exchange rate.

All the best,
Dunstan
 

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