Follow the Smart Money / COT Analysis

Quote from just21:

What do you think of sugar here?
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Sugar's long term picture now looks bullish. If you look carefully, you can see that it's one of those rare occasions, when Commercials and Large Specs are on the same side --> only Small Specs are Pessimistic about the market = they think it will further decline. If you look at the historical chart (see attachement), you will see quite easily why I think that the picture is now more bullish than bearish.

All the best,
Dunstan
 

Attachments

Quote from Dunstan:

Sugar's long term picture now looks bullish. If you look carefully, you can see that it's one of those rare occasions, when Commercials and Large Specs are on the same side --> only Small Specs are Pessimistic about the market = they think it will further decline. If you look at the historical chart (see attachement), you will see quite easily why I think that the picture is now more bullish than bearish.

All the best,
Dunstan
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that does give you the idea that sugar could go up... looks like a good chart.. is there a theoretically way to get long with options.. who even knows what the term structure of the futures looks like and what the cost of carrying a long is?
 
Quote from cdcaveman:

that does give you the idea that sugar could go up... looks like a good chart.. is there a theoretically way to get long with options.. who even knows what the term structure of the futures looks like and what the cost of carrying a long is?
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It’s not that complicated to buy futures on Sugar (you pay the commision for the broker and of course you need enough margin to keep the position) but of course options are also a possibility. I don’t know how liquid the option market is in Sugar right now, but two very simple strategies that one might consider --> buying calls (ATM or OTM) or/and selling puts (I suggest OTMs with or without a hedge --> depends on your risk management). Of course you can also search for etfs (SGG, SUGA, SSUG, LSUG) and there could be options on thoses as well.

All the best,
Dunstan
 
Hi everyone,

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

Canadian Dollar
COT Change (52W) / C-32%, LS-17%, SS-67% /
Both signals, the large cot change and the extreme that we are getting closer to are bullish signals that suggest to me, we could expect higher prices in the near and also medium time horizon.

Gold
COT Change (52W) / C-21%, LS-25% /
COT Index (3 year lb.) / C-79%, LS-11% /
The signs that the cot report is showing us, are pointing a bit upwards in this market. Although we see significant extremes in Platinum & Palladium, I think – at least in the short term – we could expect higher price --> Small Speculators usually signal well a turn in prices, they are not at extreme long levels at the moment.

British Pound
COT Change (52W) / C-20%, LS-9%, SS-38% /
Basically only Small Speculators are pessimistic about the market, so this, combined with Commercials buying tells me that we could be expecting a bottom in prices 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
 
Quote from Dunstan:

It’s not that complicated to buy futures on Sugar (you pay the commision for the broker and of course you need enough margin to keep the position) but of course options are also a possibility. I don’t know how liquid the option market is in Sugar right now, but two very simple strategies that one might consider --> buying calls (ATM or OTM) or/and selling puts (I suggest OTMs with or without a hedge --> depends on your risk management). Of course you can also search for etfs (SGG, SUGA, SSUG, LSUG) and there could be options on thoses as well.

All the best,
Dunstan
More...

so does the curve in term structure effect etf pricing?
 
Quote from cdcaveman:

so does the curve in term structure effect etf pricing?
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There are basically four different kinds of ETFs:
1:1 --> If the underlying falls (or rises) by 1% in a day, the ETF will fall (or rise) by 1%
-1:1 --> If the underlying falls (or rises) by 1% in a day, the ETF will rise (or fall) by 1%
2:1 --> If the underlying falls (or rises) by 1% in a day, the ETF will fall (or rise) by 2%
-2:1 --> If the underlying falls (or rises) by 1% in a day, the ETF will rise (or fall) by 2%
Of course the correlation is not that precise, since the management fees are built in the price, but other than that, you can basically trade them like stocks: you pay the commission and the spread. I recommend using them if you have a small account and you cannot afford the margin requirement of the futures contract. If someone wants to trade futures and have a well-diversified portfolio, I would say that the minimum account size should be $50.000. Since there are a lot of people, who don’t have such an account size, ETFs and options are good substitutes.
Other key aspects in choosing the right etf -->
Mkt cap / Shares: you don’t want to be trading an etf that has an illiquid market --> too large spreads
Exchange: determines when you can trade them (when the Exchange is open)
I would also put side-by-side the chart of Sugar (fut) and the ETF to see whether the correlation really exists
I have collected some etfs (roughly 7 month ago, so mkt cap/shares columns are not precise today) and made a list. I am attaching it to the post for you.

If you have a large account, trade futures or/and options, if not, then ETFs or/and options:)
Options --> if you have a large account, you can buy expensive ones (ATM, ITM) and sell them naked also (high margin requirement when selling). If you have a small account, you can buy cheap ones (OTM) and sell also, but not naked --> they should be hedged (You sell an OTM option x distance from spot price and buy an OTM option x+y distance from spot price).
ITM = in the money option (delta > 0,5)
ATM = at the money option (strike price ~= spot price, delta ~= 0,5)
OTM = out of the money option (delta < 0,5)

All the best,
Dunstan
 

Attachments

Quote from Dunstan:

There are basically four different kinds of ETFs:
1:1 --> If the underlying falls (or rises) by 1% in a day, the ETF will fall (or rise) by 1%
-1:1 --> If the underlying falls (or rises) by 1% in a day, the ETF will rise (or fall) by 1%
2:1 --> If the underlying falls (or rises) by 1% in a day, the ETF will fall (or rise) by 2%
-2:1 --> If the underlying falls (or rises) by 1% in a day, the ETF will rise (or fall) by 2%
Of course the correlation is not that precise, since the management fees are built in the price, but other than that, you can basically trade them like stocks: you pay the commission and the spread. I recommend using them if you have a small account and you cannot afford the margin requirement of the futures contract. If someone wants to trade futures and have a well-diversified portfolio, I would say that the minimum account size should be $50.000. Since there are a lot of people, who don&#8217;t have such an account size, ETFs and options are good substitutes.
Other key aspects in choosing the right etf -->
Mkt cap / Shares: you don&#8217;t want to be trading an etf that has an illiquid market --> too large spreads
Exchange: determines when you can trade them (when the Exchange is open)
I would also put side-by-side the chart of Sugar (fut) and the ETF to see whether the correlation really exists
I have collected some etfs (roughly 7 month ago, so mkt cap/shares columns are not precise today) and made a list. I am attaching it to the post for you.

If you have a large account, trade futures or/and options, if not, then ETFs or/and options:)
Options --> if you have a large account, you can buy expensive ones (ATM, ITM) and sell them naked also (high margin requirement when selling). If you have a small account, you can buy cheap ones (OTM) and sell also, but not naked --> they should be hedged (You sell an OTM option x distance from spot price and buy an OTM option x+y distance from spot price).
ITM = in the money option (delta > 0,5)
ATM = at the money option (strike price ~= spot price, delta ~= 0,5)
OTM = out of the money option (delta < 0,5)

All the best,
Dunstan
More...

i trade options almost solely.. so most expressions are done in options... i was just wondering if there was a cost to holding some of these related to contango.. i figured you would know directly... and if thats the case.. i would much rather play the term structure in options against the futures.. i'm sure there has to be when short term demand outways long term you can spread across the term and play the curve.. i was just curious idk.. nothing i'm directly thinking about.. i just have curiousities about ag spreads..... and term calender spreads on ags..
 
Quote from cdcaveman:

i trade options almost solely.. so most expressions are done in options... i was just wondering if there was a cost to holding some of these related to contango.. i figured you would know directly... and if thats the case.. i would much rather play the term structure in options against the futures.. i'm sure there has to be when short term demand outways long term you can spread across the term and play the curve.. i was just curious idk.. nothing i'm directly thinking about.. i just have curiousities about ag spreads..... and term calender spreads on ags..
More...

If that's the case, I wouldn't bother considering ETFs... The aswer to your q: there is no direct cost to that. Since ETFs are correlating with the continues chart of the underlying futures market, anything that is priced in there naturally affects ETF pricing.
 
Hi everyone,

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

Rough Rice
COT Change (52W) / C-40%, LS-56% /
COT Index (5 year lb.) / C-81%, LS-18%, SS-35% /
I can&#8217;t agree with the review this time. Thomas didn&#8217;t look at the 5-year chart, which tells us a very different story&#8230; This is why I recommend all of you, to always open a longer term chart, besides the default one year, since the cot extreme can only be checked on those. While the one year long chart suggests that a good sell opportunity is in formation, the 5 year long chart shows that we are at a COT extreme. Of course there is no question to the fact that the cot change was large &#8211; we may see a decline in prices in the near term (or maybe not) &#8211; but on the other hand, the long term picture to me is definitely bullish.

RBOB Gasoline
COT Change (52W) / C-21%, LS-25% /
COT Extreme / C & SS-All Time COT extreme /
Both signals, the COT change and the COT extreme are talking about a bearish picture. Although I agree, I wouldn&#8217;t be surprised if this cot extreme widened a bit more. I&#8217;ve told you before a couple of times, that COT analysis can be used best, if combined with regular technical analysis. I don&#8217;t really see &#8211; TA speaking &#8211; anything against the continuation of this rally. Consequently I would stay aside until the situation changes, but it&#8217;s definitely good to know &#8211; and that&#8217;s why following the COT report is useful &#8211; that stress levels are high in this market.

Metals
Platinum & Palladium: COT All Time extreme levels (bearish)
Copper & Silver: COT Extreme levels (bearish)
Gold: Relative COT extreme (bullish), Volume & Open interest score is -11 (bearish)
It is a mixed picture in metals these days&#8230; Since these markets strongly correlate with each other, taking the All Time COT extreme signals in Platinum and Palladium and going short would be a risky trade &#8211; in my opinion. If the picture in Gold, Silver and Copper where undoubtedly Bearish (for example if Small speculators in Gold were at net long >60.000 contracts) it would be a more comfortable trade. It&#8217;s not a question that the long term picture is more bearish than bullish, but the timing of a potential short trade is the key question. As the review tells us, the widening of the cot extreme in Platinum and Palladium could go on for weeks before prices start to react.

I wish all of you good luck to this week&#8217;s trading,
All the best,
Dunstan

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