Today's trade (09/01) recorded the biggest net short by commercials in recent memory. We track daily net longs and shorts by commercials and today's trade showed a net short of 188,604 contracts. The closest we can find to that was a net short of 153,682 contracts which occurred on 2/10 this year amid all that frenzied selling right before the low in March of this year. This selling was obvious throughout the session as evidenced by this chart and the HUD below. This shot of our Market Heads Up display, which is demonstrated on another thread on this forum, was taken less than 2 hours after the open and reflects the selling which continued throughout the day.
In a polite way- so what? Even the staunchest of bulls must be expecting some sort of correction (10-20%) after a +50% move up from the lows. Why over complicate something with lots of colors?
And your conclusion from that is? I can't help but sounding like a broken record here, but since there are noobs a watching... Commercials had the largest net long position in history right before -- are you ready for this-- the biggest crash in recent history! Ironically, speculators simultaneously had the largest net short positions in history. Guess who was right? Anyone who followed COT conventional logic (such as alluded to in the OP) would have been absolutely trounced. I hope some have learned to go back and study how history actually happened, before being drawn in by specious headlines. Careful to draw your conclusions here. They are often not obvious until after the fact.
How do you know what positions commercials have in real time? As this information is only available in arrears?
Ditto! I also read that COT is often a good indication of where markets are headed (positively correlated). Upon actually checking it out myself, the correlation seemed to be negative.
Of note is that our in-house trading is in the very short term and is not based on such considerations as a "10% correction from a six months move." We feel the same about COT and do not use it for anything. We have developed our own algorithms for this calculation and you can see its correlation to price in the chart above and in the chart below it LEADS price. The chart below is of the hours before and the hours after a FMOC meeting announcement. One can see that in the hours before the announcement - that while price was flat, there was steady commercial accumulation. On the announcement price broke to the upside as predicted by the stealthy accumulation.
I assume you count a certain size and above commercials? 100+ lots, something like that? Then add up the buys/sells to plot the graph. Unless T&S stamps who is a commercial or not ;-)
I noticed a bunch of imbalances in the late afternoon, most on folks looking to sell. Obviously, if all the volume's on the sell side almost to the exclusion of buy interest, you'd want to take the other side of that trade. Especially if it's the late afternoon of the 2nd day of a selloff. Wednesdays, also, I've sort of noticed from the corner of my eye, tend to be reversal days: down in strong up weeks, up in strong down weeks. I went long in my instrument of choice. We'll see how that works out over the next day or two.
Stok, Thank you for your question. Today trade size is oftentimes not the best indicator of the nature of commercial trade. Sometimes larger trades are not speculative trades but rather, represent premium arbitrage. One of the dynamics of trade in ES is that it is used as the same vehicle for different purposes. Traders around the world speculate in ES, plus, hedgers and arbitrageurs around the world use ES to hedge portfolios and to do premium arbitrage. In a "basket" trade the arbitrageur will buy stocks that represent an ES contract and then sell that contract short against the stocks. The object is to capture the premium in the future and any dividends in the stocks at expiration or before without market risk. In the days before there were index options and futres one very common method to capture option premiums was called a conversion where the arb guy would go long the stock, short the call and long the put to capture the difference in premium between the put and the call (in those days call premiums were much fatter than put premiums) and any dividend in the stock. Also these traders go to great lengths to disguise their entries and exits as I have described in another thread on this forum
This was no surprise. I sifted through chart after chart today noticing the double and triple tops of various stocks, plus other bearish technical formations. Even the indices sit at important price points at close of trading today. So What? Everybody is looking for a breakdown, and not to say we don't get it, but for all we know we will get a hellatious rally later this week. I am through with trying to predict what, when, and how much, and so should you. Trade what you SEE... that is all I can suggest.