I have followed the COT report religiously for many many years back when it was a monthly report. This firm shows the data graphically in a different way that In my opinion better represent the volitatity in a clearer manner. With this layout, one example, you can easily go back to the week that we last had the high of 937.50 and clearly see it on the chart. I base the next weeks direction off of these graphs. You can see where the ES is hedged against the SP. They have a free email noticafication list that you can join that comes out Friday evenings. In no way is my intention to knock the other charting services out there. Just thought this might be of interest to some. http://www.softwarenorth.net/cot/current/charts/ES.png http://www.softwarenorth.net/cot/current/charts/SP.png Fwiw Your mileage may vary. Good luck and good trading. Bsulli
http://www.sharelynx.net/Markets/Charts/COTSPX.htm What's interesting about this COT chart is that the commercials, for the first time in three years, are taking a net long positions in the spoos. And the small traders are finally going net short. Hmmmmmmmmmmmmm... And for the e-minis, the commercials are going net short while the specs are going net long. http://www.cairns.net.au/~sharefin/Charts/COTes.gif
the spooz are going to "break like a...." ... you know the rest! (don't be too early on this one though)! I want to get aggressive on the short side -- but am mindful that it's times like these that offer some of the best "squeeze ops." patience.
I'd be somewhat careful about drawing conclusions out of these reports on stock futures. I think all of you guys/gals know that there is an active arbitrage market between the pit and the ES. What you may not know is that the definition of who is what differ depending on whether you're talking about the pit or the ES. Therefore, you're not looking at the same definitions. Yet the same folks may carry positions in each contract, may just not be classified the same. So the point is there is in all likelihood some distortion in what you read. The pit version has been around for a while, and should normally be considered the most accurate. EXCEPT that some of these folks are laying positions off in the ES, creating a distortion. And you can't just add the positions together even after adjusting them for size, because the classifications of commercials, etc are not the same. Someone will ultimately figure it all out as to how to combine them. But using them uncombined is crazy considering the volume in the ES. Looks like an opportunity for an indicator inventor if he can figure out how to combine all the numbers. Until then...be careful. OldTrader
I think you hit it right on the head. My interpretation is that small specs are short to commercials in SP and that local arbs are buying in ES to hedge their selling to specs in the pit. I see the data actually as a bit bullish. Those local arbs often can show up as small specs even though they're not speculating at all.
I was asked in a private pm what I look for from the COT data. I agree with Old Trader's post earlier in the thread and I'm adding what I look for as well. Hopefully Old Trader will expand on his earlier comments. There's a lot to be said for trader who has survived long enough to gain gray hair. Babak this will look familiar but I expanded the explanation some what. I just look for very large open interest and the extreme's that each parties taken and decide for my style of trading. When the various parties have taken large positions much greater that historical past then all hell's going to break loose, at a minimum the volatitity the following week will increase dramatically like today's intraday patterns, epsecially on the ES. As for the open interest being so great it's like anything else, what goes up must come down so they will start unwinding those positons once the OI has gotten to far out of whack. That in itself willl move the market. Case in point Go back to the bars where the high on the ES was 937ish and look at the OI(then look over the next few bars and see the trend), now look at last week's and today's high and look at the OI. It's not perfect but hopefully the generally idea is appearent. Art, not science. http://www.softwarenorth.net/cot/current/charts/ES.png The main thing to keep in mind is the parties submit their position data by close of business on Tuesday and released on Friday so they have a few days head start. Personally with the ES I'm more concerned about where the commericals are than the small specs. If there's anything that clear it's the small specs are wrong alot! The SP contract is generally the postion traders(from my experience) and ES are the short term traders. Also keep in mind that the definition of a small or large spec doesn't have anything to do with the knowledge or trading ability of the party involved. It it defined by the net size of the position being held so in various cases a small spec can be a retail trader or a hedge fund manager who only has a small positon in the particular week. The CFTC website explains what the position requirements are for small/large spec traders. COT data on metals and softs is a completely different matter because most of the commericals are planning on taking physical delivery, not always but generally. Case in point, Southwest Airlines. I know several of their traders and when they saw 9/11 and the Afhgan war they wanted to lock in fuel prices. That's why they are one of only two profitable airlines. In either 2000 or 2001 Delta made huge profits for the airline but it wasn't in flying passengers(loss money on passengers), it's was in hedge trading fuel contracts. Good luck and good trading and hopefully I didn't waste your time. Bsulli.
I don't know much about arbitrage but anytime I've looked at models it seems like it's very short term - like intraday, yet the COT has been showing the same position for weeks in the e-mini. So is this the same type of arb or is it more accurate to look at these two contracts as having some type of spread relationship?
Thanks Bsulli, that was very informative. I hadn't thought about the OI and the role that it plays. Very good ideas. The only concern that I have is that with financial securities, the COT may not be that great of an indicator of what is really going on in terms of demand and supply because there could be many inter-relationships (either spreads or arbs) behind the scene. That simply can't happen with say Cocoa or Heating Oil (wait, well, I guess it can, for example the spreads between soy crush, oil, etc....) I'm confused!