cot report analysis - bye bye bulls

8/2/2019 COT Report Analysis - Bye Bye Bulls

1/11

Quant View COT Report Analysis 13-April-2012

Harel Jacobson, FRM ([email protected])

COT Report Analysis Bye Bye Bulls?

The latest COT positioning report published on Friday shows that the leveraged

community, post FOMC minutes and NFP disappointment, slashed bullish positions on

growth-correlated assets (with the exception of positions in US equities, that actually

inclined last week).

In FX, after a long period of uptrend in EUR positions, the speculative investors slashed

long EUR positions (a W/W decline of 60k contracts, equals to $7.9bn). In the low-yielding

currencies, JPY and CHF investors start to build long positions again, after a sharp decline

over the last two months. In the Commodity Block, somewhat mixed pictures, with long

positions in AUD continue to unwound, while NZD positions ticking up. CAD and MXN

positions declined slightly last week.

In Metals, Speculative positions in Precious Metals continue to decline, according to last

week's COT report, extending the long term trend started in Aug-2011. Speculative

positions in Industrial Metals (Platinum, Palladium and Copper) suffered a major decline,

reversing the entire trend that started around Nov-2011.

In US Rates, Following the aftermath of FOMC minutes and NFP disappointing number, the

Leveraged Community closed a significant portion of its short positions in UST 2-years and

10-years notes (totaling an incline of 151k contracts, valuing at $20.5bn). At the short end

of the curve (Fed Funds and 3-month Eurodollar), positions were pretty much stale

compared to previous week

In US Equities, Positioning in US equity indices paints a somewhat puzzling picture, with a

continuation of the uptrend of positioning. This comes in contrast to the change of

positioning in different asset classes (Rates, Metals and FX). It is interesting to note that

speculative investors started to close short VIX positions (VIX positioning recovering from

4-years' low), which may signal that the leveraged community do see some risk-aversion in

the near term. This should be continued to monitor, as this may provide further signals

regarding the level of stress and fear of the speculative investors.


2/11

Foreign Exchange

Are the bulls running for cover? Friday's COT report shows that speculative

investors have reduced significant part of their EUR and AUD positions during the

week between April 3rd and April 10th. With the FOMC minutes not confirming

another round of QE and a very disappointing Non-Farm Payroll change, theleveraged community reduced its bullish bets on risk-correlated assets (with the

AUD taking the vast majority of the sell-off).

EUR positioning, after a long uptrend, was reduced significantly last week (a W/W

decline of 60k contracts, equals to $7.9bn). I have been calling for a reversal of the

trend for the last four weeks, as the trend of speculative positions decoupled from

the driving factors of the underlying spot (and short term positioning, as both spot

and positioning are highly correlated). Finally it seems like speculative positions

catch up with rate differential (between Germany TSY yields and their US peers).

Furthermore, OTC positioning (captured by the 1-month Risk Reversal) was

indicating the positioning turned EUR-bearish over the last week, with IMM

positioning not reacting to the move.

Data Source: CFTC/Bloomberg

1.15

1.2

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

-4

-3

-2

-1

0

1

2

3

EUR IMM Speculative Positions

EUR IMM Spec. Positions EUR/USD Spot


3/11

If we look at the correlation between the EU-US rate differential and IMM

positioning, we can see that the correlation continues to fall, whilst the correlation

between the EUR/USD 1-month Risk Reversal and positioning seems to recover.

This strange dynamic may suggest that the EUR is no longer perceived as a carry

currency, and therefore rate diff. plays less significant role in positioning.


GBP net speculative positions declined as well last week (moving in tandem with

the decline of EUR positions). Nonetheless, given the upward trend of GBP

positioning over the last couple of weeks, the spot seems to be lagging the move.

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Correlation between EUR positioning and different

driving factors

3-month rolling EUR IMM Spec. Positioning/rate diff. Correlation

3-month rolling EUR IMM Spec. Positioning/Risk Reversal Correlation

1.35

1.45

1.55

1.65

1.75

1.85

1.95

2.05

-2

-1.5

-1

-0.5

0

0.5

1

1.5 GBP IMM Speculative Positions

GBP IMM Spec. Positions GBP/USD Spot


4/11

In the low-yielding block, JPY and CHF long positions continue to grind higher from

4-years' low.

It seems like the slow recovery of long positions in JPY and CHF underestimates the

market disappointment of the recent Non-farm Payroll change. As we can see in

the chart below, the "normal" dynamic between low-yielding currencies (safe

haven currencies, such as the JPY and CHF) and UST yield is a negative correlation(a drop in UST yields usually accompanied by an increase of long CHF,JPY positions).

The recent move of JPY (and CHF) positions was significantly sharper than the move

of UST yields.

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

JPY and CHF IMM Speculative Positions

JPY IMM Spec. Positions CHF IMM Spec. Positions

1

1.5

2

2.5

3

3.5

4

98.5

99

99.5

100

100.5

101

Low-Yield Currencies Positions and UST Yields

CHF and JPY Positions (indexed to 01/01/2008) Average UST 2s10s Yield


5/11

In the Commodity Block we saw (again), somewhat, mixed picture of positioning. In the

commonwealth currencies the AUD suffered a drop of long positions (continuing the

negative trend of positioning), whilst the long NZD positions continue to recover.


This mixed picture of AUD and NZD positions fits well with the price action in the AUD/NZD

spot. As we can see in the chart below the implied AUD/NZD IMM speculative position

(adj. to contract size) moves in tendam with the AUD/NZD Spot.

-0.05

0

0.05

0.1

0.15

0.2

0.25

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

AUD and NZD IMM Speculative Positions

NZD IMM Spec. Positions AUD IMM Spec. Positions

1.1

1.15

1.2

1.25

1.3

1.35

1.4

-10

-5

0

5

10

15

20

AUD/NZD IMM Positions

AUD/NZD IMM Positions (adj. to contract size) AUD/NZD Spot


6/11

The scaledown of AUD positions might be related to the growing concerns of investors

regarding global growth (and china's growth in particular), as we can see in other market

that growth-bullish positions (in metals and UST rates) were cut further last week. It will be

interesting to continue and montior the changes in AUD positions, as these may signal

about the market sentiment regarding risk appetite and growth.

CAD and MXN positions declined minorly last week. While CAD continues to outperform itsmajor peers (in G10 space), the MXN positions seem to be bit puzzling. Following the

aftermath of the disappointing NFP numbers and the recent risk-off in GEM (Global

Emerging Markets), the change in MXN positioning was relatively negligible (compared to

the move in the Spot market and derivatives market). We should keep the MXN on the

radar, as any development in the Spot market should have an affect on positioning (and

vise versa).


-1

-0.5

0

0.5

1

1.5

2

2.5

3

-1

-0.5

0

0.5

1

1.5

2

2.5

3

CAD and MXN IMM Speculative Positions

CAD IMM Spec. Positions MXN IMM Spec. Positions


7/11

Metals

Friday's report shows that investors reduced significantly their speculative holdings

in metals (both Precious Metals and Base Metals). COMEX Gold and Silver positions

were reduced further.

The continuation of the downtrend in Precious Metals should raise some red flags,

as the declining UST yields should have supported the PM (Precious Metals)

positioning. As the long-term correlation between UST yields and PM positioning

tends to be negative (a drop in yield usually accompanied by an increase of PM

positions, as investors look for assets that yield higher returns), a drop in UST yields

that moves in tandem with decline in PM positions may signal that investors are

extremely bearish and therefore prefer to hold USD even with near-zero yields.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

0

1

2

3

4

5

6

7

Gold and Silver IMM Speculative Positions

COMEX Gold Spec. Positions COMEX Silver Spec. Positions

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

Correlation between PM Positions and different factors

3-month DXY/PM Positions Correlation 3-month UST 10y/PM Positions Correlation


8/11


9/11

US Rates

So long UST bears? In the aftermath of the disappointing NFP numbers, and the

growing concerns regarding global growth, it seems like UST bears are gone (for

now). UST long positions recovered significantly (an increase of151k contracts,

valuing at $20.5bn).


At the short end of the curve we continue to see a mixed picture in positioning.

Positions in Fed Funds futures continue to decline, whilst net speculative positions

in 3-month EuroDollar remain flat.

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-6

-4

-2

0

2

4

6

-3

-2

-1

0

1

2

3

4

5

UST 2-years and 10-years IMM Speculative Positions

UST 2-years IMM Spec. Positions UST 10-years IMM Spec. Positions

-30

-20

-10

0

10

20

30

40

-1

0

1

2

3

4

5

6

7

8

Short-End IMM Speculative Positions

Fed Funds IMM Spec. Positions 3-month EuroDollar Spec. Positions


10/11

US Equities

Friday's report provided a very surprising picture regarding the speculative

positions in US equities. It seems that even after the recent risk-off mode that that

market is currently at, and the very bearish positioning in other markets (Rates,

Metals and FX), the leveraged community remains very bullish on US equities.


More interesting to note is that investors reduced speculative short VIX positions,

which may signal that although the leveraged community is still bullish on US

equities, there is still a great deal of fear concerning the equity market and a

possible sell-off.


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-1

0

1

2

3

4

-8

-6

-4

-2

0

2

4

6

8

US Equity Indices IMM Speculative Positions

S&P500 IMM Spec. Positions Nasdaq100 IMM Spec. Positions

10

15

20

25

30

35

40

45

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

00.1

0.2

VIX IMM Speculative Positions

VIX IMM Spec. Positions VIX Spot


11/11

To conclude, we seem to be getting a lot of negative signals regarding global

growth and (from the positions in US rates to the positions in Industrial Metals and

FX market). The upcoming weeks (following the recent, disappointing, GDP data

from china, and the next FOMC meeting) will definitely be a catalyst for the next

big move. If we will continue to see below-consensus prints from the major

economies, speculative positioning will obviously be clearer than it is now. The

main themes to watch, in my view, are the positioning in growth-correlated assets

(basic materials) and US Rates. These two asset classes will lead the sentiment.

Good Luck,

Harel Jacobson

cot report analysis - bye bye bulls

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