cot report analysis - play the waiting game

8/2/2019 COT Report Analysis - Play the Waiting Game

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Quant View COT Report Analysis 06-April-2012

Harel Jacobson, FRM ([email protected])

COT Report Analysis Play the Waiting Game

The latest COT positioning report published on Friday continues to exhibit a sideways move

in positioning across the different markets. With no significant move in positioning, it

seems like the leveraged community is still waiting for new developments in the macro

space to determine its view (as the latest report shows positioning as of last Tuesday,

before the release of the FOMC minutes and Friday's NFP numbers, that should act as

catalysts for shift in positioning).

In FX, The EUR positioning continued to grind higher toward neutral positioning, yet the

trend is less decisive than it was a month ago. In the low-yielding currencies, the

downtrend in positioning seems to have stalled for now, with a modest reversion in JPY

positioning and CHF. In the Commodity Block, positioning was little changed last week

across all regions. Positioning in the commonwealth currencies continues to show no

actual bias, with the positioning stale from previous week. In CAD and MXN positioning

continued to tick higher, supporting the uptrend in US-growth correlated assets.

In Metals, The trend in Precious Metals continues to be biased on the downside, yet the

momentum of the trend seems to have slowed, with no real move in positioning last week.

In the Industrial Metals block positioning was also little changed, but the big picture raises

some questions regarding the belief of the leveraged community in global recovery, with

the uptrend in speculative positions broken.

In US Rates, We finally saw some reversion in the strong downtrend in speculative

positions in UST. Positioning in UST 2-years reversed from 4-years' low, while UST 10-years

was little changed from previous week. At the short end of the yield curve (Fed Fundscontracts and 3-month EuroDollar) we saw mixed positioning, with the positioning in Fed

Funds declining and the positioning in EuroDollar ticking up.

In US Equities, We start to see some weakness in S&P500 and Nasdaq100 positions, with

the leveraged community not really putting bullish positions on US equities. Nasdaq100

positions were largely unchanged, but previous weeks' decline raises some question

regarding the integrity of the latest uptrend in NDX100 positions. S&P500 positions

declined last week (although the decline was quite small), however, in order to determine

if this decline is a "healthy" correction or a breaking point, we need to wait and see some

decisive move in the upcoming weeks.


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Foreign Exchange

Is it the calm before the storm?Friday's CFTC positioning report shows that the

leveraged community has not really changed its positions for the 2nd

consecutive

week. As the recent developments in the macro space (FOMC minutes, Non-Farm

Payroll and Unemployment data) were not captured by the latest report, it will be

interesting to see how positioning has changed since the two events.

EUR positioning continued to show no real trend last week, for the 2nd

consecutive

week, however, the overall trend continues to be on the upside, which seems bit

stretched given the declining spread between the German treasury yield and the

US treasury yield.

Data Source: CFTC/Bloomberg

I will risk sounding like a broken record, but the correlation between the EUR IMM

positioning and the different driving factors continues to fall toward extreme lows,

which may suggest that we are likely to see a reversal of the uptrend (both in spot

and positioning, as both are positively correlated).

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EUR IMM Speculative Positions

EUR IMM Spec. Positions EUR/USD Spot


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On the other side of the English Channel, we continue to see uptick in GBP long

positions, reversing almost the entire decline of H2/2011.


In the low-yielding block, we saw almost no change in positioning last week, with

the JPY and CHF found well into negative territory. It will be interesting to see the

reaction of the speculative investors to the latest data from the US (which will be

reflected in next week's report).

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Correlation between EUR Positions and different

factors

3-month EUR IMM Spec. Positions/Rate Diff. Correlation

3-month EUR IMM Spec. Positions/Risk Reversal Correlation

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1.85

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GBP IMM Speculative Positions

GBP IMM Spec. Positions GBP/USD Spot


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In the Commodity Block we saw no change in positioning, which does raise some

questions after the better-than-expected PMI data from china (altough AUD data has been

coming out quite mixed recently, which can explain the sideways action in positioning).


CAD and MXN positions ticked up last week, however , the move was quite minor. We

continue to see CAD outperforming the rest of the major currencies in term of positioning

(against the USD), which is also being supported by the CAD-G9 Basket (equally-weighted

basket against its major peers).

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CHF and JPY IMM Speculative Positions

JPY IMM Spec. Positions CHF IMM Spec. Positions

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AUD and NZD IMM Speculative Positions

AUD IMM Spec. Positions NZD IMM Spec. Positions


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With the relatively positive data from Canada and the ongoing improvement of the

US data, the CAD seems like a strong candidate to be the best performer in the G10

space.

Lastly, we note that the DXY speculative positions declined quite sharply last week

(after being on strong uptrend since March-2011).

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CAD Positioning and overall strenght

CAD-G9 Basket (11/01/08=100) CAD IMM Spec. Positions

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DXY IMM Speculative Positions

DXY IMM Spec. Positions


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Metals

Friday's report shows that the speculative positions in Gold and Silver were little

changed last week, after trending down for the last 4-weeks. COMEX Gold positions

declined slightly, and COMEX Silver positions did not change since the previous

week.

In the Industrial Metals positions saw a mixed picture, with the Palladium positions

declining further, and Platinum positions relatively stable.

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Gold and Silver IMM Speculative Positions

Comex Gold IMM Spec. Positions Comex Silver IMM Spec. Positions

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Palladium and Platinum IMM Speculative Positions

Platinum IMM Spec. Positions Palladium IMM Spec. Positions


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We continue to see close relationship between speculative positions in Copper and

mining companies' share-prices (indexed by FTSE All-Shares mining index). Given

the index price action we can obviously see some weakness in basic materials, and

therefore, weaker growth. As we have yet to see signs in other markets concerning

slowdown in growth (with the exception of NZD positions, which may have been

driven by idiosyncratic factors), this weakness can be a canary in a coal mine.


US Rates

Now what? After a sharp decline of long UST positions (both in the 2-years

contracts and 10-years contracts), trend seems to have taken a breath. Positions

were mostly unchanged from previous week, however, following the latest

developments in the US, it will be interesting to watch the change in positioning in

the upcoming weeks.

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Copper (Grade A) IMM Speculative Positons

Copper (Grade A) IMM Spec. Positions FTSE All-Shares mining index


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At the short end of the curve we seen a mixed picture, with the 3-month EuroDollar

positions unchanged from previous week and Fed Funds long contracts declining

further. It seems like the positioning in Fed Funds starts to be quite bearish, which

is quite odd given the fact that the Fed target rate is likely to stay at 0-0.25% for the

next two years.

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UST 2-years and 10-years IMM Speculative Positions

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

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Short-End IMM Speculative Positions

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


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US Equities

Friday's report shows that Speculative positions in US equities were almost

unchanged from previous week, however, the decline in positioning over the last

couple of weeks puts the latest rally in equity market (and US market in general) in

a significant risk. With global growth not picking up the pace (see the dynamic inbasic material and industrial metals), the reversal in equity positioning may be

another signal that the rally is over (at least for now). We need to wait, of course,

for next weeks' report to see how the leveraged community reacted to the latest

data from the US.


To conclude, the last two weeks we have seen no development in market

positioning across the different asset classes. However, with the flood of macro-

economic data (both from the US and from China/Europe) we are likely to see a

reaction in the following weeks, which may provide us with an idea about the long

term trends for the remainder of H1. Of course, the main event is the FOMC

meeting later this month, but the market may start position itself ahead of the

event.

Good Luck,

Harel Jacobson

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US Equity Indices IMM Speculative Positions

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

cot report analysis - play the waiting game

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