COT Reports

[bobnat]

Thanks all for the links and the lessons. Unquestionably this is a valuable tool to understand and use. Also, this is one of the best posts on these forums.

Nat

[Iris]

Open Interest is a confirmation of Commercial Net Bias for Long/Short Majority Positions. In a Yearly Range below we see the large buildup of Open Interest and Commercial Long Positions...very Bullish for the Commercials who were increasing Longs on the rise of OI...if they were Net Short with rising OI would be very Bearish...for Open Interest represents the Total Contracts traded and an excellent gauge of how the Commercials are Hedging their Position. Commercial Net Bias in conjunction with Open Interest gives an indication from a YTD Historical on the Range of Open Interest...to its modulation... to Commercial Positioning.

Currently Commercials have increased USD Net Long Position to a 5 Month High...with rising Open Interest. Also notice the Short Postioning YTD versus Long...with Open Interest rise showing that the Commercials were buying in to USD strength. With the USD at Historic Lows within its dominant Range...115<>85...which is currently at 87.50 +/- basis.

The Commercials are maintaining a Net Long USD Bias.

Iris

[Iris]

Net Committment of Traders Data for US Dollar Index.

Iris

[novice]

In the USD index (i.e. USD/world) hedgers are net long and increasing their net long positions.

Now during the past couple of years hedgers have been net long when the USD has fallen. They have increased their net long positions during USD declines and reduced them during USD rallies.

Based on this I would have to conclude that current hedger positions are USD bearish.

Because:

Hedgers are net long indicating that they consider the USD trend to be down.

Hedgers are increasing their long positions indicating that they are expecting a decline.

This is based on the assumption that hedgers are the smart money but their positions are opposite to what they sugest (i.e. if hedgers are net long they are bearish on the USD index).

[novice]

Iris

Originally posted by Iris


with Open Interest rise showing that the Commercials were buying in to USD strength. With the USD at Historic Lows within its dominant Range...115<>85...which is currently at 87.50 +/- basis.

The Commercials are maintaining a Net Long USD Bias.

Iris

As I understand the COT theroy commercials are maintaining a net long position because they expect the USD index to fall (not to rise). Is this how you read the positions of commericals?

As I understand COT theory:

If hedgers are slightly long it would be very bearish.

If hedgers are very long it would be very bullish.

At the moment hedgers are only slightly long.

[novice]

Iris

I did not know you could use open interest to determine direction.

I know that you can use it to determine the strength and sustainability of a move.

Could you explain how this works and while declining open interest is bullish for the USD index?
Is this much like looking for a divergence? For example prices rise but open interest falls and thus the rally is weak as few new longs are coming in?

[Iris]

Hello Bear...Novice...Bobnat...everyone.

I did not know you could use open interest to determine direction.

Open Interest represents the Total contracts currently being Traded Long/Short their respective Market...to begin with the Largest Short Seller are the Commercials ie...the Smart Money. This is because the Commercials are continualy spreading and hedging their actual Positions...Speculators Large/Small are Short Sellers but not on the scale of the Commercials...thus it is possible to keep track of how much Short Selling/Covering is occuring by watching Open Interest as for every Long a Short must be squared and vice versa...the participants are evenly matched...which in turn creates Directional Net Positioning. Open Interest will decline Only when Short Sellers are covering their Positions...and will rise Only when Short Sellers are increasing their Short Positions...the caveat is that Net Majority Positions are controlled by the Commercials...who will Accumualte a Position before a Bull move to Distribution before a Bear move. With the Commercial Interests being the largest Short Sellers in the Market...a advance in OI is Bearish for the Commercials with a decline Bullish. Look into these correlations and the picture emerges on the importance of OI in Directional Bias.

Is this much like looking for a divergence? For example prices rise but open interest falls and thus the rally is weak as few new longs are coming in?

Open Interest shows in context to its Historical/Annual mean the level of its variance to current Time/Price...an example...look for consolidations and trading ranges...look for sudden increase/decrease in OI...when in a Consolidation Range and OI begins a decline...the Commercials are Positioning for a Bull move out of the Range and when OI increases the Commercials are Selling a South breakout. Check the above examples to the Charts... it is not only the Commercials...Large/Small Specs that create Bias...but Open Interest which is a measurement of Buy/Sell Bias...incorporating the 4 components...Commercials
...Large/Small Specs...Open Interest... gives a larger perspective on Net Directional Discovery/Movement.

Iris

[Iris]

Open Interest on current Sept 04 US Dollar Index Daily.