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CFTC Commitment Of Traders Round-Up: February 2020

Analysing the CFTC Commitment of Traders’ data provides insights into when trends in futures contracts listed on various exchanges might be ready to turn, either to the upside or to the downside, due to the activity of important market participants.

Perhaps unsurprisingly, in February and at the beginning of March we saw interesting developments in many markets. We’ve been following the equity markets for quite a while and stated in our last review that Commercials hadn’t really reversed any of their short positions during last month’s attempt to continue the upwards trend (after the initial correction). Therefore, we expected the market to further move to the downside. And indeed the downwards potential finally unfolded with a correction of about -25%.

Figure 1: Russell 2000

Russell 2000

We also analysed the JPY/USD recently and were expecting a second attempt for the Yen to recover against the USD since Commercials have built up long positions during the most recent correction. In the middle of February we observed a false break-out to the downside - which was reversed almost immediately - followed by a total trend-reversal of about +11% to the upside.

Figure 2: JPY/USD


We also had to be very patient with the Mexican Peso to correct to the downside. For more than two months, the currency pair moved sidewards, while Commercials kept heavy short positions. In mid February, the correction finally started with a downwards move of about -16%.

Figure 3: MXN/USD


We had similar analyses for Sugar and Rough Rice, in that we expected them to come down. Indeed, our expectation turned out to be correct with Sugar correcting about -22% and Rough Rice about -10%.

Figure 4: Sugar


Figure 5: Rough Rice

Rough Rice

Last month we also analysed the Gold price and were looking for the market to come down. In turbulent market environments like the current COVID-19-affected one, Gold is supposed to act as safe haven asset and indeed, the Gold price increased. Interestingly, however is the magnitude of the upwards move compared to the stress in other markets (such as the equity markets). That is, Gold only increased by about 6%. In the meantime, Commercials increased their short positions relatively to the open interest. Therefore, we still anticipate the Gold price to come down in the coming weeks.

Figure 6: Gold


Other markets that we looked at last month were the energy markets, especially Heating Oil and Natural Gas, with a move to the upside expected.

The example of Heating Oil shows the importance of combining the fundamental analysis of the COT data with technical analysis. It’s important to remind ourselves that Commercials are market participants with no speculative interest in the underlying market; they use the market to hedge their business risk. Therefore, even though Commercials may be extremely long does not necessarily mean that the market will reverse immediately. It may take months for the correction potential to unfold (as also seen in other examples in this report). When combining the fundamental analysis with technical analysis we could see that Heating Oil was in a strong downtrend and has not shown any signs of a potential trend break. Therefore, investors should have waited for an entry.

In recent days, Heating Oil came under heavy pressure due to the sudden boosts in the production of Crude Oil. The interesting part again is that Commercial positions stay at an extremely high level. Furthermore, energy markets show a seasonal tendency to increase in the middle of March. Therefore, an upwards move should soon begin.

For Natural Gas, this upwards correction may already have begun. Despite the energy markets crashing, Natural Gas did not go through its recent low and even tended towards the upside. We may therefore expect this to be followed by a further price increase.

Figure 7: Heating Oil

Heating Oil

Figure 8 Natural Gas

Natural Gas

As always, I am curious how our analysis will turn out and I’ll be back next month to review the results!

Thomas Kochanek is CEO and Principal of 1512 St. Gallen Capital Management


Futures trading is speculative and involves the potential loss of the complete or even more of the investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors.

Neither Thomas Kochanek nor 1512 SG Capital Management AG, are affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted.

The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become out dated and obsolete.

It should be noted that neither Thomas Kochanek nor 1512 SG Capital Management AG have verified the completeness of the information contained herein. Statements of opinion and recommendations will be introduced as such, and generally reflect the judgment and opinions of Thomas Kochanek. These opinions may change at any time without written notice, and 1512 SG Capital Management AG assumes no duty or responsibility to send updates regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice.

Any references to products offered by 1512 SG Capital Management AG are not a solicitation for any investment. This newsletter does not constitute an offer of sales of any securities. Thomas Kochanek and 1512 SG Capital Management AG may or may not have investments in markets herein.

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