Skip to main content

CFTC Commitments Of Traders Round-Up: July 2019

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 the downside, due to the activity of important market participants. 

Last month, I pointed out interesting developments in U.S. Treasury Bonds; one of my observations was that “bonds seem to have a seasonal tendency to fall around mid-July”. In addition, commercial investors seemed to be very bearish for this market, building extreme net short positions.

As can be seen in the chart below, bonds indeed fell in the first half of the month, although the decrease was negligible, which made it hard for traders to capitalise on this move. Then, in the middle of July, Treasury Bonds picked up and even accelerated their upwards move at the beginning of August. Interestingly, commercials seem to have increased their long exposure to Treasury Bonds during that upward move, which may imply a further rally of the bond markets in the coming weeks. 

Figure 1: ZB

Commitment of Traders

Legend: Yellow = seasonal trend, black = OHLC, red = commercials, blue = large speculators, grey = small speculators, light blue = relative commercials vs open interest

Figure 2: ZB2

Commitment of Traders

Legend: Yellow = seasonal trend, black = OHLC, red = commercials, blue = large speculators, grey = small speculators, light blue = relative commercials vs open interest

Another market I found interesting in July was the Canadian Dollar. As can be seen below, this market has been in a downwards trend since September 2017. At the beginning of July, the Canadian Dollar tried to escape from that downtrend and broke through the downward trendline. However, commercials built up short positions heavily on that recovery and as a consequence, CAD/USD decreased from the mid of July back into a downwards trend direction. 

Figure 3: CAD

Canadian Dollar

Legend: Yellow = seasonal trend, black = OHLC, red = commercials, blue = large speculators, grey = small speculators, light blue = relative commercials vs open interest

Figure 4 below shows the price of Live Cattle, which has been facing a steep devaluation since March this year. In May, the COT data showed that Commercial Traders seemed to build up positions in the market again until they reached new highs in long positions (or not short positions) at the beginning of June, when the price of Live Cattle stabilized at a floor of around 104 before starting to recover at the end of June.

Figure 4: LE

Live Cattle

Legend: Yellow = seasonal trend, black = OHLC, red = commercials, blue = large speculators, grey = small speculators, light blue = relative commercials vs open interest

Another interesting observation in July could be found in the equity markets. Figure 5 shows the NASDAQ 100; this market experienced a strong upwards move since the beginning of this year. However, in February, Commercial Traders seemed to lose interest in equities and decreased their long positions. In May, equities endured a few weeks of corrections, which Commercial Traders did not take advantage of to build up new long positions; instead, they continuously decreased their exposure to the equity markets, which was then followed by a sharp decline at the beginning of August. 

Figure 5: NQ

Commitment of Traders

Legend: Yellow = seasonal trend, black = OHLC, red = commercials, blue = large speculators, grey = small speculators, light blue = relative commercials vs open interest

Looking ahead, one market which I think is due for a trend change or short term correction is the British Pound (GBP/USD). This market has been in a long downwards trend since July 2014 and in April this year, Commercial Traders started building up long positions in the GBP/USD and reached a new high in early July 2019. Furthermore, Commercials continued to add to their positions throughout the month and reached new extreme levels at the beginning of August. This is particularly interesting with regards to Brexit as this long positions of commercials may anticipate the outcome of the Brexit process. If indeed there is a ‘hard Brexit’ then the British Pound Sterling is expected to fall further. However, I could imagine that a ‘hard Brexit’ has been priced in already. And if there is no hard Brexit, the priced in sentiment in the GBP/USD may have been too negative in the recent weeks, which will cause the currency to rally. In any case, the commericals seem positioned for a turnaround in the British Pound.

Figure 6: GBP

Image removed.

Legend: Yellow = seasonal trend, black = OHLC, red = commercials, blue = large speculators, grey = small speculators, light blue = relative commercials vs open interest

I’d therefore expect this market to reverse in the near future, which I’ll be sure to revisit in the coming month as well as review other interesting information that can be gleaned from the CFTC Commitments of Traders reports.

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 judgement 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.

Content role
Open

© The Sortino Group Ltd

All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency or other Reprographic Rights Organisation, without the written permission of the publisher. For more information about reprints from AlphaWeek, click here.