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CFTC Commitment 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. In June, I saw interesting developments in Crude Oil, Copper and 30-year Treasury bonds.

Figure 1 below shows the price of Crude Oil, which has been in a downtrend since the end of April. As can be seen in Pane 1 of the chart, however, commercial traders started to get rid of their net short positions at the end of May. Pane 3, which is an oscillator of the COT data, illustrates that change more clearly. The chart also shows that commercials continuously reduced these net short positions until they finally reached an extreme “long” (which is actually an extreme not-short) position by mid-June. Pane 2 below the price chart shows the relative commercial position to the overall open interest of the market and it underlines that, increasingly, activity by commercials became the driving force in the market. At the same time, both small and large speculators continued going short in the Crude Oil market until reaching extreme “short” positions (again these are extreme net not-long positions) at end of June. Indeed, small speculators became net short, which is rather rare.

Tracking these fundamental changes of portfolio decisions worked well to anticipate a trend change to the upside, a reversal of the downtrend of the past three months.

Figure 1: CL3-067: Crude Oil NY (Elec) Cadj Liq @ NYMEX (Weekly Bars)

CFTC Committment of Traders

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

A similar picture could be seen in the Copper market. Copper entered into a downwards trend at the end of March. Commercials started heavily accruing net long positions since early May, and by mid-May the commercial share of open interest rose to an extreme level – again anticipating a trend change towards the upside. This time, however, extreme levels of commercials suggested a market upturn too early. When the seasonal effect (the yellow line in the price chart) kicked in, the price finally turned to the upside.

Figure 2: HG3-067: Copper HG NYMEX (Elec) Cadj Liq @NYMEX (Weekly Bars)

CFTC Commitment of Traders

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

For the coming months, the COT reports suggest trend changes in the bond markets. Bonds have been in an upwards trend since October of last year; the current trend, therefore, seems to be very mature. In addition, bonds seem to have a seasonal tendency to fall around mid of July. As Figure 3 below shows, commercials built extreme net short positions in the recent weeks, indicating the trend could be about to change.

Figure 3: ZB-067: T-Bonds 30Yr CBT Elec Cadj Liq @ CBOT (Weekly Bars)

CFTC Commitment of Traders

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

Next month, I’ll be sure to revisit the bond markets to see if the trend for T-Bonds did indeed turn and review other interesting information that can be gleaned from the COT 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 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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