Tuesday, 12 February 2013

Bearish Turn for Copper in Trader Data

Had a great trip to beautiful San Juan del Sur, Nicaragua, and I'm now back for my overdue Commitments of Traders update. I've just updated my latest signals table with the data as of Friday's COT report.

Only one signal takes effect this week: bearish for copper. Other signals remain the same as last week.

See my signals table for more details on the trader positioning in each of the markets I'm trading using the COT data from the CFTC. Sorry again for the delayed post.

Good luck this week.


sydistic said...

Hi Alex,

I was wondering if you could comment on the gold and silver COTs from a statistical perspective.

I'm no expert on COT but from what I've see, there is currently the largest short position in gold by the large specs in 5 years. This seems to be a tradable extreme condition that you describe. Commercials continue to deleverage their shorts.

Also, open interest continues to spike on falling prices. Is this a concern? While traditionally this is bearish, some are saying it's an indication of accumulation of cheap gold.

In silver there is a 2 year record high in open interest. With such a huge commercial short position, there's speculation a massive short squeeze might occur due to silver shortages and possible value buying of these depressed prices.

Do you use volume in any of your analysis?

Finally, I see that gold is on your bullish list. Given some of the extremes in the COT data, I think I read somewhere on your blog that you usually wait a week or two before making any trade. Would this apply to the current COT?


Alex Roslin said...

Hi Sydistic,

My gold setup doesn't focus on the net position of the large specs, but rather their total open interest. From that perspective, their position is actually relatively bullish compared to recent positioning. Since that component of my setup trades alongside the large specs, it's a bullish input for the signal.

As for the commercial hedgers, I don't include them in my gold signal.

Rather, I include the small traders, whom I do fade.

As you can see on the signals table, my gold signal is bullish, with no signs of immediate reversal unless the next COT report brings a massive change in positioning.

The trade delays involved in the two component signals for my gold setup are indicated in the Trader Group (F) column on my signals table.

That doesn't mean the signal has been correct over its lifetime. As often happens, this signal has so far in fact been wrong. But it could still reverse, and even if it doesn't, that doesn't really concern me as no trading system is always right. For more on my views on wrong signals, please see my FAQs page.

Regarding silver, I don't consider total open interest in either of the two component signals - but rather the net positioning.

I don't use trading volume in my signals - purely the data from the COT report. That could be an interesting input, but as with any trading system, additional variables can reduce the statistical robustness of a system. They don't always lead to more profitable setups either, but you never know until it's tested!

Best regards,