Look beyond ordinary analysis
After talking to many day traders I notice that most of them discount C.O.T report as a functional leading indicator. They are of the opinion that the data reported lags five days hence is invalid.
That’s true. C.O.T report breaks down every Friday’s Open Interest and reports is on the following Friday. By the time you compile it into the report, markets are closed for the week.
As I mentioned on many occasions:
COT report is not design as a market entry tool. Market can be short term bullish in a long term downtrend.
COT report is design to gauge supply and demand of important market participants.
It can be used to confirm mid/long term fundamental bias in a given market.
It’s not suitable for day traders who enter the market many time a day and take few pips every time. Day traders don’t have to have long term bias for the given currency.
Trading is performed based on short term fluctuations.
C.O.T. report is designed for traders with longer horizons. Those who plan their trading few months ahead. Swing traders enter markets few times a quarter.
The mid to long term bias is very important in this case. Trader must be certain of the long term market direction. He positions his orders accordingly and uses short term fluctuations as an opportunity to add to the portfolio.
Having said that,
I don’t remember times when I traded without looking at what is smart money doing in the markets. I can’t imagine trading without C.O.T.
C.O.T predicted market swings many times before with a deadly accuracy.
Below is a great example of C.O.T. data spotting an important trend reversal despite the “noise” in the markets.
Japanese Yen has been depreciating in value since 2012 due to BOJ QE programs. Ever since market expects BOJ to keep printing and JPY has been portrayed as a weak currency in the basket.
Every trader is looking for pullbacks to be able to load up more on longs USDJPYs.
Well… it looks like tables are turning/turned despite negative interest rates talk and weak economic data from Japan.
C.O.T data shows non-commercial traders has become NET LONG in JPY futures a number of weeks ago.
Non-commercial traders dumped 70K short positions since week 2 2016. This accounts for 70%! At the same time, they added 70% of long positions becoming net long in JPY. This has not been seen since 2012. See the chart below.
C.O.T. clearly indicated downtrend is possible in the bullish markets.
The developments of this has not been a surprise.
I have clearly flagged this many weeks ago. The price of USDJPY collapsed from 121 to 111 and keeps falling.
See how C.O.T report predicts a market swing week by week.
I expect this to prevail in the coming weeks.
As we don’t normally report on this market, this time is worth noticing major shift in sentiment. Non-commercial traders decreased their short contracts on Japanese Yen by 10,249 transactions, while increasing long exposure by 10,914.
This change made non-commercial traders to be NET LONG ON JAPANESSE YEN FUTURES. We have not seen the change in short sentiment since 2012, where Yen started to lose value drastically. Rising open interest suggest that this is a genuine change in sentiment. Expect USDJPY to decline in long term, ASSUMING, THIS WILL BE CONFIRMED BY THE PRICE ACTION.
The bullish sentiment has been confirmed this week. It was a third consecutive week where non-commercial traders have been NET LONG ON JPY FUTURES. Since the beginning of December, this group added over 50K long contracts.
We have not seen the change in short sentiment since 2012, where Yen started to lose value drastically. Rising open interest suggest that this is a genuine change in sentiment. Expect USDJPY to decline in long term.
The price action might be affected by recent risk off sentiment due to happenings in China but it seems like, selling USDJPY on rallies could be a good strategy for 2016.
The BoJ have certainly made things interesting from a yen perspective. Negative interest rates would have devastating impact on the price on Yen. It has been strengthening for the past few months really heavily and the fact the BoJ went to negative rates, could just mean we see a reversal in that trend.
This is fundamentally strong analysis but the COT report does not confirm that. We reported a huge change in sentiment in the past few weeks with non-commercial becoming net long in Yen.
This week non-commercial traders added another 8K long positions and dropped 4.23K shorts. This is exact opposite of what negative interest rates would cause.
This is confusing indeed. Let see the data next week.
More confusion in the JPY futures market this week! The fake rally in USDJPY faded pretty quickly. This pair declined from 121.30 to 116 in the space of few days. It seems like the market is not buying negative interest rate policy introduced by BOJ two weeks ago.
While JPY was soaring for number of sessions last week, non-commercial traders reversed their sentiment once again. They dropped long orders by 10.5K erasing previous week’s long exposure. They also added 2.2K of short positions.
This is the 2nd week of traders being trapped in the mad price action in JPY markets.
Assuming, non-commercials will remain NET LONG, USDJPY should continue to drop.
I think we are clear at this stage about the direction on JPY Futures!
God save stocks and Kuroda!
After breaking 116 support JPY gained even more steam and rallied againt all majors. USDJPY had another leg down, attacting more bears into the market.
Nobody bought into a negative interest rates policy!
Non-Commercials remained on the NET LONG side. This week they decreased both sides on the transactions: Longs by 6.2K but at the same time they dumped twice as much short positions. This should support the current downtrend in USDJPY. The next technical support is @ 105.
5,165 total views, 18 views today
5,166 total views, 19 views today