Note: My approach for analyzing CoT data to reveal how different types of traders are positioned in the futures markets is outlined here. If you missed it, give the article a read to see the method behind my analysis. All data and images in this article come from my website.
This article outlines how traders are positioned and how that positioning has recently changed. I break down the updates by asset class, so let's get started.
Speculators are extremely short coffee (JO) futures. Producers and users are on the other side of the trade. Their net positioning is high relative to the past five years, so you can infer this means there's less hedging by producers and more hedging by users. Commodity producers hedge through selling futures, and by doing so they lock in prices for their future production. Commodity users hedge through buying futures, and by doing so they lock in prices for their future inventory needs.
It's important to not simply fade extreme positioning. Traders who are short coffee have zero reason to exit their positions as long as the price of coffee keeps trending lower. But pay attention if the price were to turn. This is because crowded shorts would be forced to head for the exits at the same time.
Positioning in copper (JJC) futures has been interesting to watch. Speculators have recently grown a tad less bullish, as the price has maintained a constant bid.
Traders have increased long exposure and cut shorts in cotton (BAL). The soft commodity is up more than 10% over the past month, and in my opinion, spec positioning still isn't "extreme". I define extreme positioning as a 5-year net CoT position percentile as >90% or <10%.
By far the most interesting positioning development has been in the precious metals markets. As recently as last month, traders were extremely optimistic on gold (GLD) futures. Over the past few weeks, they've liquidated long exposure and added to shorts, a very abrupt shift in sentiment.
It is worthwhile to note that gold producers haven't been this hedged in nearly five years.
Heating oil (UHN) is a very crowded long trade.
Natural gas (UNG) is down 40% in 2017. With this type of drop, I expected to see crowded short spec positioning, but that's not the case.
Hedgers cut their shorts in platinum (PPLT).
Like we saw in gold futures, silver (SLV) traders have reduced their bullish positioning.
And here's how traders are positioned in WTI crude oil (USO) futures. They're obviously biased to the long side, but the positioning is less extreme than it was earlier, in late February.
AUD/USD (FXA) is near positioning levels that have marked short-term bounces over the past year.
CAD/USD (FXC) bulls are still holding on to a significant amount of long positions.
EUR/USD (FXE) positioning is similar to CAD/USD.
JPY/USD (FXY) is one of the few foreign currencies with crowded short spec positioning. The Japanese yen is typically a safe haven currency, catching a bid when risk-off environments materialize.
Traders are also leaning to the short side in NZD/USD.
Traders have reduced their net long positioning in DJIA (DIA) futures over the past few weeks.
It's been crazy to see the positioning divergence in Nasdaq (QQQ) futures, where spec positioning is near the 2016 lows.
Long Nikkei (EWJ) is a very consensus trade.
And here's how traders are positioned in VIX (VXX) futures. Their net short position is gradually decreasing as a percentage of open interest.
Here's an overview of how speculators are positioned in all of the commodity markets I track. Palladium (PALL), soybean meal, and heating oil are the three most crowded long trades. Platinum, sugar (SGG), and coffee are the three most crowded shorts.
Here's that same metric for financial futures. Nikkei and EUR/USD are the most crowded long trades.
So, what are the main takeaways from this week's CoT data? Three things:
- Traders reversed their positions in precious metals, reducing longs and adding to shorts.
- Two soft commodities (sugar and coffee) are crowded short trades.
- Traders are still betting on a stronger EUR/USD and CAD/USD.
If you have any questions about CoT data, don't hesitate to ask me in the comments below.
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Disclaimer: The author does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked in this article or incorporated herein. This article is provided for guidance and information purposes only. Investments involve risk are not guaranteed. This article is not intended to provide investment, tax, or legal advice. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked in this article or incorporated herein. This article is provided for guidance and information purposes only. Investments involve risk are not guaranteed. This article is not intended to provide investment, tax, or legal advice. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.