The Commodity Futures Trading Commission(CFTC) publishes a weekly report entitled, “Commitments of Traders.” This report classifies the markets’ largest positions by trading groups – speculators, managed money, index traders and commercial traders. Our research focuses on the commercial trader group. We’ve been able to quantify correlated movement between the commercial traders’ net position and commercial trader momentum with the underlying market movement accurately enough to use this as the first screen in our trade selection process. We hypothesize that their accuracy is due to the laser focus necessary when one’s livelihood is derived solely from the movement of an individual market.
We focused on two main themes this week. First, we looked at selling the Euro currency for TraderPlanet and followed it right up with a look at the Dollar Index on Tuesday for Equities.com. Meanwhile, our main piece focused on the grain markets ahead of Tuesday’s USDA Acreage Report.
The USDA releases its planted acreage estimates on Tuesday, June 30th. This report typically sets the tone for the coming marketing year. David Hightower’s analysis has been posted to our site and we defer to him in terms of the fundamental supply and demand numbers. We’ll pick the individual markets apart through the actions of the commercial traders, the actual producers or end line users of these grain markets. Given the depressed levels many of the grain markets have been experiencing can this report actually do further damage?
The Dollar Index made an interim high when the market appreciated Janet Yellen’s dovish statement following the March FOMC meeting. The market has consolidated over the last couple of months between the recent highs and the support that has built up around 93 in the Index. The Dollar’s decline over the last couple of weeks has been bought by commercial traders. We sent a COT buy signal last night. It was based on these factors and triggered by an upturn in our proprietary short-term market momentum indicator.
It’s been an exceptionally confusing week to trade on a discretionary basis. Rarely can I recall a time when the markets have been more unsure of their next move. Fairly well every financial market has LOUD voices on both sides making good cases for their positions and their market forecasts. Between the FOMC meeting and the constant worry about whether or not or, when Greece will default has made picking a side based on theory and economics all but impossible. Despite this, we managed to remain fairly unscathed trading feeder cattle, Eurodollar and 30yr Treasury Bond futures; even a bit profitable.
The Commitment of Traders report published weekly by the Commodity Futures Trading Commission breaks down the weekly market participants into several categories. In the age of big data, we reach a point where it’s easier to collect than it is to make sense of. We keep it simple at COTSignals.com by focusing our analysis on the commercial trader category of the Commitment of Traders Report. Subjectively, it makes sense that the people with a hand in producing or, consuming a given commodity have a fundamental sense of value that speculative traders simply lack. Furthermore, producers and end line users of a given commodity base their actions on the best collective models and strategies focused on their singular market. Quantitatively, we’ve proven the correlation and predictive value of their actions time and again.
Indecision, fear and uncertainty continue to strengthen their grip on the markets as we head towards the Federal Open Market Committee’s FOMC meeting beginning today as well as a possible Greek default by the end of the month. Faced with the possibility of correctly forecasting the actual events of the FOMC and the Greeks versus trading the reality of the markets’ collective reactions, investors are taking chips off the table. Here’s a brief look at why chips are stacked a bit differently than they have been since the ’08 economic collapse and the one pocket of the interest rate sector that could benefit substantially should indecision, turmoil and volatility be the effects of this month’s economic announcements.