As you may have gathered from some of my prior posts (like
Using COT data to spot potential big moves), I keep an eye on the weekly Commitment of Traders data to see if there have been any big shifts in trader positioning. A big part of that is tracking how the small speculators are positioned in the mini S&P 500 futures. There it’s about looking to play against the herd when they are strongly positioned. As of last Tuesday they were 68% short the market, which keeps me suspecting that more upside is probably coming in stocks.
I also watch the COT data for currencies to see what the big players are doing. Now, this isn’t the same as seeing positioning data in the spot market, but it does at least hint at things. In particular, it’s worth noting when the are very strongly biased positions on, and when they change. We’ve seen both recently in a couple currencies.
Take a look at the tables on the left. Notice what has happened in the last few weeks with the way the Large Speculators have been positioned and how that’s changed over time. In most cases that means reducing previous large long positions.
For example, in the euro they were about 60%Â long and now are nearly 60% short. There wasn’t a switch in the pound, but traders have certainly gotten much more short than they were. This is from the dumping of longs, though, not the increase in shorts.
Things get really interesting when looking at the yen. The large players were 83% long just a few weeks ago. Now they are much closer to being neutral, though remain a bit long thanks to a combination of long reductions and short expansions.
Things are even more dramatic in the Swiss franc. There the large players reached almost 90% long about a month ago. Now they are almost right on the flat line thanks to a combination of both a major cut in long and a 3-fold or so increase in shorts.
If you compare these changes in COT positioning data to the price action of the last few weeks you can clearly see how things have been playing out. GBP/USDÂ has traded down from near 1.69. EUR/USD has given up about 800 pips since the early-December highs. USD/JPY is up nearly 600 pips from its lows (meaning yen losses). USD/CHF has risen more than 500 pip from it’s lows (again, swissy losses).
Now, much of the action these last few weeks has put the market more toward a neutral position. The one exception is in the pound, where traders have been getting more short. That is going to be worth watching.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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