COT has changed how they measure things ...
August 08, 2006
Trust Week: Rejigging the numbers
Et tu, Reuben? CFTC mysteriously reworks COT reports
Just a few weeks after the New York Stock Exchange sort-of admitted that it had been headlining the wrong program trading number for the last 20 years or so, another market regulator has reworked a closely-followed statistical series while mumbling less than coherently about the reasoning behind its potentially market-moving machinations.
[Commodity Futures Trading] Commission staff recently interviewed and received updated [the Commitments of Traders (COT)] reports for several traders who had significant open contracts in at least one of the financial futures markets. Based on this information, a number of traders have been reclassified.
The impact? According to SentimenTrader.com (via Alchemy of Trading):
…the CFTC reported that commercial traders in the index futures reduced their net short position by $10.7 billion - the largest one-week swing in history…
Without the adjustment, the commercial net short position would have been $17.4 billion, a significant difference from the $8.7 billion they reported due to the [re] lassification.
Because of this, the change in positions is not as meaningful as originally thought… The re-classification was especially pronounced in the Dow, Nasdaq e-mini and Russell 2000 e-mini futures contracts. [Emphasis added]
Lots of fodder for the conspiracy theorists, or at least the Coincidental Coincidences file, in this one:
The change makes commercial traders – the so-called smart money – look $10.7 billion less bearish than they would otherwise have done.
Anybody not reading the fine print might well interpret the move as a great big fat buy signal, coincidentally timed for moment when the stock market is obviously struggling.
The change was implemented in the midst of a comprehensive review of the COT reporting program intended to, most relevantly, lay out various issues and questions regarding the reports, and solicit public comment regarding the reports, including suggestions for possible changes in the COT reporting system.
Which does rather raise the question as to why this particular change had to be made now rather than, say, six months ago, or in the wash-up that will doubtless follow the comprehensive review.
The CFTC admirably claims to be striving “both to maintain an information system that reflects changing market conditions, and to provide the public with useful information regarding futures and option markets.”
But the busting of another closely-followed statistical series, following the disappearance of M3 earlier this year, and the NYSE’s Damascene conversion on program trading statistics, at least raises the possibility that a less laudable agenda - like burying inconvenient truths - may be at work.
(The coincidence of the two-month comment period with the height of summer vacations does bring to mind the US Security and Exchange Commission’s handling of the comment period for its hedge fund registration plan, in 2004).
The CFTC did at least, unlike the NYSE, disclose that it had made the changes, with a highlighted special announcement on the COT page.
Beyond that, however, the announcement and its supporting data, were somewhat less than transparent. For example, it provided:
No indication of the methodology – other than recent “interviews” – involved in the reclassifications.
No indication of the number – other than “several” – traders reclassified, or the number of traders moved from the “commercial category to the noncommercial category and vice versa.”
No indication as to the type of traders moved between the categories.
“Tables that show selected data for this week’s COT reports for financial markets in their updated form and how they would have looked had these updated trader classifications not been made;” however, it gave no other back-history of the changes’ impact, or any clue as to how long, or even whether, it would continue to offer the “original” tables.
NakedShorts had not, at pixel-time, received a response to questions posed to the CFTC seeking further clarification about the changes, although an agency spokesman said that it did intend to provide one; a follow-up will follow.
Tomorrow in Trust Week: Untrustworthy trusts II
(promised yesterday, but deferred by the CFTC developments)
nakedshorts.typepad.com
the above was originally posteed by Mish here:
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