>>is the COT as a contrarian indicator? or is it smart money?<<
No, smart money, the idea is too be on the same side as the commercials. The COT breaks down the players by group. Speculators, Non-commercials, and commercials. The commercials are the big pros which are viewed to usually be on the right side although they tend to be early since they leg into large positions over time. You don't be a commercial trader in my opinion and not be right most of the time or else you get wiped out.
The actual COT report shows all futures contracts. By the time I finished that file, it was 32 Meg in size and I have been working on it for a while. Hopefully I will get some more free time and put together some of the other contracts as well. There are DOW, NDX, E-mini, CRB, Bond and Note and metals futures as well as all other type contracts such as california power, milk, gas, oil, wheat etc that I would like to trend out visually.
I did some mulling over about the COT this week and came up with the following thoughts though that may hint they aren't as short as many think. I am thinking that Wednesday's rally may have been mostly them covering. Imagine them all seeing what we were seeing with nothing but bad news, bleak outlooks and then the Fed cutting rates as expected on Tuesday. Now we all knew that they were likely going to cut 50 and many thought we would sell off after the cut. Short positions were increased by the commercials the week prior due to this outlook and the overbought nature of the market. Now what was largely expected along with the rate cut was a hint from the Fed that they would be slowing the rate cuts down. Many were expecting the next cut to be maybe 25 basis points and then maybe none at all. Instead the Fed made it sound like a couple more 50s were just around the corner. Result, the commercials frantically start covering shorts, the bond guys and commodity traders all see rampant inflation coming and start bidding up lumber, gold, copper etc. Now we have middle east escalations and oil shoots up to 30 a barrel to boot. I wouldn't be surprised to see the COT report next week show a lot of those shorts were closed last week. Recall the COT report only runs Tuesday to Tuesday.
Now you usually want to be on the side of the pros but I am wondering if Wednesday's rally wasn't many of them covering so I am not quite ready to go short yet just because of them. We'll see. Regardless, I still hold we are in a wave 4 counter trend and that the 5th wave isn't too far away, .... maybe days, maybe weeks but it will come. Wave 5s aren't as big as the 3 we finished but they are fast, furious and mean sometimes being almost vertical like crashes. I am holding some longs still but got a bit less aggressive in my plays and will be looking to exit at the first sign of danger. Unfortunately I will be on the road this week so I am hoping I will be able to keep somewhat of an eye on things without losing my head. -ggg-
Good Luck,
Lee |
