Reading COT like a book............. ........................... .................
So here is what I see in the COT chart of recent - now perhaps my decoder ring is really just a cheap, 50-cent, gumball, lump of plastic and I foolhardy for posting this.....
Let's start looking at the COT chart with the period marked A on this following chart. This big drop was at the end of the year and it corresponded with the expiration of the December contract. Open Interest had been building since the early part of December in anticipation of a breakout in POG. ST specs dumped their postions as the December contract closed.
But then we saw a key move - something I noted and called "divergence." [probably not the best call in hindsight, gotta use the right decoder settings!] This is the section labeled 1. As the POG dropped the short-term specs piled on with shorts. This follows with what Sinclair postulates, the boyz setting up to take POG lower.
So in section 2 of the chart we see that the boyz did indeed smack POG down and inflicted some pain. Now if that pain were universal and flushing people out of their positions in POG, then one would reasonably expect that Open Interest would take a hit. But the chart shows that as POG was taking this big hit, OI was holding steady. Now I tend to favor the notion that the ST institutional players were covering their shorts here [Those on the "Were Gunna Take POG Lower" memo list of a few weeks prior.] and the momo following smaller specs were the ones adding short positions.
So what appears to have happened in section 3 is that once the Big Boyz had covered their shorts, the Momo boyz noticed the oversold nature of POG and no more selling pressure and we got a POG rise which started to flush out those momo-chasing, late to the party, shorts. As those dudes ran for the hills in the face of the pop up in the POG, OI dropped back down near to where it started.
So now here we are in Section 4 of the chart. OI is back down into the "bottom" range and POG is vacillating sideways. Let's watch and see how POG and OI interact here. Do we see OI rising on a rising POG or do we see OI rising on a falling POG. I suspect both could be good signals. But alas, it is also possible that we see OI wane a bit here too. After all as the month "Marches" along, the front contract, April, approaches callable status. So as specs exit the Apr OI, the question is do they roll forward directly to Jun or some later contract?
Watch COT OI, sure looks like the story is there, if your decoder ring is properly calibrated... |
