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Capitulation In Silver Futures | Seeking Alpha

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Note: My approach for analyzing CoT data to reveal how different types of traders are positioned in the futures markets is outlined here. If you missed it, give the article a read to see the method behind my analysis. All data and images in this article come from my website.

This article outlines how traders are positioned and how that positioning has recently changed. I break down the updates by asset class, so let’s get started.

Commodities

Traders are still extremely short cocoa (NIB) futures. They currently have a 5-year net CoT percentile of 0%. This means that their net position as a percentage of open interest is lower than it’s been in the past five years. Here’s how to interpret that.

Crowded short positioning, which I define as a 5-year percentile of net positioning as a % of OI < 10%, isn’t simply a reason to go long. Traders who are short cocoa have zero incentive to exit their positions as long as the trend keeps going their way. If the price of cocoa were to reverse, then that might be a reason for concern. This is because you would start seeing a large number of people heading for the exits (to close their shorts) at the same time. I call this a “fire in the theater” situation.

Commercial producers are on the other side of the this trade. A high CoT percentile for producers & users translates to a low amount of producer shorts plus a high amount of user longs. You can infer that that “smart money” commercials are bullish when producers don’t hedge a lot of their future production.

Copper (JJC) is interesting to me because the commodity is up ~7% over the past quarter but spec long positioning really hasn’t increased.

There’s been a huge amount of short covering in corn (CORN) futures.

And here’s my CoT chart for corn.

Traders have thrown in the towel on most of their silver (SLV) longs and are now net short for the first time in more than a year.

Soybean (SOYB) recently showed just how useful CoT analysis can be. A few weeks ago speculators had a 5-year CoT percentile of 0%, meaning they were super short. Then the price of soybeans then ran 11% in a few days, driven mainly by short covering.

Spec positioning in WTI (USO) is still heavily tilted to the long side.

But it should be noted this level of net long positioning is fairly low relative to the past few years. One reason why speculators are biased to the long side in WTI is because energy futures make up a huge slice of long-only commodity indices like the S&P GSCI or Bloomberg’s Commodity Index.

The price of WTI bounced in 2016 near current levels of positioning.

Currencies

The Australian dollar (FXA) has been on an absolute tear the past few days, rising because market expectations of a more hawkish RBA have increased. Higher short-term rates make the currency more appealing to international investors.

It should be noted that the rise in the AUD/USD CoT percentile was because shorts were covered, not because fresh longs were initiated.

EUR/USD (FXE) is an extremely crowded trade on the long side.

The New Zealand Dollar has appreciated against the USD and traders have bid up the currency along the way.

Traders haven’t been this net long CHF/USD (FXF) futures in four years.

As you can probably tell from the currency charts, traders on the whole are massively betting on a weaker U.S. dollar.

Stocks

Speculators added to their longs and cut shorts last week in S&P (SPY) futures.

It’s interesting to see that spec positioning is not nearly as bullish in the Nasdaq (QQQ).

Traders have steadily covered their shorts in VIX (NYSEARCA:VXX) futures.

Conclusion

Here’s a final overview of how speculators are positioned in all of the commodity markets I track. Livestock futures are crowded on the long side and soft commodities are heavily shorted.

And here’s that same metric for financial futures. Long foreign currencies and short the U.S. dollar dominate the left side of the chart.

So what are the main takeaways from this week’s CoT data? Two things:

  1. Traders are betting a huge amount of money on a weaker U.S. dollar
  2. Some soft commodities are extremely crowded on the short side. Mainly coffee, cocoa, and sugar

If you have any questions about CoT data, don’t hesitate to ask me in the comments below.

Follow me to stay on top of how people are positioned in the futures markets!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked in this article or incorporated herein. This article is provided for guidance and information purposes only. Investments involve risk are not guaranteed. This article is not intended to provide investment, tax, or legal advice. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.



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