Commitments of Traders Reports
40 years ago, when a futures brokerage firm opened a new account, the customer (individual, partnership, company, etc.) had to declare whether he was a hedger or a speculator. There were only two answers necessary, but after a while, a third answer crept into the equation:
Ever since then, the futures industry has grown in many directions, and classifying the players became more complex. The field of possibilities expanded to include swap dealers, trusts, financial engineers, ETF fiduciaries, etc.
The original purpose was to inform the public about “who” was holding which “cards” so to speak. In the old construct, the equation was to determine where the smart money was betting, and, well, what the gamblers were doing, to put it mildly.
Generally speaking, the hedgers were participants who needed futures positions in order to protect their physical commodity inventories in producing, consuming, transporting, storing ot otherwise handling tangible commodities. Everyone else, assumed the authorities, must be speculating.
Today’s COT reports have more doors. However, the condition of the market can still be measured by the percentage of holders who are merely “taking a shot” about commodity X going up or down.
The weekly ebb and flow of these reports is watched closely by many market participants who understand how far this pendulum swings in one direction or the other… as well as what each wide swing may imply for what happens next.
At Climatelligence, we have our own version of COT watching, which we rely on for our Best Weather “Spider Score” analysis. (More on the Spider in a later Climatelligence issue. See image below of our bearish coffee opinion five months ago.)
Readers should note that the “Anti-Herd Mentality” category is our “Spider term” for the COT implications.
To make a long story short… in our field of weather-reactive commodity contracts, the speculation coefficient in the open interest of a specific agricultural or energy market indeed holds significant weight when it comes to making trade recommendations in our Weather Wealth newsletters.
Here is our latest breakdown on the Managed Money O.I. as of the most recent COT report:
Comments
Log in or sign up to join the conversation.