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mortiz

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Reply with quote  #1 

Johnny Micou and others have been posting good info of late on the various flavors of Commitment of Traders (COT) data.  The Friday 12-16-05 edition of the daily McClellan Market Report (MMR) addressed a variant of the SPX COT data I had not seen before.

 

Tom McClellan graciously gave permission to post the SPX COT data indicator excerpt on Technical Watch.  I found this approach of presenting the COT data and its implications interesting, and hope the reader does as well:

 

"We still think there is more room for stock prices to move higher before this uptrend is done.

 

One reason to think so comes from the indicator in the top chart on page 2. I am not sure if we have ever shown this one before, so I’ll go through a bit of explanation to orient everyone. Using the data in the weekly Commitment of Traders (COT) Report, we find the net position for the commercial traders of the big SP500 contract, and divide that by its total open interest.

 

We then find the commercials’ net position for all stock index futures contracts on a dollar position size basis, and divide that by the total value of all open interest on those contracts. This indicator represents the difference between the commercials’ net position in the big SP500 contract and in all contracts. When it is above the line, it means that the commercials have a bigger percentage net long position in the SP500 contract than they do in the other contracts. Of course, that bigger net long position could also just be a smaller net short position; the math works out the same.

 

This is a funny kind of indicator, in that it does not really give nice clean high and low readings to correspond with high and low prices. It is better in that respect for price bottoms than it is for tops. But the fascinating thing that it does is that it always gives a divergent indication at important price tops, such as the ones highlighted in our chart. The more minor tops can arrive without a divergence, since this is weekly data after all. So far, there is no divergence evident, so in our view the likelihood is very small that we are now seeing an important top. It is much more likely that prices will continue higher until this indicator can provide us with a divergent lower top."

 

 

Tom also suggested TW members may be interested in what has turned out to be a rather controversial white paper recently published by Tom and Sherman addressing what the McClellans perceive as a blow-off top in gold bullion prices, and is available to the public at this link:

 

http://www.mcoscillator.com/

 

The paper has resulted in quite an uproar from the gold bulls, and some of the mail the McClellans have been receiving concerning their paper borders on that of "hate mail", probably a good indication Tom and Sherman are right in their observations.

 

For those who haven't yet read the paper, check it out the root of the uproar among many gold bulls using the above link.

 

Randy

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jmicou

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Reply with quote  #2 
Randy,

A very interesting chart encompassing a lot of information. Thank you for posting it.

Found the upward spike in the change in commercial shorts interesting:


regards,

Johnny


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mortiz

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Reply with quote  #3 

Johnny,

 

It sounds as if you're monitoring most of the stock index futures COT data.  If that is the case, and if/when time allows, it would be interesting to use the McClellans approach, i.e. the "dollar position size basis", with the commercials short positions.  I imagine that would require some signficant homework in the setup exercise, but it appears to yield a unique perspective.

 

Keep up the good work on the COT data and thank you for posting the updates when the actions warrants attention. I think you mentioned you have seen Larry Williams' most current book addressing the treatment of COT data.  Your use of commercials postions as a percentage of open interest implies you are familiar with Larry's work.

 

Best regards,

 

Randy

 

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jmicou

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Reply with quote  #4 
Randy,

Yes. I read his book and then began playing around with the data. So far, just at an elementary level.

regards,

Johnny

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