The latest update for the weekly Commitment of Traders (COT) report was released by the Commodity Futures Trading Commission (CFTC) on Friday for data ending on Tuesday July 20 2021.
This weekly Extreme Positions report highlights the Most Bullish and the Most Bearish Positions for the speculator category. Extreme positioning in these markets can foreshadow strong moves in the underlying instrument.
To signify an extreme position, we use the Strength Index (also known as the COT Index) of each instrument, which has been a common method among many leading COT practitioners. The Strength Index is simply a comparison of current trader positions against the range of positions over the previous 3 years. We use over 80 percent as extremely bullish and under 20 percent as extremely bearish. (Compare Strength Index scores across all markets in the data tables)
Speculators or Non-Commercials Explained:
Speculators, classified as non-commercial traders by CFTC, are made up of large trading funds, hedge funds, commodity funds and other significant for-profit participants. The Specs are generally regarded as trend-followers in their behavior towards price action – net speculator bets and prices tend to go in the same directions. These traders often look to buy when prices are rising and sell when prices are falling. To illustrate this point, many times speculator contracts can be found at their most extremes (bullish or bearish) when prices are also close to their highest or lowest levels.
These extreme levels can potentially be a signal of overbought and oversold conditions and other times can signal a breakout and possibly a counter-trend move taking in the price trend. These processes can play out in weeks to over many months and even years.
Here Are This Week’s Most Bullish Speculator Positions:
The Brazil Real speculator trader’s futures position comes in as the most bullish extreme standing this week for a second straight week. The BRL speculator level is currently at a 99 percent score of its 3-year range just down from last week’s 100% strength score (meaning speculative sentiment is at the highest level over past three years).
The extreme positioning shows that speculators have been shedding their bearish sentiment in the real that had prevailed in the currency since the second half of 2019. The BRLUSD price has been on the back-foot against the dollar for some time now but perhaps the newfound positive sentiment among speculators portends a potential breakout higher in the future.
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Coffee positions are at the second highest extreme position with the Strength Index Level is now at a 95 percent score of its 3-year range. The Coffee net positions rose by 21.1 percent this week from last week. Sentiment among speculators has been bullish since late in 2019 but the Coffee prices have particularly shot up since the fourth quarter of 2020. Even earlier this week Coffee futures jumped as supply constraints continue to keep prices elevated. It would seem likely that Coffee speculator positioning may stay bullish for time to come.
The 2-Year Bond speculator trader’s futures position comes in third this week in the extreme standings. The 2-Year Strength Index Level resides at a 93 percent score of its 3-year range.
The 2-Year speculators heavily cut back on their bearish positions this week while their bullish positions rose – creating an extreme reading in positioning. This reflects a dent in the economic outlook earlier in the week (and a quick drop in longer term bond yields) perhaps due to the Delta variant. The big picture outlook in the 2-Year is not changed very much as the 2-Year price has not moved much and the 2-Year yield remains at a depressed rate of 0.20 percent.
This Week’s Most Bearish Speculator Positions:
The Mexican Peso speculator trader’s futures position comes in as the most bearish extreme standing this week. The MXN Strength Index Level is at a 1 percent score of its 3-year range.
Peso positions are the most bearish extreme of the week for a second straight week. Peso speculators have had considerably lower sentiment for the Mexican currency since the all-time high positioning that prevailed in late 2019 and into early 2020. The MXNUSD currency pair has been trending higher since the COVID-induced crash in the currency in March 2020. However, with the current sentiment so low, a further push higher in price could prompt speculators to exit their bearish positions and help the case for peso bulls going forward.
The Palladium speculator trader’s futures position comes in next for the most bearish extreme standing on the week. The Palladium Strength Index Level is at a 7 percent score of its 3-year range.
Palladium positioning has remained very subdued since the onset of the COVID outbreak in early 2020. Speculative positioning went from very bullish (pre-COVID) to extremely bearish (post) in that time-frame. In fact, the open interest numbers show a very low participation rate in the trading with current open interest levels (contracts open in the market) about only a half to one-third the open interest levels before the outbreak. Despite this, the Palladium price has trended higher consistently and continues to be in a bull market.
Rounding out the extreme bearish positions, the Fed Funds speculator’s futures position comes in as third most bearish extreme standing of the week. The FedFunds Strength Index Level resides at a 17 percent score of its 3-year range. The net speculator position was -185,934 net contracts this week saw movement by -4,942 contracts from last week. The speculator long position was a total of 49,351 contracts against the total spec short position of 235,285 contracts.
*COT Report: The weekly commitment of traders report summarizes the total trader positions for open contracts in the futures trading markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (speculators & large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators). Find CFTC criteria here: (https://www.cftc.gov/MarketReports/CommitmentsofTraders/ExplanatoryNotes/index.htm).
The Commitment of Traders report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions data that was reported as of the previous Tuesday (3 days behind).
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