COT Notes, from Anatoly Veltman

October 20, 2008 |

A VeltmanFor the week 10/7-> 10/14, during which SP futures traveled 1006-> 837 and back 837-> 1002, the Net change was Long in Commercial category, while Short in Small Spec. We don't get any direct signal, as market entered consolidation and is no longer short-term stretched out. However, we note marked change in sentiment:

1. Small Specs now tend toward Short
2. VIX has risen substantially
3. Futures do not maintain premium at US close.

So, as opposed to early October, when we could find little sign of short-term capitulation at 1100+ pricing, we can see plenty of that now, at almost 200 points lower pricing! There were few strong signals elsewhere. Of note only firming EUR, Gold and energy Commercial support.

Eht Yob asks:

Why do you refuse to test these data? It is so easy and you will find that small speculators' positions have almost zero predictive power to future movements of the S&P 500. Is it because you are too lazy or is it because you are a salesman and really don't care about the future outcome? Or is there another reason?

Anatoly Veltman explains:

1. A quality test is not as easy or cheap as you portray.
2. I don't believe COT will test profitable anyway.
3. COT can be extremely useful to a competent discretionary trader.
4. Useful exactly "because" it should not be used as primary, but only as a filter to original solid ideas.

Isam Laroui adds:

Why so much hatred, Mr. Yob? I, for one, find Anatoly's COT notes very instructive. As he says it's just one tool in a trader's toolbox. Just the fact that most traders look at it is reason enough to stay informed. No one is telling you or anybody else to blindly follow some kind of mechanical trading rule using COT data.

Eht Yob replies:

What you don't understand is that I do blindly follow a mechanical trading rule using the COT, and what I'm pointing out is that the data are very useful, when analyzed correctly.


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