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COT Offers Mixed Signals

COT Offers Mixed Signals

2010-03-22 20:20:00
Jamie Saettele, CMT, Sr. Technical Strategist
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 COT322a

The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (13). A reading close to 0 is bearish if the currency in question has reversed from a uptrend and is bullish if the currency has been declining for a significant amount of time. A reading close to 100 is bullish if the currency in question has reversed from a downtrend and is bearish if the currency has been rallying for a significant amount of time.

Readings of 95 and higher as well as 5 and lower are in boldfaced red type to indicate potential market extremes. For example, an increasing index is bullish until the index is extreme (near 100), at which time the risk of a reversal or pause in the trend increases.

 

US Dollar

COT322b

The index is at 0, which indicates extreme pessimism. Price has traded sideways and pessimism extremes are usually seen at lows. However, notice that extreme pessimism was evident at the November 2008 high. Beware of a reversal. It is best to go with the break (higher or lower).

 

Euro

COT322b

The index has turned from 0. A turn from 0 indicates a turn from extreme pessimism and typically leads to either a pause or reversal of the downtrend.

 

British Pound

COT322b

The index has turned from 0. A turn from 0 indicates a turn from extreme pessimism and typically leads to either a pause or reversal of the downtrend.

 

Australian Dollar

COT322b

The index is at 100, which indicates extreme optimism. 100 readings lead to tops…eventually. Extreme optimism can last for weeks so be cautious if attempting to fade strength.

 

New Zealand Dollar

COT322b

The NZDUSD COT index is at 0, which indicates extreme pessimism. Continue to favor the downside.

 

Japanese Yen

COT322b

Yen sentiment turned from a bearish extreme weeks ago. Initially bullish for the Yen, the currency has failed to make much progress. This warns of continued weakess.

Note-this is a chart of the Yen futures contract, not the USDJPY (the inverse of this chart would look similar to the USDJPY).

 

Canadian Dollar

COT322b

The index is at 100, which indicates extreme optimism. 100 readings lead to tops…eventually. Extreme optimism can last for weeks so be cautious if attempting to fade strength.

Note-this is a chart of the CAD futures contract, not the USDCAD (the inverse of this chart would look similar to the USDCAD).

 

Swiss Franc

COT322b

The index has turned from 0, which indicates a turn from extreme pessimism. Turns from extremes lead to either pauses or reversals of the larger trend (in this case, the larger trend is towards CHF weakness).

Note-this is a chart of the CHF futures contract, not the USDCHF (the inverse of this chart would look similar to the USDCHF).

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email to jsaettele@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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