The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
New Benefits of the COT Report
05/20/2011 11:20 am EST
There's now more valuable information than ever available in the government's regular Commitments of Traders (COT) report. Floyd Upperman explains the changes and how traders stand to benefit.
Welcome to the MoneyShow.com video network studio. Joining me today, Floyd Upperman. Floyd, I know you follow the Commitments of Traders reports. Can you tell me what it is and any new changes in it?
Sure, yes. This is a report that the government provides to the public every week. It is a report that they’ve been providing since 1983; the basic report. Over the last several years, they’ve made some changes to it.
The markets have gone through tremendous change, for example, over the last decade, where we’ve seen pension funds and endowments entering into commodities due to swaps, and this has kind of changed the fingerprint of the COT report.
Traders began to recognize this and began to ask the Commodity Futures Trading Commission (CFTC) about it.
There was a period in time where the CFTC was considering just eliminating the report because it started becoming irrelevant because of all of these new changes. They started to look at it, and rather than get it rid of it, they found there’s a lot of interest in it. They didn’t even really realize that there’s all this public interest in the report.
So, instead of getting rid of it, they decided to introduce some new reports.
Okay, so what are some of the changes?
So now we have a report called the Commodity Index Trader Report, and we have a Disaggregated Report. These are two key reports because they break the traditional categories down a bit further.
The traditional report has two categories: One is commercial, and one is non-commercial. That’s all that they could basically put traders in—those two slots—with that traditional report.
So, these new ones, they now have a swap dealer category; they have a cleaned-up commercial category now that does not have those swap dealers in it; they have a separate managed money category; and then an additional managed money category as well, because nowadays, there’s also ETFs and different types of managed money that just didn’t exist ten or 15 years ago.
NEXT: Measuring the Impact of the Commodities Craze|pagebreak|
And so it’s also reflective of the change in landscape that we’re seeing; more and more people involved in commodities.
Absolutely. If you look at, for example, back in 1998, there is 630 million contracts that traded for that year. In 2007, I think it’s 3.2 billion contracts that traded. So, there’s a big, big, enormous change in the trading.
A lot of that is driven by these pension funds and these endowments that have begun allocating portions of their portfolios, which are huge now because they’ve been socking away money for years. They really stay out of commodities, and now in the last few years, they’ve been allocating portions of these funds into the commodities through the swaps.
So, that’s created a tremendous amount of activity there that was not really getting tacked properly in the original COT report. The new reports now capture that and allow us to be able to track that more efficiently.
Now is this report put out by the Commodity Futures Trading Commission?
Yes, yes, and it is getting put out every week. Now, the data is actually tabulated on Tuesdays, and they release the data on Fridays.
Even though the data is a few days old…I know some traders they sometimes look at that and say it’s not very useful if it’s two or three days old. It’s not really good for daytrading, but for position trading, we are able to track over time what large funds are doing in the market.
They generally don’t get in the market all at once. They accumulate over time. Then they begin to unload positions, or unwind positions, over time as well. So it’s that process that drives the markets, and that’s what we’re able to track.
Knowing that helps an individual investor or trader avoid some of the problems that come with big trades like that.
Right. It helps to understand too where we might be in the overall cycle of things.
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