THE HAnDbook of TEcHnIcAl AnAlysIsof shorts. This is generally not regarded as a contrary indicator. Hence, high values
indicate potential market bearishness and low values indicate market bullishness.
(2) Open Interest: the COt report
The Commodity Futures Trading Commission (CFTC) releases the COT report
every Friday. It contains all reportable positions held by the commercials and
non‐commercials in a wide range of markets and across various exchanges. Data
on open interest in the futures market allows for the study of the behavior of three
groups of participants, namely the:
■ (^) Commercials (Large Hedgers, Cash Market)
■ (^) Non‐commercials (Large Speculators, Funds)
■ (^) Small traders
The commercials represent large hedgers operating in the cash market, where-
as the non‐commercials comprise large speculators, hedge funds, and so on. The
third group represents the small traders. By watching the smart money movement,
traders and investors get a better idea of where the markets may be heading.
Many practitioners track and follow the non‐commercials, as they are gener-
ally regarded as the better informed. Nevertheless, one may also track the move-
ments of the hedgers, watching for an upturn or downturn in the net commercial
positions before participating in the markets. It would be best if the upturn or
downturn also occurred at previous extreme levels in the net commercial position.
In Figure 23.6, we see the net commercial positions providing simple buy and
sell signals on the daily EURUSD chart. A clear upturn in the net commercial
fIgure 23.6 COT Net Commercial Positions Indicating Potential Buy and Sell Signals
on the Daily EURUSD. (Data: cftc.gov)
Source: MetaTrader