Hi Everyone,

This thread is specifically geared towards discussing trader sentiment and positioning in the market and is moderated directly by the DailyFX Analysts that have experience in this topic. Please feel free to post your comments and ideas.

Happy Trading!

Kate

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This is a good time for the first post on trader sentiment as specualtive euro longs are near an all-time high (just down from the all-time high made last week actually). At market turns, speculators are on the wrong side and commercial hedgers are on the right side. In other words, a marke top forms when speculators are very long and commercials very short. Looking at commercial buying is important. Commercial buying of the USD index on the NYBOT is the highest since the week that ended 12/12/2006. The EURUSD topped during the week that ended 12/8/2006 at 1.3364 and fell to 1.2865 within 5 weeks. It is not a coincidence that commercials were the longest they had ever been (the USD) just before the USD gained 500 pips against the euro. The same setup is occurring now and a USD low (EURUSD high) should be in place within the next week or two (it may already be in place at 1.3680 but there is no evidence of that yet). The chart below shows the commercial positioning in blue and speculative positioning in red. It is obvious that tops occur when specs are extremely long and when commercials are extremely short. This is the current setup so be ready!

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EUR/USD – Speculative Positioning Signals Possible Reversal to 1.36
USD/JPY – Yen Could Fall Further Against the Greenback
GBP/USD – Sentiment Index Calls for More Sterling Losses
USD/CHF – Positions Outstanding Fall By Nearly 11 pct
USD/CAD – 85% of Traders Are Long

USDCAD - The ratio of long to short positions in the USDCAD stands at 5.64 as nearly 85% of traders is long. Yesterday, the ratio was at 5.44 as 84% of open positions were long. In detail, long positions are 3.4% higher than yesterday and 17.8% stronger since last week. Short positions are 0.4% lower than yesterday and 11.3% weaker since last week. Open interest is 2.8% stronger than yesterday and 1.1% below its monthly average. The SSI signals more USDCAD losses.


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Jamie,
The COT report shows speculators are very long the EUR while the SSI shows speculators are very short. Am I reading this right? Thanks.

Yes, you are reading this correctly. Both indices tell us the same thing, but you need to understand the type of traders that each index consists of in order for the readings to make sense. The speculators portion of the COT consists of hedge funds, commodity funds, and large traders. These traders are trend following in nature. Therefore, their positioning will move with price. The SSI consists of smaller retail traders. Retail traders try to pick tops and bottoms. Therefore, they will be wrong most of the time as they continually fade the trend. However, at the turn, the SSI will be extreme and speculators are on the correct side. Once the trade begins moving in the retail trader's direction, that trader will take a small profit and begin fading the move yet again (and be wrong again). The retail trader trades like the commercial hedger. Of course, the hedger can afford to do this because of enormous pockets. You'll see on the chart below how the COT and SSI mirror each other. Again, COT consists of trend followers and SSI consists of trend faders. Both sentiment indicators tell us the exact same thing from a psychological standpoint at extremes.

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Jamie- Enjoy your posts, esp. your Wave analysis. Regarding COT and SSI etc. The issue I see is us short term speculators atleast this trader doesn't hold overnite/ over w/e and trades a particular timeframe and puts pips in the pockets. So the "snapshot" could be way wrong or right on depending.
I have seen the SSI work correctly with the move of the day and other times be way off.
I suspect that many FXCM traders operate on the same principal. The big boys Commercial players do have the deep pockets and you can see how they sold hard Cable 2.0133 and the new Euro high. My system was long and strong on most timeframes as it should be at the time and fading my system is a recipe for disaster.

Keep providing us the the COT analysis bec. that appears to be much more helpful than the daily SSI. If you used the SSI you'd be long last week looking for Euro 1.40???? Certainly see a change of char. in both Euro and Cable on the Daily time frame and higher, however wouldn't you agree this market loves to take the max pain approach. Case in point is GBP/JPY. I too saw MAJOR negative divergence here

http://www.dailyfx.com/story/trading...348186484.html

on multiple time frames into 239.4 area yet it pierced the hi taking out all shorts, making break out players long and has since reversed 200 pips over nite.

Thx Jamie- looking forward to your end of week EW Cable and Euro updates.

Euchre

I'm glad that you enjoy the posts and other reports. I also like the COT data much better. The COT report helps us understand the big picture and warns of possible major reversals. All sentiment indicators simply move with price...it is the way that we interpret them that offers insight. It is easy to look at the SSI and simply say that...because it is short, we should be long. The real insight is had once a sentiment indicator, whether it is SSI or COT, reaches an extreme....then we look for a reversal.

On to GBPJPY, it looks ripe for a turn. I am trading it but keeping risk VERY tight. Markets tend to turn at big figures and with EURJPY pressing 164, AUDJPY pressing 100 and GBPJPY pressing 240....watch out.

Hi Jamie, have enjoyed your analysis of US/CAD ---

You project a consolidation/pullback in a 4th wave to 1.1168.

How does this fit (or not) with the traders' increasing long position on the CAD?

Is this a question of time frame with a brief consolidation before it goes to lower levels? It seems to be going lower every day.

Thanks

I updated the techs this morning to show that the USDCAD is likely to continue 'eroding' towards 1.0733 in a 3rd wave. The period of consolidation that would follow would be the anticpated 4th wave back to (or close to) 1.1168. Interestingly, if the 3rd wave does decline to 1.0733 (or close to this level), then the 38.2% of 1.1824-1.0733 would be at 1.1150. 4th waves often retrace approx 38.2% of wave 3. Regarding the COT implications. The COT is released once a week and is longer term in nature. A bounce back to 1.1150 or so would not do any damage to the downtrend.

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https://plus.dailyfx.com/tnews/index.jsp

From the SSI - it says calling for Euro $ strength bec. of the positioning. Yet closer reading has it that shorts are weaker and longs are piling in.
I have no signs of a turn in either Eur or Cable and ADX's climbing healthy on both 6hr charts. Selling strength for now though we may simply waffle here
today on Eur and Cab as BoE minutes and Euro Zone new orders is on deck tomorrow.


Euchre

Disclaimer Trading Currencies involves risk. Any opinion, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice.

https://plus.dailyfx.com/tnews/index.jsp

The ratio seems to be basically pointless. The spin is clear, wow 55% are short so that means 45% are long a tie in my book . What is key is the "leaning" . Long pos'n 2% higher and 41% stronger since last week, telling me people want to buy pb's. Shorts have no conviction so contrarily speaking , short is where you should be. My daily says she needs to revist
3390 before a bounce can occur.

EURUSD - The ratio of long to short positions in the EURUSD stands at -1.24 as nearly 55% of traders is short. Yesterday, the ratio was at -1.21 as 55% of open positions were short. In detail, long positions are 1.9% higher than yesterday and 41.2% stronger since last week. Short positions are 4.4% higher than yesterday and 7.2% weaker since last week. Open interest is 3.3% stronger than yesterday and 2.3% above its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.


Cable same thing 60% short 40% long not extreme by any measure, now the 41% stronger shorts has me seeing long opp's, as 6hr has turned but daily R is strong. Will post Cable comment separately.

GBPUSD - The ratio of long to short positions in the GBPUSD stands at -1.47 as nearly 60% of traders is short. Yesterday, the ratio was at -1.53 as 61% of open positions were short. In detail, long positions are 3.1% higher than yesterday and 17.8% weaker since last week. Short positions are 1.3% lower than yesterday and 41.3% stronger since last week. Open interest is 0.4% stronger than yesterday and 6.1% above its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.

Euchre

Jamie - thoughts??

Disclaimer Trading Currencies involves risk. Any opinion, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice.

In trending markets, taking the opposite side of the SSI does work (if SSI is negative, then go long). Here is a chart of the EURUSD with the SSI below. The SSI has been negative since October (with the exception of one spike above 0 in January), and the EURUSD has continued to rise. It sounds like your trading is more aggressive and shorter term in which you trade both sides of the market (trend and countertrend). The SSI is a trend following indicator and may not be of much use to you.

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Jamie- Thanks for your reply, yes I am a speculator/scalper by trade. I won't hold over-nite or over the w/e. Risk/Reward doesn't favor it here.

From a longer term perspective I agree with the SSI, however traders need to read the tea leaves- for example today :
EURUSD - The ratio of long to short positions in the EURUSD stands at -1.32 as nearly 57% of traders is short. Yesterday, the ratio was at -1.59 as 61% of open positions were short. In detail, long positions are 14.2% higher than yesterday and 20.1% stronger since last week. Short positions are 5.6% lower than yesterday and 3.8% weaker since last week. Open interest is 2.0% stronger than yesterday and 0.5% below its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.

GBPUSD - The ratio of long to short positions in the GBPUSD stands at 1.01 as nearly 50% of traders is long. Yesterday, the ratio was at -1.01 as 50% of open positions were short. In detail, long positions are 0.9% higher than yesterday and 30.6% stronger since last week. Short positions are 1.3% lower than yesterday and 15.2% weaker since last week. Open interest is 0.2% weaker than yesterday and 5.2% above its monthly average. The SSI is a contrarian indicator and signals more GBPUSD losses.


This tells me that the short term spec's like myself are short Euro's and Cable as you should be no system worth anything intraday should have you long these pairs unless you are trading on the 5 minute chart. Longer out in bold has the retailers "wrong" IMHO. They are trying to buy pullbacks with Cable longs and Euro longs stronger. COT report is telling us how the commercials are playing it and if you simply watch intraday action, Euro strength is slow and sludgy followed by thrusts lower, that is the sign the big boys are sellers.

Finally Cables close today is HUGE, potential lower swing high with 9658 9638 area based on today's close. Yesterday both pairs rinsed the shorts they shot up and pulled all shorts from the market intraday 6hr's flipped from short to long back to short, not unusual in this market. Max pain approach and before lower they (commercials) wanted better positioning IMHO.

Euchre

Disclaimer Trading Currencies involves risk. Any opinion, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice.

Positions: Flat for now - expect next move after FOMC stmt.

Jamie, when do the COT and SSI reports / charts come out and how frequent are they? I have read the threads above on how to interpret these reports and I am beginning to grasp it. Is there any other material I can read or is what is explained I the threads basically it?
Thank you.

Jamie,
How much attention should one pay to the story behind the absolute numbers in the SSI? It seems Euchre has an interesting point about "reading the tea leaves". Thanks very much.