Which Commitment of Traders Data Should You Use? (Part 2)
Part 2 of the "Which Commitment of Traders Data Should You Use?" analysis this week. You might remember from last time, that if you use Commitment of Traders data in your Emini trading you've got 5 data choices:
- Obviously data for the Emini (ES)
- Data for the large S&P500 contract (SP)
- Combined data for all the "mini" contracts (Emini, mini-Dow, mini-NASDAQ, etc.)
- Combined data for all the large contracts (S&P500, Dow, NASDAQ, etc.)
- Combined data for all indices (Emini, S&P500, mini-Dow, Dow, mini-NASDAQ, NASDAQ, etc.)
The Commitment of Traders data can be combined across different contracts by weighting the long/short open interest position by the margin required to trade each different contract.
In Part 1, based on system back testing, I concluded that the best raw data to use in Emini trading was the Commitment of Traders data for the large S&P500 contract (SP). It appears that the most well informed traders are those classified as Commercials and trading the SP - not those Commercials trading the Emini (ES)!
What was more worrying was that the CFTC appears to have inconsistent rules for classifying traders as Commercials - at least for Index futures. The chart below illustrates the point, with large jumps in the underlying data when re-classification occurs. Commitment of Traders data analysis appears to be more art than science.
Commitment of Traders Data Re-Classification
This week I back-tested my Commitment of Traders Oscillator with the different input data. Using a simple system that goes long when the Oscillator turns up from below zero and short when the Oscillator turns down from above zero you can see which Commitment of Traders data is best. Here's the summary, trading 1 Emini contract between Sept. 1997 and Jan. 2008.
| All | SP | ES | Large | Mini | |
| Profit | $28k | $29k | $20k | $58k | $18k |
| Profit Factor | 1.37 | 1.36 | 1.25 | 1.89 | 1.24 |
| No. Trades | 64 | 67 | 82 | 69 | 74 |
| % Profitable | 58% | 57% | 54% | 64% | 54% |
| Avg. Trade | $438 | $439 | $249 | $848 | $249 |
| Trade Drawdown | $16k | $17k | $14k | $17k | $15k |
| Max Drawdown | $24k | $25k | $23k | $20k | $29k |
Commitment of Traders: Which Data is Best?
Once again, the worst data to use is the Emini or the "mini-sized" contract data. These had Profit Factors of 1.24 and 1.25 and percent profitable only 54%. The large S&P500 contract and using all Index data did better with Profit Factors of 1.36 and 1.37 and percent profitable of 57% and 58%.
However, the best performance resulted from using data from all the "full-sized" index contracts. This produced a Profit Factor of 1.89, percent profitable of 64% and the lowest Max Drawdown result.
The overall shape of the Commitment of Traders Oscillator did not change markedly between using the SP contract and all "full-sized" contracts. But the signals at a couple of important market turning points were superior using the combined "full-sized" Commitment of Traders data.
As a result of this latest analysis, I will be following the SP data for direction and the Large contract data for the Commitment of Traders Oscillator.
I'll continue this article next week and re-visit the Black Swan article posted back in August 2007. The mystery of the Black Swan event is now solved. In the meantime here are the latest Commitment of Traders charts, showing SP Professionals are long and the re-worked Oscillator has now turned up.
Commitment of Traders: SP Professionals Long +2.0%
Commitment of Traders: Large Contract Oscillator -57
The Commitment of Traders Oscillator is a longer term Emini indicator and designed to highlight broad trends. The Commitment of Traders data is usually collected after the close on Tuesday each week and the Commitment of Traders Report is published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Which Commitment of Traders Data Should You Use?
If you use Commitment of Traders data in your Emini trading you've got 5 data choices:
- Obviously data for the Emini (ES)
- Data for the large S&P500 contract (SP)
- Combined data for all the "mini" contracts (Emini, mini-Dow, mini-NASDAQ, etc.)
- Combined data for all the large contracts (S&P500, Dow, NASDAQ, etc.)
- Combined data for all indices (Emini, S&P500, mini-Dow, Dow, mini-NASDAQ, NASDAQ, etc.)
The Commitment of Traders data can be combined across different contracts by weighting the long/short open interest position by the margin required to trade each different contract.
I have always believed that the combined data for all index contracts is superior, because it takes all instruments into account and results in smoother data. However, recent divergence between the Commitment of Traders data and market direction has been troubling me. The market has headed down while the combined data for all indices has been positive - i.e. Professionals have been net long.
Time for some back-testing. Using a simple system that goes long when the Professionals are net long and short when the Professionals are net short we can see which Commitment of Traders data is best - directionally at least. The results surprised me! Here's the summary, trading 1 Emini contract between Sept. 1997 and Jan. 2008.
| All | SP | ES | Large | Mini | |
| Profit | $38k | $62k | $5k | $46k | $25k |
| Profit Factor | 2.43 | 2.44 | 1.06 | 1.92 | 1.38 |
| No. Trades | 37 | 53 | 76 | 65 | 71 |
| % Profitable | 57% | 62% | 43% | 59% | 56% |
| Avg. Trade | $1,033 | $1,161 | $65 | $708 | $352 |
| Trade Drawdown | $10k | $11k | $8k | $10k | $15k |
| Max Drawdown | $29k | $29k | $37k | $24k | $26k |
Commitment of Traders: Which Data is Best?
First of all, the absolute worst data to use trading the Emini is the Emini Commitment of Traders data. The Profit Factor is 1.06 - break even and percent profitable is only 43%. Combining the other "mini" contracts helps a little (Profit Factor 1.38, percent profitable 56%) but we can do better.
The best data to use is the large S&P500 contract (SP). The Profit Factor is 2.44 and percent profitable 62%, while draw down results are no worse than the other data choices. Although the Profit Factor of using all indices is close to the large contract (2.43) the other metrics are worse - total profit is less and percent profitable is lower.
So that appears to clear up some confusion. However, while the Commitment of Traders data has in the past been a very reliable direction signal (i.e. long when Professionals are net long and vice versa) since mid-2003 the directional reliability has deteriorated.
I'll continue this article next week with testing of my Commitment of Traders Oscillator on the different data sources. In the meantime here's the latest chart, showing the Oscillator has turned up.
Commitment of Traders: Oscillator -24
The Commitment of Traders Oscillator is a longer term Emini indicator and designed to highlight broad trends. The Commitment of Traders data is usually collected after the close on Tuesday each week and the Commitment of Traders Report is published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Latest COT Report for the Emini
Here is the latest COT Report for the Emini.
Emini and COT Report: Professionals +4.3%
Professionals are long 4.3% of total open interest in all stock index futures, down 0.1% from last week. Remember the COT Report data is collected at the close of trade on Tuesday. This week's data does therefore not include positions taken during the large down move in the Emini at the end of the week.
As this large topping pattern has developed in the Emini since mid 2007, the Professionals' position in both Large and Mini index futures has stayed stubbornly above zero (i.e. long). In previous corrections the Professionals' position has always turned negative (i.e. short) before any move greater than 10%.
As each week goes by, I'm paying more and more attention to what the Professionals in the Large S&P contract are doing. Prior to this last leg down they did get short and this week they turned bullish and got long. Maybe the "real" smart money is trading the Large S&P contract. I'll do some more research and report back.
Emini and COT Report: Oscillator -58
The COT Oscillator is at -58, down from -34 last week. We're getting close to the typical reversal level of -80. Next week will be interesting.
Despite my comments above about the absolute level of Professional activity in Large versus Mini contracts, the COT Oscillator (which measures changes in position) is still providing good turning point signals.
The COT Oscillator is a longer term Emini indicator and designed to highlight broad trends. The COT data is usually collected after the close on Tuesday each week and the COT Report is published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Emini and Commitment of Traders Analysis
Here is the latest Emini and Commitment of Traders analysis.
Emini and Commitment of Traders Analysis: Professionals +4.4%
Professionals are long 4.4% of total open interest in all stock index futures, up 0.4% from last week.
Emini and Commitment of Traders Analysis: Oscillator -34
The Commitment of Traders Oscillator is at -34, down from -16 last week. We're in "no man's land" here with no clear signal - oversold but not close to the -80 typical reversal level. The next week will be one of waiting and seeing.
The Commitment of Traders Oscillator is a longer term Emini indicator and designed to highlight broad trends. The Commitment of Traders data is usually collected after the close on Tuesday each week and then published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Saturday 5 January 2008Emini and Commitment of Traders
Here are the latest Emini and Commitment of Traders charts.
Emini and Commitment of Traders: Professionals +4.0%
Professionals are long 4.0% of total open interest in all stock index futures, almost unchanged from last week's reading of +3.8%. Normally the Commitment of Traders data is collected after the close on Tuesday. This week, because of New Years, the data is for Monday's close. Remember the Emini was over 50 points higher at that stage.
Emini and Commitment of Traders: Oscillator -16
The Commitment of Traders Oscillator fell below the zero line and closed at -16 this week. We didn't reach the normal turning point of +80 last week, but the cross below zero confirms we're in a down swing. At -16 we're only slightly over-sold, however, remember the Commitment of Traders data is skewed this week because it does not include most of the week's trading.
The Commitment of Traders Oscillator is a longer term Emini indicator and designed to highlight broad trends. The Commitment of Traders data is usually collected after the close on Tuesday each week and then published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Saturday 29 December 2007COT Report and Emini Charts
Here are the latest Emini charts from Friday's COT Report.
Emini COT Report: Professionals +3.8%
Professionals are long 3.8% of total open interest in all stock index futures, almost unchanged from last week's reading of +3.7%..
Emini COT Report: Oscillator +67
The COT Oscillator increased from +59 to +67 this week. We're getting closer to the +80 level where Emini reversals are likely, but we're not there yet.
Emini COT Report: Large versus Mini Contracts
I haven't shown this COT Report chart before. The indicator shows the difference between the Professional position in "large" index contracts (e.g. S&P500 SP, Dow DJ) versus "mini" contracts (e.g. Emini ES, Mini-sized Dow YM). When the indicator is positive, Professionals in the "larger" contracts are more bullish than Professionals in the "mini" contracts.
This week's reading was -6.8%, down from last week's reading of -1.7% and the peak in mid-October. This adds to the overall cautious view I have of the Emini market.
Remember, the COT Oscillator is a longer term Emini indicator and designed to highlight broad trends. The COT Report data is collected after the close on Tuesday each week and then published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Saturday 22 December 2007Latest Emini and Commitment of Traders Charts
Here are the latest Emini charts from Friday's Commitment of Traders report.
Emini Commitment of Traders: Professionals +3.7%
Professionals are long 3.7% of total open interest in all stock index futures, a decrease of 2.4% from last week. As an Emini upswing gets underway it is normal for the professionals to lighten their long positions, so this decline is not unusual.
Emini Commitment of Traders: Oscillator +59
The Commitment of Traders Oscillator increased from +49 to +59 this week. We're getting closer to the +80 level where Emini reversals are likely, but we're not there yet.
Remember, the COT Oscillator is a longer term Emini indicator and designed to highlight broad trends. The Commitment of Traders Report data is collected after the close on Tuesday each week and then published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Saturday 15 December 2007Commitment of Traders and Critical Support
Here are the latest charts from Friday's Commitment of Traders report.
Commitment of Traders: Professionals at +6.1%
Professionals maintained their long positions at 6.1% of total open interest in all stock index futures, a decrease of 0.5% from last week.
Commitment of Traders: Oscillator at +49
The Commitment of Traders Oscillator crossed the zero line this week and reached +49. Crossing the zero line confirms the low reached during the last cycle at 1,417, marked with a blue dot.
The Emini looks very weak with a reversal bar this last week and closing on the lows. The Commitment of Traders Oscillator is also now above zero and, strictly speaking, over-bought. However, we saw possible climactic volume at the close on Friday.
Monday's trading will be critical to see if the 1,475 level holds. If it does not, we'll probably try and close the gap made on 28 November (see the chart below).
Critical Emini Support at 1,475
Remember, the COT Oscillator is a longer term Emini indicator and designed to highlight broad trends. The Commitment of Traders Report data is collected after the close on Tuesday each week and then published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Saturday 1 December 2007Commitment of Traders - Oscillator has turned
Here are the latest charts from Friday's Commitment of Traders report.
Commitment of Traders: Professionals at +5.1%
Professionals maintained their long positions at 5.1% of total open interest in all stock index futures, a decrease of 0.4% from last week.
Commitment of Traders: Oscillator at -48
The Commitment of Traders Oscillator turned up last week and has now risen to -48. The previous week's reading was -60 and the low was -75. The Oscillator had been in over-sold territory for some time and we were looking for signs of strength. This last week we got a break above 1,456.50, the previous week's high.
Remember, the COT Oscillator is a longer term Emini indicator and designed to highlight broad trends. The Commitment of Traders Report data is collected after the close on Tuesday each week and then published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
Saturday 17 November 2007Latest COT Report
Here are the latest charts from Friday's COT report.
COT Report: Professionals at +6.9%
Professionals increased their long positions again this week. The COT Report showed professionals at +6.9% of total open interest in all stock index futures, an increase of 0.9% from last week.
COT Report: Oscillator at -75
The COT Report Oscillator is at -75, down from -50 last week. The Oscillator continues to decline into over-sold territory but is yet to turn up. We're looking for signs of strength like exhaustion volume down on a weekly bar or break above the previous week's high. Trading volume is likely to be lower than average this week with the Thanksgiving holiday and we're still 50 points away from last week's high.
Remember, the COT Oscillator is a longer term Emini indicator and designed to highlight broad trends. The Commitment of Traders Report data is collected after the close on Tuesday each week and then published after the close on Friday. Click here for a full explanation of this Commitment of Traders analysis.
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