COT Report and a Black Swan event
The COT Report shows that Professionals are net long. Their net long positions make up 10.0% of total open interest in all stock index futures. This is up 0.8% from last week.
COT Report and Professional Position
The chart above shows the COT Report Professional position below the weekly Emini bars. It also includes a "Crash" indicator that is automatically added when the Emini drops more than 10% from it's recent high. More correctly this 10% level is normally called a "Correction" but whatever.
The point of showing this indicator is that we've had this large downward move in the Emini while the COT Report has shown that the Professionals are net long. This is the first time this has happened since the COT Reports started being published. As such, it is a Black Swan event.
Nassim Taleb, a very successful option trader, recently popularized the term with his book "The Black Swan." It refers to the fact that prior to the discovery of Australia all swans were assumed to be white because a black swan had never been seen. However, in Australia there happened to be black swans. The moral of the story? Don't assume an event will not happen just because it has never happened before.
COT Report and Crash Warning Signals
The chart above shows weekly bars of the Emini during 1999 and 2000. All 10% crash or correction events were preceded by warning signals from the COT Report. In each case, the Professionals turned bearish prior to the corrections and had adopted net short positions. According to the current COT Report the Professionals are very bullish - let's see how this turns out.
COT Oscillator and Turning Points
The COT Oscillator dropped slightly this week from -70 to -75. We're now in the buy zone and looking to take medium term long positions.
COT Report is a longer term indicator
Remember, this 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.
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