S&P Still Primed to Continue HigherCOT data is signaling a great buy opportunity in CME_MINI:ES1! despite all the talks of this "bear rally" peaking and a coming recession
The COT data has had us in this trade for the last couple months - just 1 SPY Call profited over $2,000. Personally, I took profits last week in accordance to my trading system. However, with the COT data still pointing heavily long, I'm looking for the daily chart to signal a long entry this week
Notes on My Trading Methodology and What I'm Even Talking About
COT Definitions:
- COT: Commitments of Traders Reports - A weekly report published by the government (CFTC) that shows long and short positions of the below 3 groups (As well as much more data I don't look at). We look at the NET positions of these 3 groups and compare them to historical levels to signal trade opportunities
1- Commercials: Hedgers - We want to trade with them when they're at extreme levels (Think Tyson for meats, Cargill and General Mills for grains, etc)
2- Large Speculators: Hedge funds and large institutions - We want to fade them (trade against) when they are at max positions (Think suits in NYC and commodity funds)
3- Small Speculators: People/institutions trading small lot sizes not big enough to report to CFTC - We want to fade their max positions as well since they represent the public (Think dude in his PJs trading and small trading firms)
Indicators on Chart:
- The first indicator shows the net positions of the 3 groups above plotted over time
- The second indicator is an index of the relative buying/selling of commercials over a certain lookback period. Anything above 95 is looking for buy (Green shading), look to sell when it hits 0 (red shading)
- I use both a short-term and long-term lookback
- When the small speculators are at max positions as well, it's further proof to get in the trade (shading gets darker)
- Note: Just because the Commercial's net position is negative doesn't mean it can't be relatively net long and signal a buy (same in the opposite scenario). This is very common with Gold for example
Trade Setup - Both Must Happen:
- When commercials are at max levels we are alerted to buy or sell (Depending on the criteria above)
- On a daily chart, use technical indicators, candlestick patterns, news, etc to enter the trade (I have a proprietary reversal signal I use)
- Added bonus when the trend is your friend (I use a Multiple Moving Averages indicator to visualize)
- If the trend is against you on both a Weekly and Daily chart, the short and long term Index must both be signaling to trade. If the trade fails, look to reverse the position and go with the trend
