As an analyst, I spend quite a bit of time looking at the commitment of traders report. This gives us an insight into the mindset of speculators.
One of the ways of analysing this data is looking at commitment as a decile versus price deciles. Why do we do this? It is to do with the relationship between price and position of speculators. This can be seen in the first chart; when the speculators go shorter, the price tends to lower and vice versa.
Most know what a decile is, but in its simplest form, a decile of 100% means the highest for the timeframe, and 0 means the lowest. I have chosen to cover a three-year time frame, but if you’d like to see different time frames –drop me an email or tweet.
A 50th decile line is included for quick reference. Any figures above this line start to move towards expensive (price) or heavily bought (COT report). A decile below the line corresponds with cheaper (price) or heavily sold (COT report).
This chart shows that the MGEX wheat is at a high price decile over the past three years (98%), but that the fund position is at 84%. This could mean that there is more room for speculator interest.
Feeder cattle, as a comparison, has both price at the 99% and fund positioning at 100%.
A simple ready reckoner for how we view the deciles of price vs commitment:
- High price, low commitment = dear/oversold
- Low price, low commitment = bargain/oversold
- High price, high commitment = dear/overbought
- Low price, high commitment = bargain/overbought