RE: COT

["Dejan Corovic" <Dejan.Corovic@xxxxxxxxxxxxxx>]

Hi,

There is great deal of misunderstanding about the very essence of the future
market.
Commercials are not in the future market to make money. Future is not the
financial
instrument made so that speculators can make quick buck. Primary function of
any future
financial instrument is to hedge professional producers and consumers of the
underlying
commodity from the price movement risk.

So, if commercials (i.e. farmers) want to protect themselves from the fall
in price of the commodity (i.e. wheat) they will sell real commodity, and
buy the future (i.e. wheat future). Opposite will apply to the consumers
(i.e. grain elevators). They will want to protect themselves against rise in
prices, so they will buy the real commodity, and sell the future.

Commercials are not trying to make money by speculating with futures. It is
very nature of their enterprise to be sellers of the commodity and buyers of
the future.

I've never looked into it myself, but from the above it follows that COT
should be read differently. It should be the measure of the current demand
and supply.

Regards
Dejan Corovic

-----Original Message-----
From: Lawrence Chan [mailto:stnahc@xxxxxxxxx]
Sent: 10 May 1999 14:21
To: omega-list@xxxxxxxxxx
Cc: List Omega
Subject: Re: COT


commercial is usually on the otherside (the wrong side) of
index future and financial markets :)

because they do not anticipate the change in direction
but react to that only.

sudden drastic change in speculator positions in these mkts
usually tell something useful as their livelihood depends
on their correct bet on the directional change.

lately the small traders are doing better then before in
these mkts ... they used to be almost always on the wrong side :)

In summary - COT tells almost nothing about these mkts.

-Lawrence Chan

----------
> From: Rus Newton <rpn@xxxxxxxxxxxxxxxxxx>
>
> I think it depends partly on the market.
>
> We always felt that in energy, large commercial long positions were
> associated with commercials having hedged away large physical short
> positions - which does not suggest bullishness, if commercials have a
good
> call on the underlying physical market (which ought to be true).
>
> In a financial market, this relationship would probably not hold.
>
> Rus Newton
>
> -----Original Message-----
> From: gil ward [mailto:gw1933@xxxxxxxxxxx]
>
> when the commercials are heavy on long side, does that usually mean a
> rally could be in waiting?  Opposite for heavy in shorts.??????????????
> Gil
>
>
>