The Commitment of Traders report (COT) that was published at the close of last Friday's trade delivered a couple of welcomed extremes for the gold bugs.
First, the report revealed that the futures contract positions of the 'Managed Money' traders substantially added to their short positions while simultaneously reducing their number of long contracts. In short, they rearranged their portfolio to the bearish side by 28,000 contracts. This subset of investors was already holding a huge short position as of the previous week, which they made even larger this past week.
I don't know what kind of Kool-Aid these 'Managed Money' guys are drinking but something tells me they got it from Jim Jones for a really good price.
And secondly, the Blees Rating attained a score of 99 - which is hugely bullish for gold. The Blees rating is simply a measure of how bullish or bearish 'Commercial Traders' are when compared to the last 18 months.
The formula for this rating is a bit complicated and uses the Commercial Traders net contract holdings at the date of the current COT report, then subtracts the least number of net contracts held on any one of the past 78 weeks. This creates the numerator of a fraction. The denominator is found as the minimum number of net contracts in the past 78 weeks subtracted from the maximum number of net contracts in the past 78 weeks. Finally, once the fraction is computed it is multiplied by 100.
I took a shot at making a couple of charts using MS Excel to plot the weekly price of gold and the Blees Rating. The first chart looks at the time period of the past 4 years. The second chart is something of a close up using a 2 year time frame.
I am a bit annoyed that this second chart did not turn out as nicely as the first, but you get what you pay for here at the TSItrader. No doubt about that.
If the Blees Rating is new to you the thing to notice is that when the rating reaches 100 it means that the commercial traders are expecting gold to now rise. And guess what? They always seem to be correct.
Also you can notice that once gold does begin to rise the Blees Rating will begin to fall. That is because this subset of traders will begin to cash in their chips and eventually end up with an opposite reading nearer 0 when price peaks.
I am expecting good things, and very soon.
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John,
ReplyDeleteThis is interesing. Good work!! Great! But, I am troubled by that head and shoulders pattern on the HUI. It's sitting right on the neckline. What do you make of it? Clive Maund talked out it in one of his blogs. Monty
Hi Monty - I think the H+S pattern in this case is bogus.
ReplyDeleteThe symmetry is suspect, the volume rising to the head was
much greater than that rising to the left shoulder, and so
on. Save for the 2008 melt down, HUI has ALWAYS retraced
50% and that's it. Have fun - I think we finally made it
through the worst of this correction.
John, I'd say this is important evidence that major selling pressure has to abate now. You're right on. I know I could do the calculations myself, but do you know of any free site which updates the Blees on a regular basis?
ReplyDeleteJoe
Hi Joe - no, I do not. But you could always ask me.
ReplyDeleteJohn, this is interesting so now you ARE looking at COT ;)
ReplyDeleteAM - yeah a reader sent me a link to look at and it was
ReplyDeletethat Managed Money COT chart. So I am curious now to pay
a bit of attention. :-)
John, this is interesting, should be a warning sign last October when blees at 10 level, They were making a no-pass defense line right there at 1800.
DeletePlease update us when it falls below 20.
John, now look at the COT in other metals. Pt , Pd , Cu...
ReplyDeleteJohn, very interesting!!! Is Silver showing the same extreme Managed Money readings?
ReplyDeleteThanks,
Gerald
AM - you'll have to look at it and tell me what it says.
ReplyDeleteI do not have access to that information.
Gerald - no, silver is not at the same extreme as gold.
It has been moving in the correct direction, fwiw.
The current rating is 44.
John,
ReplyDeleteA quick look at Pt and Pd will tell the story, too many on the long side still. Look at that massive long position.
Now to blow anybody's bubble (pun intended) - from what i understand the blee rating or COT index calculation depends greatly on the number of the look back periods. In fact some smart folks who have been doing this for several decades wont disclose their look back calculations. That said, "blee" can stay around 100 for several weeks and the underlying price of the asset, say gold, can still fall another 100$, like it has happened in the past on several occasions.
What i find most interesting is how folks used to ignore COT on purpose (Gary comes to mind, he has been warned about this storm on many occasions back in oct - november) and now they are reaching to it as last resort when cycles no longer work. Interesting turn of events.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/2/24_Andrew_Maguire.html
ReplyDeleteYou must have got burnt deeply by now?
ReplyDelete