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Does The CoT Structure Prohibit A Rally? - Craig Hemke

Does The CoT Structure Prohibit A Rally? - Craig Hemke
By Craig Hemke 24 days ago 10545 Views 2 comments

November 22, 2017

Can the Comex metals rally from here given that the CoT structure is not yet fully "washed out"? Of course they can! While it's sometimes easy and obvious to assume that rallies are imminent by the CoT structure, history shows us that a fully-washed CoT isn't imperative for a bottom and rally.

Let's start with an example of a full wash, rinse and spin in Comex gold. Note the all-time lows of December 2015. That's as clean and washed as you're likely ever going to see.

DATE PRICE COMMERCIAL NET SHORT
12/1/15 $1060 2,911 (ALLTIME LOW)
5/3/16 $1290 294,901
5/31/16 $1210 214,038
7/5/16 $1375 340,207 (ALLTIME HIGH)

So, in this example, if you were waiting for a full CoT washout in May of 2016, you missed a $165 move in June.

DATE PRICE COMMERCIAL NET SHORT
12/27/16 $1150 134,022
4/18/17 $1290 211,064
7/11/17 $1210 73,916
9/12/17 $1330 272,098
11/14/17 $1283 225,791 (range of 210,000-233,000 since 9/26/17)

In 2017, the range of positions hasn't been as large but again, the CoT didn't need to go to net flat in July before a new rally could begin.

So, anyway, the moral of the story is...While we'd all like to have the CoT give us a clear indication of a bottom, it doesn't always do so. In fact, the CoT is far more useful at warning of TOPS than calling bottoms.

To that point, again note that THE ALLTIME HIGH in the Gold Commercial NET short position came on July 5, 2016 with price UP more than 30% from its bear market lows of just seven months earlier. Additionally, note that the price high of 2017 also came at the 2017 Commercial NET short high of 272,098. This was the highest Commercial NET short position since the CoT of October 4, 2016. And where was price then? $1280.

As this pertains to Comex silver, at TFMR we always pay attention to the Large Spec Net Long Ratio. This is derived by dividing the Large Spec GROSS short position into the Large Spec GROSS long position. History has show that anything below 2:1 starts to get bullish, near 3:1 is neutral and above 4:1 starts to get bearish.

As of last week, this ratio was 3.39:1. Some history:

DATE PRICE LARGE SPEC NET LONG RATIO
10/27/15 $16.25 4.19:1
12/15/15 $14.05 1.28:1
4/26/16 $17.25 4.75:1
6/7/16 $16.50 2.92:1
7/26/16 $20.10 4.62:1
1/3/17 $16.10 3.40:1 (Note this level, date and price)
2/28/17 $18.40 6.04:1 (ALL-TIME HIGH)
4/18/17 $18.30 5.24:1
7/18/17 $16.10 off of $15.30 low 1.12:1 (LOW SINCE 7/28/15)
9/12/17 $17.90 3.75:1
10/31/17 $16.70 2.70:1
Last week $17.07 3.39:1 (Note same ratio as 1/3/17)

Again, the point of laying all of this data on you is to dispel the notion that the only time the Comex metals can rally is IF AND ONLY IF the CoT has been fully washed and rinsed. As you can see, recent history proves that this is NOT the case. That said, any rallies that DO develop from here may be somewhat limited in size, strength and duration given the CoT neutral starting point.



Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.


The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

chas 24 days ago at 3:51 PM
Just a small correction....the commercial short position on 12/1/15 is not an all time low....during '01 and part of '02 the commercials were net long a number of times...you will be safe saying that it's a low since late '02....here is a recent tidbit..gold open interest went up by almost 34K contracts last thurs/fri on the rally and was reversed this week (mon/tues) by a little over 28K contracts....rarely happens that fast....what is my point you ask? somebody knew the fed minutes ahead of time....just sayin
JerseyJoe 23 days ago at 6:07 AM
Oh you mean like your average run of the mill bankster criminal fraud. Hmmm. Naaagh this game is completely on the up and up. :-)

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