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The New COT Report 1

 a Barchart Company

Reproduction or use of the text or visual content exchanges exchanges

without written permission is prohibited.

Copyright © 2015 Trends in Futures, a Barchart.com, Inc. company. All rights reserved.
209 W. Jackson Blvd., Second Floor, Chicago, IL 60606
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2 © 2015 www.trendsinfutures.com
 Discover the trading insight from these
off-the-radar resources

by Gary Kamen

The information herein is compiled from public sources believed to be reliable but is not
guaranteed as to its accuracy or completeness. No responsibility is assumed for the use
of this material and no express or implied warranties are made. Nothing contained herein
shall be construed as an offer to buy/sell, or as a solicitation to buy/sell, any security,
commodity or derivatives instrument.
The New COT Report 3
 If you are trading futures, Forex, exchange-traded funds (ETFs), or options, I cannot
stress enough the importance of incorporating the new Disaggregated COT Report and
the new Traders in Financial Futures Report into your trading.

As someone who has been involved in the futures market for 25 years, I’ve seen it all. I’ve
seen professional floor traders make millions—and lose millions. I’ve seen retail traders
lose everything, and not have a clue as to why. Very few traders develop strategies based on
understanding the how and why of what makes prices move in a market.

There is an old saying that you can never go broke by taking profits. I hear so many traders tell me that they had a
winner and let it turn into a loser. NEVER TURN A WINNER INTO A LOSER. You should write that on a
note right now and post it where you’ll see it.

In the following pages, you’ll learn about a tool that can help you get into a trade to maximize profits. You’ll have
greater confidence trading when you can clearly see who is supporting the trade you are in, and if and when you
should tighten your stops.

No matter what you trade, you’ll come to count on this tool.

Of course if you have any questions about anything you read in this book, feel free to email me at
Gary@TrendsinFutures.com or call me (yes I am a real person!) at (312) 506-8706.

Be well, trade well, and follow the trends,

Gary Kamen
Chief Market Strategist
and Educator

“Our greatest weakness lies in giving up. The most certain way to succeed
is always try one more time”

– Thomas A. Edison

4 © 2015 www.trendsinfutures.com
A Little History
The first Commitments of Traders (COT) Report was
published for 13 agricultural commodities in June
30, 1962. At the time, this Report was proclaimed as
another step forward in the policy of providing the
public with current and basic data on futures market
operations.

Those original Reports were compiled on an end-of-

month basis and were published on the 11th or 12th
calendar day of the following month (think about
technology back then).

The purpose of the COT was to differentiate between

Commercial and Non-Commercial traders.

The COT gradually became known as a tool that commodity traders used in an attempt to see the “thinking” of
the large speculators and the Commercials. It was a given that the Commercials and large speculators enjoyed an
enormous advantage and were more knowledgeable about the markets than the “small speculator”.

The COT levels the playing field by exposing the players behind the trades.

The COT levels
the playing field by
exposing the players
behind the trades.
Commercials (aka hedgers) are companies or traders that deal with actual
commodities as part of doing business. Commercials are exempt from position
limits and post smaller margins than speculators.
Large speculators are traders whose trading levels are high enough that they
require Reporting to the Commodity Futures Trading Commission (CFTC).
Small speculators are the traders remaining after the Commercials and large
speculators have been subtracted from the total open interests.

The CFTC releases the COT Report every Friday. It summarizes changes in futures positions in all major com-
modities by all major players. While tremendously useful, the COT seems to many to be very complex. Because
of this belief, not many retail traders, novice or experienced use this vital information.

If you look at open interest, not knowing who the players are could cost you. The following pages will help you
dissect the COT so you can know exactly how to utilize this critical information in your trading— and catch the
big market moves we are all searching for.

COT is your compass, showing the direction of the markets pushed along by increased buying and selling.

The New COT Report 5

 ZC- Corn - Weekly Nearest Candlestick Chart

On the Corn chart, above, you can see how Commercials are the sell side of the market, selling as prices rise.
The buy side, Large Speculators, buy as prices rise.

Look at what happens as prices drop. Here it’s not about looking only at one group or the other, it’s about the
relationship between both that we are analyzing.

Put another way, as someone who has spent time on the CBOT trading floor (back when there was a trading
floor!), if you heard a pit in an uproar, you had a pretty good idea that market was moving. What was happening?
Increased buying and selling.

After all nothing else moves a market.

6 © 2015 www.trendsinfutures.com
The Commitments of Traders Report
WHY IS THIS REPORT IMPORTANT?

Rising open interest tells us new buyers are entering a market, and for every new buyer, there must be a new seller
for open interest to increase.

If you take anything away from this book, learn to see who the traders are selling in an up-trending market.

There is a tool that can help you see exactly how all major trends start in any market — increased buying and
selling by big money. It is called the Commitments of Traders Report (COT). The Commodity Futures Trading
Commission (CFTC) releases this Report every Friday. The first Report separated Commercials, Large Speculators,
and Small Speculators.

You cannot make an intelligent analysis of open interest without analyzing the COT. This Report is essential;
without it, you have no idea how “big money” is posturing in a market.

As large cash merchants in the business, Commercials maintain their own intelligence-gathering networks and
analysis. In fact, in some markets (such as softs, grains, and meats), commercial trade houses are the primary
source of fundamental supply-and-demand statistics available to the trading public.

You cannot make an intelligent analysis of open interest without analyzing the COT.

Assuming these numbers are accurately reported, you can be sure they have already been acted on in the market
before the data is released to the public. The COT Report detects these actual market manipulations. Besides being
at a decided informational advantage, large Commercials by definition trade in sizes large enough to move mar-
kets. Given these advantages, their futures trading prowess is not surprising.

SO HOW DO YOU USE THIS REPORT?

The following information was taken from the CFTC website.

Although each COT Report contains many statistics, of primary concern to futures and options traders are the
actual positions and the changes from the prior Report. Some try to work directly from the raw numbers, but the
data are most easily analyzed when graphed as net positions opposite a weekly price chart.

To derive the net positions for each trade category, simply subtract the short contracts from the long. A positive
result indicates a net long position (more long than short contracts), and a negative indicates a net short position
(more shorts than longs).

The New COT Report 7

 Whether a particular trader group is net long or short is not important to the analysis; net positions relative to
historical levels are. Therefore, a simple net position is meaningless; it is imperative to compare the current net
position with the recent historical levels in the respective market. The relative bullishness/bearishness of the
Commercial net position is easier to see when you can view the current net position with both the highest and
lowest net commercial position over a selected period of time.

Commercial Net Positions Legacy Report

THE FIRST “NEW” REPORT

The Commodity Futures Trading Commission (Commission) began publishing a Disaggregated Commitments
of Traders (Disaggregated COT) Report on September 4, 2009. The first iteration of the Report covered 22 major
physical commodity markets; on December 4, 2009, the remaining physical commodity markets were included.

The Disaggregated COT Report increases transparency from the legacy COT Reports by separating traders into
the following four categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money; and Other
Reportables. The legacy COT Report only separates reportable traders into “Commercial” and “Non-Commercial”
categories.

All COT Reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders
hold positions equal to or above the reporting levels established by the CFTC. The Reports are published in
futures-only formats as well as futures-and-options combined formats. The data are available in both a short
format and a long format.2

8 © 2015 www.trendsinfutures.com
The Disaggregated COT Report is being published side-by-side with the legacy COT formats. The Commission
is soliciting comment on the new Report and will review whether to continue to publish both side-by-side, or to
replace the legacy Report with the new Report.

This initiative for providing market transparency arises from the recommendation to disaggregate the existing
“Commercial” category in the Commission’s September 2008 Staff Report on Commodity Swap Dealers & Index
Traders. Specifically, that Report recommended:

Remove Swap Dealer from Commercial Category and Create New Swap Dealer Classification for Reporting
Purposes: In order to provide for increased transparency of the exchange traded futures and options markets,
the Commission has instructed the staff to develop a proposal to enhance and improve the CFTC‘s weekly
Commitments of Traders Report by including more delineated trader classification categories beyond Commercial
and Non-Commercial, which may include, at a minimum, the addition of a separate category identifying the
trading of swap dealers.

The new categories are as follows:

1. Producer/Merchant/Processor/User
An entity that predominantly engages in the production, processing, packing or handling of a physical commodity,
and uses the futures markets to manage or hedge risks associated with those activities.

2. Swap Dealer
An entity that deals primarily in swaps for a commodity and uses the futures markets to manage or hedge the risk
associated with those swaps transactions. The swap dealer’s counterparties may be speculative traders, like hedge
funds, or traditional commercial clients that are managing risk arising from their dealings in the physical com-
modity. (See next chapter on Swap Dealers)

3. Money Manager
A registered commodity trading advisor (CTA); a registered commodity pool operator (CPO); or an unregistered
fund identified by CFTC.7 These traders are engaged in managing and conducting organized futures trading on
behalf of clients.

4. Other Reportables
Every other Reportable trader that is not placed into one of the other three categories is placed into the “Other
Reportables” category.

Disaggregated Report Correlation to the Legacy Report

Producers + Swap Dealers = Commercials
Managed Money + Other Reportables = Non-Commercial

The New COT Report 9

 THE SECOND “NEW” REPORT
The following information was taken from the CFTC website.

The Traders in Financial Futures (TFF) Report, announced by the Commodity Futures Trading Commission
(CFTC) on July 22, 2010, builds on improvements to transparency implemented in 2009 that disaggregated data
in the CFTC’s weekly Commitments of Traders (COT) Reports.

The new Report separates large traders in the financial markets into the following four categories: Dealer/
Intermediary; Asset Manager/Institutional; Leveraged Funds; and Other Reportables. The legacy COT Report
separates Reportable traders only into Commercial and Non-Commercial categories.

The TFF Report, like the COT Reports, provides a breakdown of each Tuesday’s open interest for markets in which
20 or more traders hold positions equal to or above the reporting levels established by the CFTC. This Report is
published in futures-only and futures-and-options combined formats. The TFF Report is published side-by-side
with the legacy COT.

10 © 2015 www.trendsinfutures.com
The TFF Report
The Commission, by regulation, collects confidential daily large-trader data as part of its market surveillance
program. That data, which also support the legacy COT Report, is separated into the following categories for the
TFF Report:

1. Dealer/Intermediary
2. Asset Manager/Institutional
3. Leveraged Funds and
4. Other Reportables

TRADER CLASSIFICATIONS

The TFF Report divides the financial futures market participants into the “sell side” and “buy side.” This traditional
functional division of financial market participants focuses on their respective roles in the broader marketplace, not
whether they are buyers or sellers of futures/option contracts.

For example, the category called Dealer/Intermediary represents sell-side participants. Typically, these are
dealers and intermediaries that earn commissions by selling financial products, capture bid/offer spreads or
otherwise accommodating clients.

The remaining three categories (Asset Manager/Institutional, Leveraged Funds, and Other Reportables)
represent the buy-side participants. These are essentially clients of the sell-side participants who use the markets
to invest, hedge, manage risk, speculate or change the term structure or duration of their assets.

CFTC staff use Form 40 data and, where appropriate, conversations with traders and other data available to the
Commission regarding a trader’s market activities, to make a judgment on each trader’s appropriate classification.

Some multi-service or multi-functional organizations have centralized their futures trading. In such cases, their
Form 40 may show occupations and market usages related to more than one of the new categories. CFTC
Division of Market Oversight (DMO) staff place each reportable trader in the most appropriate category based
on their predominant activity.

Some parent organizations set up separate reportable trading entities to handle their different businesses or
locations. In such cases, each of these entities files a separate Form 40 and is analyzed separately to determine
that entity’s proper TFF classification.

A trader’s classifications may change over time for a number of reasons. A trader may change the way it uses the
markets, may trade additional or fewer commodities, or may find that its client base evolves. These changes may
cause DMO staff to change a trader’s classifications and categories and/or change the commodities to which a

The New COT Report 11

 trader’s various classifications apply. Moreover, a trader’s classification may change because the Commission has
received additional information about the trader.

Now looking closer at the institutions that make up these categories:

1. Dealer/Intermediary
These participants are typically described as the “sell side” of the market. Though they may not predominately
sell futures, they do design and sell various financial assets to clients. They tend to have matched books or offset
their risk across markets and clients. Futures contracts are part of the pricing and balancing of risk associated with
the products they sell and their activities. These include large banks (U.S. and non-U.S.) and dealers in securities,
swaps and other derivatives.

The rest of the market comprises the “buy-side,” which is divided into three separate categories:

2. Asset Manager/Institutional
These are institutional investors, including pension funds, endowments, insurance companies, mutual funds and
those portfolio/investment managers whose clients are predominantly institutional.

3. Leveraged Funds
Typically hedge funds and various types of money managers, including registered commodity trading advisors
(CTAs); registered commodity pool operators (CPOs), or unregistered funds identified by CFTC. Their strategies
may involve taking outright positions or arbitrage within and across markets. The traders may be engaged in
managing and conducting proprietary futures trading and trading on behalf of speculative clients.

4. Other Reportables
This is for Reportable Traders that are not placed into one of the above three categories. These traders are mostly
using markets to hedge business risk, whether that risk is related to foreign exchange, equities or interest rates.
This category includes corporate treasuries, central banks, smaller banks, mortgage originators, credit unions and
any Other Reportable Traders not assigned to the other three categories.

The Traders in Financial Futures Report has no direct correlation to the Legacy Report.

12 © 2015 www.trendsinfutures.com
Swaps Dealers
Unlike most standardized futures contracts, swaps are not exchange-traded instruments. Instead, swaps are
customized contracts that are traded in the over-the-counter (OTC) market between private parties. Firms and
financial institutions dominate the swaps market, with few, if any, individuals participating.

In 1987, the International Swaps and Derivatives Association (ISDA) reported that the swaps market had a total
notional value of $865.5 billion. By mid-2006, this figure was just over $250 trillion, according to the Bank for
International Settlements (BIS). Back then, that was more than 15 times the size of the US public equities market.
As of the second half of 2014, the BIS reported the total notional value at over $691 trillion (below).

Table 1
Global OTC Derivatives Market
Amounts outstanding, in billions of US dollars

(Provided by the Bank for International Settlements www.bis.org)

The New COT Report 13

 Keep in mind the International Swap Dealers Association (ISDA) made numerous attempts to stop the Swap
Dealers positions from being removed from the Commercial category. Luckily for the small retail speculator, that
did not work. Looking at the old Report together with the new Report you will see why this was so important.

The following charts will give you a chance to see for yourself. If you need any assistance in using this vital
information, you can email me at Gary@TrendsinFutures.com.

So who are the Swap Dealers?

Four Banks Dominate in Derivatives
Insured US Commercial Banks and Savings Associations

Based on notional amounts of derivative contracts held for trading, the following four financial institutions are at
the top of the list as of September 30, 2014:
1. Citibank 2. JPMorgan Chase 3. Goldman Sachs 4. Bank of America

No surprises here. See the next table for confirmation (provided by the Comptroller of the Currency.) What I
find amazing here is the huge difference between number four, Bank of America, and number five, Wells Fargo:

Notional Amount of Derivative Contracts

Top 20 Commercial Banks, Savings Associations & Trust Companies in Derivatives
September 30, 2014, $ Millions

14 © 2015 www.trendsinfutures.com
A Picture Is Worth a Thousand Words

On the following pages you will find weekly charts from the old Legacy Report, the new Disaggregated Report
(commodities), and new Traders in Financial Futures Report. You will be able to see why I now use the new
Reports instead of the old ones.

While there is no COT Report for Forex you will see exactly what to watch for to catch every trend in Forex.

The weekly COT figures are for December 30, 2014.

Charts provided by www.TrendsinFutures.com.

The New COT Report 15

 ZC- Corn - Weekly Nearest Candlestick Chart

Corn
This chart shows the week of April 1, 2013: a bear begins in corn to help bring prices down to the lows for 2013,
in December. A bull move in corn took place the week of January 13, 2014, as corn moved to hit the 2014 high
the week of May 5 (519½). The following week, a bear was again seen as Producers started dropping net shorts
leading to corn’s 2014 low of 318¼ the week of September 29. Two weeks before, the weekly low hit a bull once
again and appeared prepared to push the market higher into year’s end.

December 30, 2014: COT Producers net short -415,408 contracts, Managed Money net long 233,725 contracts,
and Swap Dealers net long 265,952 contracts.

Remember who the Swap Dealers are and why they are trading in corn.

16 © 2015 www.trendsinfutures.com
 CL- Crude Oil WTI - Weekly Nearest Candlestick Chart

OIL
The first item you will notice is the strong sell-side. It’s not Producers, but Swap Dealers.

On the week of January 9, 2012, Swap Dealers crossed below Producers and have stayed there. An interesting
point to look at is the week of August 26, 2013, where crude oil hit a high of $112.24 as Swap Dealers were net
short -410,739 contracts, Managed Money was net long 273,887 contracts and even producers were net long
44,748 contracts.

You want to see crude oil back above $100 a barrel? I am hoping you can see what you need to watch for in order
to catch that ride. COT December 30, 2014: Producers -71,339 net short, Swap Dealers -218,068 net short, and
Managed Money 200,896 net long.

The New COT Report 17

 GC - Gold - Weekly Nearest Candlestick Chart

Gold
What about GOLD? Like crude oil, swap dealers in gold are a strong sell-side. You can see on this chart
the week of July 22, 2013. Swap dealers crossed down below Producers and most recently have converged.
A number of times gold bounced off $1,200.

On July 1, 2013, you can see the move heading up to $1,400—and you can see who helped push prices higher.
Next time you see this is December 30, 2013. Look at gold’s price action from the first week of July 2014: the
opposite took place, with gold dropping from $1,350, heading down to $1,200.

Looking for a gold rush again? Watch the COT week to week and you will see it happening right before your
eyes. It may help you make a little money!

18 © 2015 www.trendsinfutures.com
 KC - Coffee - Weekly Nearest Candlestick Chart

Coffee
Coffee bulls had a very solid fundamental in their favor in 2014: the Brazilian drought. Looking at this chart, even
with the drought, the actual engine that pushed coffee prices higher and higher was the increased buying and sell-
ing by none other than big money. Without this buying and selling, you would not have seen coffee prices break
above 200.00.

The first sign of the bull was seen the week of December 9, 2013, and as that continued, a stronger push came the
week of January 27, 2014. See how Swap Dealers moved on the ride up.

Heading into 2015, anyone trading coffee needs to watch the current COT bear in coffee. If it strengthens, guess
where price action is headed …

The New COT Report 19

 YM - DJIA Mini-Sized - Weekly Nearest Candlestick Chart

Dow Jone Industrial Average

On this Dow chart, we are now looking at Traders in Financial Futures. The two groups you will want to look at
here are Leveraged Funds and Dealer Intermediary.

You can see these two groups are the ones who increase or decrease sell-side selling and buy-side buying. Earlier
in this book I explained that large financial institutions could be placed in more than one category if they fill
out the necessary forms. This means Goldman Sachs, BofA, JPMorgan Chase, or Citibank in the Dow, SP,
or NASDAQ could be classified as a Dealer Intermediary and Leveraged Funds, which makes for interesting
conversation.

See the action in big money as the Dow makes new highs again and again in 2014. And look how 2014 ended.
If this action continues into 2015 a nice drop will be under way. Are you ready?

20 © 2015 www.trendsinfutures.com
 E6 - Euro FX - Weekly Nearest Candlestick Chart

Euro
In this Euro Currency Futures chart, you can see in the week of May 12, 2014, Dealer Intermediary crossed
above Leveraged Funds, beginning a very long term down trend. From the last week in 2014, it looks like this
downtrend will continue into 2015. The weekly close May 12 was 1.36970; the weekly close December 29,
1.20130. The COT ended 2014 with Dealer Intermediary adding to net longs at 179,542 contracts, and
Leveraged Funds adding to net shorts at -127,666 contracts.

If you trade Forex, just think how you would apply this data to trading the EURUSD or any other Forex pair
with the Euro.

The New COT Report 21

 J5 - Japanese Yen - Weekly Nearest Candlestick Chart

Yen
In this Japanese Yen Futures weekly chart, we see something remarkable: a strong bear in place since late 2012.
The strong bear presents itself with Dealer Intermediary staying net long since October 2012. When Shinzo Abe
was running for Prime Minister of Japan, he promised to bring down the Yen. After winning the election, it looks
like he made good on his promise—which he could not have done unless he had the help of big money pushing
down the Yen.

In the last week of 2014 for the COT in the Yen, we see Dealer Intermediary once again adding to net longs,
now at 85,847 contracts, and Leveraged Funds adding to net shorts, -80,408 contracts.

22 © 2015 www.trendsinfutures.com
 DX - US Dollar Index - Weekly Nearest Candlestick Chart

USD
On this USD Index weekly chart, you can see price action from January 2014 until July 2014 hung between 79
and 81. Then there were two extreme bull moves by Dealer Intermediary. First, June 9 net long 2,380 contracts
moving on June 16 to net short -18,942 contracts. Next break over 81—hold on tight. The second on September 8,
when net shorts were -19,047 contracts, and just one week later on September 15, net short -42,125.

Solid bull posture here helped the USD break above 91.000 by year’s end.

The New COT Report 23

 NOW YOU KNOW

So now you see that in the past decade, more money has come to the futures industry than at any other time. Ac-
tually more money has come into derivatives from 2000 to 2014 than the markets saw from 1900 to 2000. In this
traders opinion, much of this has to do with the ending of the Glass-Steagall Act or the US Banking Act of 1933,
which occurred in 1999.

The CFTC did the small retail trader a favor by creating the COT Disaggregrated Report and the Traders in Fi-
nancial Futures Report. Now more transparent, these Reports can give you the insight on how the “biggest money”
is posturing in any market.

If you have been told that the COT is really complicated to understand, and requires some special COT index
to decipher, someone is trying to sell you something. That couldn’t be further from the truth. All you need is the
proper views and understanding.

Like other valuable trading tools, the COT is not to be used by itself. There are key indicators that when used with
the COT gives you the proper timing signal for entering an extremely high probability trade.

In closing, let me add that if you are trading futures, forex, or options and are not using the new COT Report,
you’re missing the big picture. You’re not seeing what is up ahead because you’re not seeing big money movement.

It would be like standing in a room with three adult wild elephants blindfolded. Not seeing their movement, I am
guessing, would not feel to good. Same goes for your trading and the new COT.

Thanks for taking the time to read how this powerful information can help you. I am always an email or phone
call away to help you better understand anything you have read in this book, or if you need any assistance in
your trading.

Until next time.

Be well, trade well, and follow the trends.

All the best, Gary Kamen
Gary@TrendsinFutures.com

24 © 2015 www.trendsinfutures.com
The New COT Report 25
 Copyright © 2015 Trends in Futures, a Barchart.com, Inc. company. All rights reserved.
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(800) 621-5271 • www.trendsinfutures.com