The official Commitments of Traders Report shows the positioning of various dealer groups on the futures markets in the US, as they are published once a week by the CFTC, usually on Fridays at 9:30 pm CET. Due to their special collection and data depth, they offer a unique source of information in this form. The data collection department divides the traders into reportable and non-reporting traders. Disclosure of the motivation and business activities of the traders involved in the report also allows a subdivision into so-called commercial and non-commercial traders as well as other subgroups. In essence, commercial and non-commercial traders differ in that commercial traders are earning their money with the underlying itself and not with its price change, while non-commercial traders are trying to benefit from price changes.
The COT indicator represents a sentiment indicator
Commercials at the reporting date in relation to the positioning in the past (usually the last three years). A value of 100 signals the most bullish positioning, a value of 0 the most bearable positioning within this time period.
The positioning of the speculators can be interpreted as a so-called "hard" sentiment indicator. There are a variety of different ways to measure the mood of certain market participants against asset classes. In contrast to "soft" sentiment indicators, this is not a survey of the possible future behavior of market participants, but actual positions taken. This makes this much more representative for the actual market mood and enables conclusions to be drawn about the consequences of future price movements on the portfolios of various market participants.
It is true that commercial traders can not derive a "fair value" of an asset, but the behavior of the commercials gives at least an indication as to whether those market participants who work with the underlying every day are fair, overpriced or undervalued hold. Together with the speculative sentiment, this is a very useful information about the current characteristics of the respective market. With the help of the Commitment of Traders Reports, deep insights into the state of the underlying market can be gained. Especially in phases where the positions of some dealer groups reach extreme values, a trend becomes increasingly fragile and the probability of a trend change increases significantly. The weekly publication also enables a timely analysis of the market structure and the timely recognition of such cyclical turning points.