Monday, August 20, 2012


One of the basic concepts of COT data is following the Large Specs. Everyone focuses on the Commercials when they first start learning about this. However, what they come to find out is that the Commercials are on the wrong side of the trend a good portion of the time, and you can just get run out of Dodge trying to fade trend moves if you focus solely on them. You will notice that the black line in the chart above is the Large Specs, pretty much a mirror image of the Commercial positions.

This is typical for them to be the polar opposite, but it is not always the case. One of the basic COT theories is that the Commercials are the trend changers, and the Large Specs are the trend drivers. You can see this is pretty much the case where I have the arrows on the chart. Clearly in those cases, there were trends, that as they went along, the Large Spec position just got increasingly more supportive all the way to the point where the trends changed. The reason for this is that the large funds are typically scale in buyers and sellers. As a result, they will most of the time have their largest net shorts at lows and net longs at highs. Conversely, the Commercials will typically have their largest shorts at highs and largest longs at lows.

Neither one of these as a result, is great from a short term timing perspective. The Large Specs get you leaning the wrong way at the end, and the Commercials often get you leaning the wrong way too soon. It is this dilemma which makes using this report and art and not a science. It is also why I go back and forth with it in terms of when I pay attention to it and when I do not. For the most part I do not watch in any more other than when I am looking to do something on a longer term basis.

One pattern that you can see at the first arrow, is one that can be quite useful. You can see in this case, the Large Specs starting buying pretty heavily before the trend started to change, or at least lightened their shorts quite a bit. This was telling of a trend change coming. We then came back down to test that low in price, and yet the Large Spec net position held way above that same low in price. This told us that they were going to push a move higher most likely. You can see how sharply we rose after that pattern was formed. It is these types of subtle things that are helpful with this data. Just looking at grand totals of who is where is not really meaningful in my view.

Hope this helps

Just the update on PFG for those of you stuck in this with me. The trustee did put out a memo at the website basically saying they are a few weeks away from getting some money back to clients. There is no mention of the amount, and it really is anyone's guess as to what it might be. Here is the one glaring inconsistency in the numbers in my opinion. On the day of the debacle, there was supposedly $397 Million dollars in Seg funds at PFG. The NFA complaint cites over $200 Million dollars missing. So that would roughly say about half is gone. Also according to the CFTC records, that number is what they had consistently claimed recently in the Seg amounts. However, the trustee has reported very specifically that $197 Million dollars went to PFG from MF Global clients since the October implosion of MF. So if we back that out of the $397 Million we get to $200 Million which must have been there before October of last year. Now we are told that $200 Million is missing, if we back that out of this we are left with zero? 

This would mean if he were stealing over time as he has claimed, they essentially had zero Seg Funds on hand in October of last year, or the $200 Million has been stolen during the last 10 months. If the latter were true, he must have had a lot of people involved in that to pull it off. Also, clawing it back will be easier. I doubt this is the case, so the net of this is that these numbers are so inconsistent, that I think it is causing the trustee quite of bit of trouble trying to figure out what is real and what is not, hence the long delay. Since the odds heavily favor most of it having been syphoned off before now, the question is how in the world they met the margin requirements for all the trades of their clients for so long. Even though those dumb asses at the NFA accepted fake statements, the clearing people are not going to do that. There had to have been money somewhere?

In the end all of this will come out as to who else was involved and how exactly this happened. He does not appear to be a Democrat, so he won't be exempted from the law like Corzine is. Although one thing to keep in mind with Corzine. I am not sure if there is any actual hard evidence or proof that he did what we all think he did. If there is he will be bankrupted in civil courts which might be even better than him going to prison. He is pretty wealthy, and I can tell you from the life style changes I have had to make on a smaller scale, it is no fun having you money taken away when you are used to having some. Also, what is lost in all of this for some unexplained reason is that MIF Global Clients are going to wind up with 100% of their money back. All these articles I see never seem to mention that for some reason. Also, the few articles we see on PFG don't seem to mention how much worse this is likely to be as a percentage?

Good Trading


klh said...

just saw another article on PFG -

but to your point - I think the Corzine thing is not that he is a democrat but:

a: GS connection - this is the trumpster, the ruler, not Dem or GOP - party is meaningless and just for propaganda for the great unwashed (that there still is a choice).

b: Corzine denied his involvement ad nauseum- unfortunately, Wassendorf (PFG) kinda admitted everything, at least in his suicide note - slam bang.

Chris Johnston said...

it is because he is a democrat however if he were a republican and the pres was also one, he would be protected as well

they protect their own at our expense

Chris Johnston said...

the CCC lawyer is going to get him it will be fun to watch him go broke

HomeHedgie said...

Hi Chris,

Just found your blog today from this list which I somehow also appear on. #93


Am I right to assume that you found your way to PFG via the World Cup program and Robbins? I was in the competition for all of 3 months before this fiasco. You mentioned participating a few times. Might I ask why you stopped and/or your experience with the program.

I have zero interest in becoming a CTA and their autotrade program(s) seemed like the only way to manage more than 15 accounts.

I also recently came across
that may be of interest if you haven't seen it.

Chris Johnston said...

no I found my way to PFG due to Genesis and they being one of their partners to trade the platform with. I moved my money over in 2009, little did I know it would become it's final resting place.

The autotrade program has pluses and minuses, and it really depends on your trading style. If you are very short term and trade thin markets or forex, I don't think it makes any sense. If you hold overnight and trade liquid markets, it can be something to consider. They want me to run my bond system with them, and so far I have not wanted to do that. I am just not sure how many people I want making those trades along side of me.

Chris Johnston said...

Yes I am aware of the CCC they have the best information on the case. I would suggest listening in on the next conference call they do on it since you are a victim. Also follow Koutoulis on twitter, he pops off on this topic often enough

HomeHedgie said...

Thanks Chris.