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Buy
Based on the latest 13 weeks of non-commercial positioning data. ℹ️

MSCI EM INDEX (Non-Commercial)

13-Wk Max 187,285 93,225 41,493 14,233 117,899
13-Wk Min 142,790 69,386 -21,125 -20,298 56,108
13-Wk Avg 162,439 81,878 -445 -512 80,560
Report Date Long Short Change Long Change Short Net Position Rate of Change (ROC) ℹ️ Open Int.
May 13, 2025 168,200 81,600 20,625 3,087 86,600 25.39% 1,066,427
May 6, 2025 147,575 78,513 -21,125 -3,269 69,062 -20.54% 1,060,204
April 29, 2025 168,700 81,782 -4,094 -1,146 86,918 -3.28% 1,070,872
April 22, 2025 172,794 82,928 5,344 -8,473 89,866 18.17% 1,072,830
April 15, 2025 167,450 91,401 -18,260 7,629 76,049 -25.40% 1,085,507
April 8, 2025 185,710 83,772 11,853 5,190 101,938 6.99% 1,086,329
April 1, 2025 173,857 78,582 -13,428 9,196 95,275 -19.19% 1,069,740
March 25, 2025 187,285 69,386 41,493 -20,298 117,899 110.13% 1,066,426
March 18, 2025 145,792 89,684 -387 14,233 56,108 -20.67% 1,403,270
March 11, 2025 146,179 75,451 382 1,188 70,728 -1.13% 1,076,528
March 4, 2025 145,797 74,263 3,007 -9,569 71,534 21.33% 1,071,458
February 25, 2025 142,790 83,832 -16,782 -9,393 58,958 -11.14% 1,087,496
February 18, 2025 159,572 93,225 -14,413 4,968 66,347 -22.61% 1,057,273

Net Position (13 Weeks) - Non-Commercial

Change in Long and Short Positions (13 Weeks) - Non-Commercial

COT Interpretation for MSCI INDICES

Comprehensive Guide to COT Reports for Financial Instruments

Table of Contents

Introduction

The Commitment of Traders (COT) reports for financial instruments provide critical insights into positioning across currency, interest rate, and equity index futures markets. These markets differ significantly from commodity markets in terms of participant behavior, market drivers, and interpretation methodology.

Financial futures markets are characterized by institutional dominance, central bank influence, global economic sensitivity, and high levels of leverage. Understanding how different market participants position themselves in these markets can provide valuable information for both traders and investors seeking to anticipate potential market movements.

This guide focuses specifically on analyzing and applying COT data to financial futures markets, with specialized approaches for currencies, interest rates, and equity indices.

The Traders in Financial Futures (TFF) Report

The Traders in Financial Futures (TFF) report is a specialized COT report format introduced by the CFTC in 2009 specifically for financial markets. This report provides more detailed categorization of traders than the Legacy COT report, making it particularly valuable for financial futures analysis.

Key Features of the TFF Report

Enhanced Trader Categories:

  • Dealer/Intermediary: Typically large banks and broker-dealers
  • Asset Manager/Institutional: Pension funds, insurance companies, mutual funds
  • Leveraged Funds: Hedge funds and other speculative money managers
  • Other Reportables: Other traders with reportable positions
  • Non-Reportable Positions: Smaller traders below reporting thresholds

Advantages Over Legacy Report:

  • Separates true hedging activity from speculative positioning
  • Distinguishes between different types of institutional investors
  • Provides clearer signals about smart money vs. speculative money flows
  • Better reflects the actual market structure of financial futures

Coverage:

  • Currency futures and options
  • Interest rate futures and options
  • Stock index futures and options
  • U.S. Treasury futures and options

Financial Markets Covered

Currency Futures

  • Euro FX (CME)
  • Japanese Yen (CME)
  • British Pound (CME)
  • Swiss Franc (CME)
  • Canadian Dollar (CME)
  • Australian Dollar (CME)
  • Mexican Peso (CME)
  • New Zealand Dollar (CME)
  • Russian Ruble (CME)
  • Brazilian Real (CME)

Interest Rate Futures

  • Eurodollar (CME)
  • 30-Year U.S. Treasury Bonds (CBOT)
  • 10-Year U.S. Treasury Notes (CBOT)
  • 5-Year U.S. Treasury Notes (CBOT)
  • 2-Year U.S. Treasury Notes (CBOT)
  • Federal Funds (CBOT)
  • Euribor (ICE)
  • Short Sterling (ICE)

Stock Index Futures

  • S&P 500 E-mini (CME)
  • Nasdaq-100 E-mini (CME)
  • Dow Jones E-mini (CBOT)
  • Russell 2000 E-mini (CME)
  • Nikkei 225 (CME)
  • FTSE 100 (ICE)

Unique Characteristics of Financial COT Data

  1. Central Bank Influence

    Central bank policy decisions have outsized impact on financial futures

    Positioning often reflects anticipation of monetary policy shifts

    Large position changes may precede or follow central bank announcements

  2. Global Macro Sensitivity

    Financial futures positioning responds quickly to global economic developments

    Geopolitical events cause rapid position adjustments

    Economic data releases drive significant repositioning

  3. Intermarket Relationships

    Currency futures positions often correlate with interest rate futures

    Stock index futures positioning may reflect risk appetite across markets

    Cross-market analysis provides more comprehensive signals

  4. Leverage Considerations

    Financial futures markets typically involve higher leverage than commodities

    Position sizes can change rapidly in response to market conditions

    Margin requirements influence positioning decisions

  5. Institutional Dominance

    Financial futures markets have higher institutional participation

    Retail trader influence is typically lower than in commodity markets

    Professional trading desks manage significant portions of open interest

Understanding Trader Categories in Financial Markets

Dealer/Intermediary

Who they are: Major banks, broker-dealers, FCMs

Trading behavior:

  • Often take the opposite side of client transactions
  • May hold positions as part of market-making activities
  • Frequently use futures for hedging swap books and other OTC products

Interpretation keys:

  • Position changes may reflect client order flow rather than directional views
  • Extreme positions can indicate market imbalances
  • Often positioned against prevailing market sentiment

Asset Manager/Institutional

Who they are: Pension funds, insurance companies, mutual funds, endowments

Trading behavior:

  • Typically use futures for portfolio hedging or asset allocation
  • Often hold longer-term positions
  • Position changes may reflect broader investment flows

Interpretation keys:

  • Significant position changes can signal shifts in institutional outlook
  • Often represent "smart money" longer-term positioning
  • Less reactive to short-term market moves than other categories

Leveraged Funds

Who they are: Hedge funds, CTAs, proprietary trading firms

Trading behavior:

  • Primarily speculative positioning
  • Typically more active, with higher turnover
  • Often employ trend-following or technical strategies

Interpretation keys:

  • Extreme positions frequently signal potential market turning points
  • Rapid position changes may precede significant price movements
  • Often positioned with the prevailing trend

Interpreting Financial COT Data

1. Net Positioning Analysis

  • Net Long/Short Calculation: (Long Positions - Short Positions)
  • Percentile Ranking: Compare current positioning to historical range
  • Standard Deviation Measures: Identify statistical extremes in positioning

2. Position Change Analysis

  • Week-over-Week Changes: Identify rapid shifts in sentiment
  • Rate of Change: Measure acceleration or deceleration in position building
  • Rolling Averages: Compare current positioning to medium-term trends

3. Category Comparison Analysis

  • Dealer vs. Leverage Funds: Often positioned opposite each other
  • Asset Manager vs. Leveraged Funds: Can reveal institutional vs. speculative divergence
  • Category Ratio Analysis: Compare relative positioning between categories

4. Concentration Analysis

  • Concentration Ratios: Percentage of open interest held by largest traders
  • Dispersion Metrics: How widely positions are distributed among participants
  • Concentration Trends: Changes in market concentration over time

Currency Futures: COT Analysis Strategies

  1. Central Bank Divergence Strategy

    Setup: Identify diverging monetary policy expectations between currency pairs

    COT Signal: Leveraged funds increasing positions in the direction of policy divergence

    Confirmation: Asset managers beginning to align with the same directional bias

    Markets: Most effective in major currency pairs (EUR/USD, USD/JPY, GBP/USD)

  2. Extreme Positioning Reversal

    Setup: Identify historically extreme net positioning by leveraged funds

    COT Signal: When leveraged fund positioning reaches 90th+ percentile extremes

    Confirmation: Dealers positioning in the opposite direction

    Markets: Particularly effective in trending currency markets approaching exhaustion

  3. Dealer Positioning Strategy

    Setup: Monitor dealer positioning changes across currency markets

    COT Signal: Significant changes in dealer net positioning against prevailing trend

    Confirmation: Price action showing signs of reversal

    Markets: Works across most major and minor currency pairs

  4. Cross-Currency Analysis

    Setup: Compare positioning across related currency pairs

    COT Signal: Divergences in positioning between correlated currencies

    Confirmation: Fundamentals supporting the divergence

    Markets: Currency pairs with common risk factors or regional relationships

Interest Rate Futures: COT Analysis Strategies

  1. Yield Curve Positioning Strategy

    Setup: Analyze positioning across different maturity Treasuries

    COT Signal: Divergent positioning between short-term and long-term instruments

    Confirmation: Economic data supporting yield curve steepening/flattening

    Markets: Treasury futures across different maturities (2Y, 5Y, 10Y, 30Y)

  2. Fed Policy Anticipation Strategy

    Setup: Monitor asset manager positioning ahead of FOMC meetings

    COT Signal: Significant shifts in asset manager positioning in rate-sensitive futures

    Confirmation: Fed funds futures pricing aligning with the positioning shift

    Markets: Particularly effective in Eurodollar and short-term Treasury futures

  3. Inflation Expectation Strategy

    Setup: Track leveraged fund positioning in longer-dated Treasuries

    COT Signal: Major shifts in positioning following inflation data releases

    Confirmation: TIPS (Treasury Inflation-Protected Securities) market movements

    Markets: Most effective in 10Y and 30Y Treasury futures

  4. Risk Sentiment Analysis

    Setup: Compare positioning in safe-haven Treasuries vs. risk assets

    COT Signal: Divergences between bond positioning and stock index positioning

    Confirmation: Credit spread movements aligning with the positioning shifts

    Markets: Treasury futures and equity index futures compared

Stock Index Futures: COT Analysis Strategies

  1. Smart Money Divergence Strategy

    Setup: Compare asset manager positioning with leveraged fund positioning

    COT Signal: Asset managers and leveraged funds moving in opposite directions

    Confirmation: Market internals showing signs of potential reversal

    Markets: Particularly effective in S&P 500 and Nasdaq futures

  2. Sector Rotation Strategy

    Setup: Analyze positioning differences between various index futures

    COT Signal: Divergences between small cap (Russell 2000) and large cap (S&P 500) positioning

    Confirmation: Sector ETF flows aligning with the positioning shifts

    Markets: Works across various index futures (S&P 500, Nasdaq, Russell, Dow)

  3. Institutional Hedging Strategy

    Setup: Monitor asset manager short positioning in equity index futures

    COT Signal: Significant increases in short hedging during market rallies

    Confirmation: Put/call ratios or VIX movements supporting hedging activity

    Markets: Most liquid index futures (particularly S&P 500 E-mini)

  4. Equity Market Sentiment Strategy

    Setup: Track leveraged fund net positioning as a sentiment indicator

    COT Signal: Extreme net long or short positions relative to historical norms

    Confirmation: Traditional sentiment indicators aligning with positioning extremes

    Markets: Works across all major equity index futures

Intermarket Analysis Using Financial COT Data

  1. Currency-Interest Rate Correlation

    Analysis: Compare positioning in currency futures with related interest rate futures

    Signal Interpretation: Divergences between related markets may signal trading opportunities

    Example: EUR futures positioning vs. Eurodollar futures positioning

  2. Risk-On/Risk-Off Flows

    Analysis: Analyze positioning across equity indices, Treasuries, and safe-haven currencies

    Signal Interpretation: Coordinated movements across asset classes signal significant macro shifts

    Example: S&P 500 futures vs. Japanese Yen futures vs. 10-Year Treasury futures

  3. Commodity Currency Analysis

    Analysis: Compare positioning in commodity currencies with related commodity futures

    Signal Interpretation: Divergences may signal upcoming realignment

    Example: Australian Dollar futures vs. gold futures positioning

  4. Cross-Asset Volatility Signals

    Analysis: Monitor positioning changes during periods of heightened volatility

    Signal Interpretation: Identify which trader categories add/reduce risk in volatile periods

    Example: VIX futures positioning vs. S&P 500 futures positioning

Combining COT Data with Macroeconomic Indicators

Economic Data Releases

  • Compare COT positioning changes before and after major economic reports
  • Identify which trader categories respond most strongly to specific data points
  • Economic indicators to monitor:
    • Employment reports (Non-Farm Payrolls)
    • Inflation data (CPI, PCE)
    • GDP reports
    • Manufacturing and services PMIs
    • Retail sales

Central Bank Policy

  • Analyze positioning shifts around central bank meetings
  • Identify anticipatory positioning ahead of policy decisions
  • Monitor position adjustments following policy surprises
  • Key central bank events to track:
    • Federal Reserve FOMC meetings
    • European Central Bank policy announcements
    • Bank of Japan interventions
    • Bank of England decisions

Global Risk Events

  • Track positioning changes during geopolitical crises
  • Identify safe-haven flows across asset classes
  • Monitor unwinding of positions as risk events resolve

Market Liquidity Conditions

  • Analyze positioning shifts during periods of changing liquidity
  • Monitor quarter-end and year-end position adjustments
  • Track positioning during funding stress periods

Case Studies: Major Financial Futures Markets

Euro FX Futures

Typical Positioning Patterns:

  • Leveraged funds often drive trend-following moves
  • Asset managers typically position around long-term economic fundamentals
  • Dealers frequently positioned against extreme speculative sentiment

Key COT Signals:

  • Extreme leveraged fund positioning often precedes significant reversals
  • Asset manager position changes can signal longer-term trend shifts
  • Dealer positioning often provides contrarian signals at market extremes

10-Year Treasury Note Futures

Typical Positioning Patterns:

  • Asset managers use for portfolio hedging and duration management
  • Leveraged funds react to economic data and Fed policy expectations
  • Dealers often serve as liquidity providers across various yield curve points

Key COT Signals:

  • Asset manager positioning shifts often precede significant yield movements
  • Leveraged fund positioning extremes frequently signal potential turning points
  • Dealer positioning changes can indicate institutional order flow shifts

S&P 500 E-mini Futures

Typical Positioning Patterns:

  • Asset managers use for hedging equity exposure and risk management
  • Leveraged funds engage in directional speculation and volatility strategies
  • Dealers often manage complex option-related exposures

Key COT Signals:

  • Asset manager short positioning often increases during strong rallies (hedging)
  • Leveraged fund positioning extremes typically signal potential reversals
  • Dealer positioning often reflects institutional client flows and market-making needs

Advanced Strategies for Financial Markets

  1. Multi-Timeframe COT Analysis

    Implementation:

    • Analyze weekly position changes for short-term signals
    • Track 4-week position trends for medium-term bias
    • Monitor 13-week position changes for longer-term signals

    Benefits:

    • Reduces noise from single-week fluctuations
    • Provides context for short-term moves
    • Identifies persistent institutional positioning trends
  2. COT Momentum Strategy

    Implementation:

    • Calculate rate of change in positioning for each trader category
    • Identify acceleration or deceleration in position building
    • Enter positions when rate of change reaches extremes

    Benefits:

    • Captures early stages of position building
    • Identifies exhaustion in existing trends
    • Works across multiple financial futures markets
  3. COT Divergence Strategy

    Implementation:

    • Identify divergences between price action and positioning
    • Look for situations where prices make new highs/lows but positions don't confirm
    • Enter counter-trend positions when divergences appear at extremes

    Benefits:

    • Catches major turning points in financial markets
    • Provides higher probability entry points
    • Often precedes significant market reversals
  4. COT Spread Strategy

    Implementation:

    • Analyze relative positioning between related markets
    • Identify unusual divergences in correlated instruments
    • Establish spread positions when divergences reach extremes

    Benefits:

    • Reduces directional market risk
    • Capitalizes on relative value opportunities
    • Often offers better risk-adjusted returns than outright positions

Common Pitfalls in Financial COT Analysis

  1. Ignoring Market Context

    Pitfall: Interpreting COT data in isolation without considering market environment

    Solution: Always evaluate positioning within broader market context

    Example: Leveraged fund short positions during a bull market correction vs. during a bear market

  2. Misinterpreting Hedging Activity

    Pitfall: Confusing hedging-related positioning with directional views

    Solution: Understand the typical hedging patterns in each market

    Example: Asset manager short positions in S&P futures often increase during rallies due to portfolio hedging

  3. Overlooking Contract Roll Impacts

    Pitfall: Misinterpreting position changes during contract roll periods

    Solution: Be aware of standard roll schedules for major contracts

    Example: Apparent position shifts during quarterly IMM dates in currency and interest rate futures

  4. Overemphasizing Single Data Points

    Pitfall: Making decisions based on a single week's position changes

    Solution: Focus on multi-week trends and significant position extremes

    Example: Temporary positioning adjustments vs. sustained directional shifts

  5. Neglecting Regulatory Changes

    Pitfall: Failing to account for changes in reporting requirements or regulations

    Solution: Stay informed about CFTC reporting methodology changes

    Example: Impact of Dodd-Frank rules on swap dealer classifications and reporting

Educational Resources

  • "Sentiment in the Forex Market" by Jamie Saettele
  • "Trading the Fixed Income, Inflation and Credit Markets" by Neil Schofield
  • "Inside the Currency Market" by Brian Twomey

Institutional Research

  • Bank Research Reports: Often include COT data analysis in market commentary
  • Investment Bank Strategy Notes: Frequently reference COT positioning in market outlooks
  • Hedge Fund Research: Sometimes available through prime brokerage relationships

© 2025 - This guide is for educational purposes only and does not constitute financial advice. Financial futures markets involve significant risk, and positions should be managed according to individual risk tolerance and objectives.

Market Buy
Based on the latest 13 weeks of non-commercial positioning data.
📊 COT Sentiment Analysis Guide

This guide helps traders understand how to interpret Commitments of Traders (COT) reports to generate potential Buy, Sell, or Neutral signals using market positioning data.

🧠 How It Works
  • Recent Trend Detection: Tracks net position and rate of change (ROC) over the last 13 weeks.
  • Overbought/Oversold Check: Compares current net positions to a 1-year range using percentiles.
  • Strength Confirmation: Validates if long or short positions are dominant enough for a signal.
✅ Signal Criteria
Condition Signal
Net ↑ for 13+ weeks AND ROC ↑ for 13+ weeks AND strong long dominance Buy
Net ↓ for 13+ weeks AND ROC ↓ for 13+ weeks AND strong short dominance Sell
Net in top 20% of 1-year range AND net uptrend ≥ 3 Neutral (Overbought)
Net in bottom 20% of 1-year range AND net downtrend ≥ 3 Neutral (Oversold)
None of the above conditions met Neutral
🧭 Trader Tips
  • Trend traders: Follow Buy/Sell signals when all trend and strength conditions align.
  • Contrarian traders: Use Neutral (Overbought/Oversold) flags to anticipate reversals.
  • Swing traders: Use sentiment as a filter to increase trade confidence.
Example:
Net positions rising, strong long dominance, in top 20% of historical range.
Result: Neutral (Overbought) — uptrend may be too crowded.
  • COT data is delayed (released on Friday, based on Tuesday's positions) - it's not real-time.
  • Combine with price action, FVG, liquidity, or technical indicators for best results.
  • Use percentile filters to avoid buying at extreme highs or selling at extreme lows.

Okay, let's craft a comprehensive trading strategy based on the Commitment of Traders (COT) report for the MSCI Emerging Markets (EM) Index futures contract (ICUS) traded on ICE Futures U.S., tailored for both retail traders and market investors.

I. Understanding the MSCI EM Index Futures (ICUS) and the COT Report

  • MSCI EM Index: This index tracks the performance of equity markets in emerging economies. It's a widely used benchmark for measuring the health and sentiment toward emerging markets as an asset class.
  • ICUS (MSCI EM Index Futures): This futures contract allows traders and investors to gain exposure to the MSCI EM Index without directly owning the underlying stocks. Each contract represents 50 times the value of the index.
  • Commitment of Traders (COT) Report: This report, released weekly by the CFTC (Commodity Futures Trading Commission), breaks down the open interest in futures markets by different trader categories. It shows the positions held by:
    • Commercials (Hedgers): Entities who use the futures market to hedge their exposure to the underlying commodity (in this case, emerging market equities). They are often producers, processors, or consumers of the underlying asset. We generally consider these traders to be "well informed" in the product
    • Non-Commercials (Large Speculators): Managed money, hedge funds, and other large institutions that trade futures for profit.
    • Non-Reportable Positions (Small Speculators): Small Traders and retail traders whose position is less than the minimum number fixed by CFTC.

II. Key COT Report Data to Analyze

We need to analyze the following data points within the COT report for the ICUS contract:

  • Net Positions: This is the difference between long positions and short positions for each trader category. A positive net position indicates a net bullish stance, while a negative net position indicates a net bearish stance.
  • Changes in Net Positions: Track the week-over-week changes in net positions for each category. This reveals shifts in sentiment.
  • Open Interest: The total number of outstanding futures contracts. Increasing open interest generally supports the existing trend, while decreasing open interest may signal a weakening trend.
  • Percentage of Open Interest: Calculate the percentage of open interest held by each trader category. This will help you to understand the relative influence of each group.

III. Trading Strategy Based on COT Report Analysis

Here's a comprehensive trading strategy for retail traders and market investors, incorporating COT data:

A. Core Principles

  1. Follow the Smart Money: The general assumption is that Commercials (Hedgers) are "well-informed" about the underlying market. Large Speculators (Managed Money) often follow trends, so we want to be aware of their positions as well.
  2. Look for Divergences: Identify situations where the price action of the MSCI EM Index is diverging from the positioning of Commercials. For example, if the index is rising, but Commercials are increasing their net short positions, it could signal a potential trend reversal.
  3. Confirmation with Technical Analysis: Use technical indicators (e.g., moving averages, RSI, MACD) and chart patterns to confirm signals generated by the COT report. The COT report provides a fundamental backdrop, while technical analysis helps with timing.
  4. Risk Management is Paramount: Always use stop-loss orders and manage your position size appropriately. The COT report is a helpful tool, but it's not a crystal ball.

B. Specific Trading Scenarios and Strategies

1. Commercials as Lead Indicators:

  • Bullish Scenario:
    • COT Signal: Commercials are decreasing their net short positions (or increasing their net long positions), indicating they are becoming less bearish or more bullish on emerging market equities.
    • Price Action: The MSCI EM Index is consolidating or showing signs of upward momentum.
    • Action: Consider a long position in the ICUS futures contract.
    • Confirmation: Look for bullish signals from technical indicators (e.g., a breakout above a resistance level, a golden cross on moving averages).
    • Stop-Loss: Place a stop-loss order below a recent swing low or a key support level.
  • Bearish Scenario:
    • COT Signal: Commercials are increasing their net short positions (or decreasing their net long positions), indicating they are becoming more bearish on emerging market equities.
    • Price Action: The MSCI EM Index is consolidating or showing signs of downward momentum.
    • Action: Consider a short position in the ICUS futures contract.
    • Confirmation: Look for bearish signals from technical indicators (e.g., a breakdown below a support level, a death cross on moving averages).
    • Stop-Loss: Place a stop-loss order above a recent swing high or a key resistance level.

2. Large Speculators (Managed Money) as Trend Followers:

  • Trend Confirmation:
    • COT Signal: Large Speculators are increasing their net long positions during an uptrend in the MSCI EM Index or increasing their net short positions during a downtrend. This suggests that the trend is likely to continue.
    • Action: If you are already in a trade aligned with the trend, consider adding to your position (scale in). If you are not in a trade, wait for a pullback or consolidation to enter in the direction of the trend.
  • Trend Weakening:
    • COT Signal: Large Speculators are decreasing their net long positions during an uptrend or decreasing their net short positions during a downtrend. This could signal that the trend is losing momentum.
    • Action: Consider taking profits on existing positions or tightening your stop-loss orders.

3. Divergence Between Price and COT Data:

  • Bearish Divergence:
    • Scenario: The MSCI EM Index is making new highs, but Commercials are significantly increasing their net short positions, and Large Speculators' long positions are decreasing.
    • Interpretation: This could indicate that Commercials believe the market is overvalued and are hedging against a potential decline. Large speculators believe the prices are overvalued and they are exiting their positions
    • Action: Be cautious about entering new long positions. Consider taking profits on existing long positions or establishing a small short position.
    • Confirmation: Look for bearish technical signals, such as a bearish divergence on the RSI or MACD.
  • Bullish Divergence:
    • Scenario: The MSCI EM Index is making new lows, but Commercials are significantly decreasing their net short positions, and Large Speculators' short positions are decreasing.
    • Interpretation: This could indicate that Commercials believe the market is undervalued and are hedging against a potential rally. Large speculators believe the prices are undervalued and they are exiting their positions
    • Action: Be cautious about entering new short positions. Consider covering existing short positions or establishing a small long position.
    • Confirmation: Look for bullish technical signals, such as a bullish divergence on the RSI or MACD.

C. Additional Considerations

  • Open Interest:
    • Increasing Open Interest:* Generally supports the existing trend. More participants are entering the market, validating the current price movement.
    • Decreasing Open Interest:* Could signal a weakening trend. Participants are leaving the market, which may indicate a potential reversal.
  • Relative Positioning: Consider the historical positioning of each trader category. Are Commercials at extreme short levels compared to their historical range? Are Large Speculators at extreme long levels? Extreme positioning can sometimes indicate potential overbought or oversold conditions.
  • News and Fundamentals: Always consider the broader economic and political environment in emerging markets. The COT report provides valuable insights, but it should be used in conjunction with other forms of analysis. For example, interest rates, political stability, government interventions and GDP figures for emerging market economies.
  • Time Horizon: The COT report is generally more useful for swing trading or medium-term investing than for day trading.

IV. Risk Management

  • Position Sizing: Never risk more than a small percentage of your trading capital on any single trade (e.g., 1-2%).
  • Stop-Loss Orders: Always use stop-loss orders to limit potential losses. Place your stop-loss at a level that makes sense based on your technical analysis and risk tolerance.
  • Volatility: Be aware of the volatility of the MSCI EM Index and adjust your position size and stop-loss levels accordingly. Emerging markets can be more volatile than developed markets.
  • Diversification: Don't put all your eggs in one basket. Diversify your portfolio across different asset classes and sectors.

V. Example Scenario

Let's say you notice the following:

  • The MSCI EM Index has been in a downtrend for the past few weeks.

  • The latest COT report shows that Commercials have significantly decreased their net short positions (meaning they are closing their hedges against lower prices).

  • Large Speculators have maintained a short position, but the change in position is diminishing.

  • The RSI on the daily chart of the MSCI EM Index is showing a bullish divergence.

  • Interpretation: This suggests that the downtrend may be losing momentum and that a potential reversal is possible. Commercials are covering their short positions, indicating they may believe the market is nearing a bottom. The RSI bullish divergence provides further confirmation.

  • Action: Consider covering any existing short positions. Monitor the price action closely for signs of a breakout above a key resistance level. If a breakout occurs, consider establishing a long position in the ICUS futures contract with a stop-loss order below the breakout level.

VI. Important Disclaimer

This trading strategy is for informational purposes only and should not be considered financial advice. Trading futures involves substantial risk of loss. It is essential to conduct your own research, develop your own trading plan, and consult with a qualified financial advisor before making any trading decisions. The COT report is just one tool to use in your analysis, and it is not a guarantee of future market movements.