Updates on Commitment of Traders Reports

I wanted to give some updates on current CoT data.

Right now the Commercials (smart traders) are net long (meaning they are buying) natural gas to a greater degree than any time in the last 5 years or more. Both the commercials and the large speculators net positions are at extreme levels that have corresponded with bottoming in the commodity the past several years. For non-commodity traders I would look at UNG which is an ETF that tracks natural gas.

Crude oil is also in a similar position to natural gas. Both commercials and large speculators are at extremes corresponding with past buying opportunities. However, I have discussed in past posts, that the commercials were in an extremely bullish position even before the huge sell off the last month or two. Also, I have discussed in past posts, that the price action of crude oil is more consistent with a decline off a major top and may have further to go down before a truly great buying opportunity exists. USO is an ETF that tracks oil for those interested. Also DIG is a leveraged oil and gas ETF that will move about double the amount of oil and gas.

The "smart" commercial traders are continuing to decrease exposure to the US dollar as it has made a dramatic rise the last 2 months. Large and small speculators are both upping there exposure greatly. All three groups are at extremes relative to standard deviation bands of the data. UUP is a relatively new ETF that will rise as the dollar rises. I do not have a lot of interest in this ETF because I would rather trade something more volatile like USO (which will generally go the opposite direction of UUP).

These data raise the possibility that we will see a return to a declining dollar and rising energy prices soon. I trust data over other conceptual arguments, but I think there is something to be said that our country may be moving into a deflationary time as consumer spending drops dramatically with the baby boomers passing their peak spending years. How this will balance out against still relatively strong Asian demographics for several more years I don't know yet.......that's why you always control your risk in any investment. Trust your data, but follow a good risk management plan in case it doesn't pan out.

Pete