Welcome to Schaeffer's Investment Research Commodity Center! The purpose of this Center is to provide futures, options, stock, and ETF traders with a specialized area to quickly gain access to unique, useful, and in-depth information on commodities and commodity-related trading vehicles. The following provides a brief summary of the Center's different area - what they are and how to use them.
Home Page Overview
The upper right of the Center's home page houses a table that provides a quick glimpse of what's hot and what's not among metals (such as gold, copper, and silver) and in the energy markets, specifically crude oil and natural gas. And because the action in commodities is sometimes driven by what is happening in the currency and/or bond markets, the table shows how those markets are behaving as well.
The chart below the table is the Reuters Jefferies CRB Index. This index, which consists of 19 commodities, reflects how global commodity prices are moving across the board.
The left side of the home page brings the reader closer to the action in the commodities markets. This area consists of commentary, unique sentiment-based tools, and a current news feed that keeps the reader abreast of the day's events.
Commentary
This section includes links to commodity-related observations written by Schaeffer's analysts. These observations appear on the SchaeffersResearch.com home page as well.
Tools and Filters
The Commodity Center offers a number of trading tools that can help with trading decisions. The unique tools are applicable to trading commodity futures, commodity-related ETFs, or options on commodity-related stocks or ETFs. For example, the Schaeffer's put/call open interest ratio (SOIR) tool, which we often use in our trading, provides access to current and historical SOIR data on popular commodity futures options, along with a price overlay. The SOIR, which compares put and call open interest among short-term (up to three months of life) options, can reveal when option speculators betting against the prevailing trend has historically been bullish for the underlying equity. For those using commodity analysis to trade stocks, our tools provide a list of stocks within a certain group (copper, oil, energy service, gold, etc.) complete with a snapshot of the technical and sentiment backdrops. In essence, the tools we provide are for all traders and are designed to give our unique expectational perspective.
Commitment of Traders Report
An important source of commodity information is found in the Commitment of Traders Report (CoT). This weekly report lists positions of futures traders, and is broken down by Commercial Hedgers, Large Speculators, and Small Traders. The left y-axis (perpendicular) represents the historical and current net positions of the specific type of trader requested, while the right y-axis represents the current and historical price of the underlying futures contract. A negative net-positions number indicates that the commodity is short during the selected time frame, while a positive net-positions number indicates that the commodity is long.
Note that drop-down menus are used to:
- Designate the type of commodity to be analyzed
- Request the type of trader (Small Trader, Commercial Hedger, or Large Speculator)
- Define a time frame of historical data.
What are the differences among Commercial Hedgers, Large Speculators, and Small Traders? Theses groups are defined as follows:
Commercial Hedger: Futures positions in a commodity are classified as commercial if the trader uses futures for hedging, as defined in the Commodity Futures Trading Commission's (CFTC) regulations (1.3(z)). A trading entity is generally classified as "commercial" by filing a statement with the CFTC that it is commercially "...engaged in business activities hedged by the use of the futures or option markets." Examples include an airline using energy futures to hedge fuel costs, or a gold-mining company using gold futures to hedge against an adverse movement in future gold prices.
Large Speculator: A Large Speculator is one who holds or controls a position in any one future or option expiration series of a commodity equaling or exceeding the exchange- or CFTC-specified reporting level. The reporting level is the position size set by the exchanges and/or the CFTC at or above which commodity traders or brokers who carry these accounts must make daily reports about the size of the position by commodity and delivery month. Hedge funds are normally classified as Large Speculators.
Small Trader: These are traders who hold or control positions in futures or options that are below the reporting level established by the exchange or the CFTC. In order to ensure that traders are accurately and consistently classified, the CFTC may exercise judgment in re-classifying a trader if it has additional information about the trader's use of the markets.
The current and historical information contained in CoT charts provides traders with a perspective of the buying power (for an advance) or vulnerability (for a decline) surrounding an underlying commodity future. This information also suggests where the "smart" and "dumb" money typically lies.
The graph below provides an example of how we use CoT. In early 2005, we noticed that Small Traders were reducing their net positions in gold futures, even as gold was rallying. This was a sign that less-informed money was betting against a prevailing trend. Trends higher are usually vulnerable to reversing when the consensus believes that the prevailing price action will continue. In this case, Small Traders were alone in acting counter to the trend, and this led us to believe that the trend would continue, which in fact it did throughout the first quarter of 2006.
Small Trader Net Position in Gold (April 2004 through March 2006)
A Final Word
We hope that you find the Commodity Center a useful source of information and tools to help make profitable trading decisions concerning commodities. Be sure to return to the Center often to keep up with the latest on commodities and to see the new features that we continue to add to make the Center even more useful.
Thanks for visiting Schaeffer's Commodity Center.
Todd Salamone
Vice President of Research
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