Ever since Larry Williams did his pioneering work in COT research, conventional wisdom has placed the spotlight upon the Commercial interests ( the meat packers, General Mills, etc. ) as the driving force behind the COT's usefullness.

However, I believe that the Commercials are more interested in hedging their business risks and aren't really that interested in risk taking to make profits in the commodity markets. After all, isn't that the purpose of the commodity markets ... to provide a hedging mechanism for Commercials by allowing Traders to assume the risk for the possibility of large profits? Therefore, IMHO, the Traders would be a more logical source to track.

If you are not familiar with the COT report, a brief explaination follows. There are basically three groups from which brokers compile and give data weekly to the CFTC. These are The Commercials, The Large Speculators and the Small Traders. The CFTC will then take that data, massage it and then report the information along with many columns of comparisons with previous data.

For my purposes I am only interested in the changes to the Commercial's and the Large Speculator's long positions and short positions. Why do I ignore the Small Traders? It's been my experience that the Small Traders ( basically, you and me! ) are completely unreliable as a predictive tool, being right as often as they are wrong, whereas the Commercials and the Large Speculators are almost always predictable.

As for reading my charts, the price chart dot represent the average price of the nearest contract for that particular Tuesday ... the day that the COT data is compiled by the broker for the CFTC. The color coding shown is determined by the color coding of chart # 4 ( See below ) , and readily shows the predictive value of the color coding ( late, slow to turn, but useful for positional traders).

Chart # 2 shows the relationship of the Large Speculator's long position ( the black line ) and the Large Speculator's short position ( the red line ), both as a percentage of the Open Interest.

Chart # 3 shows the relationship of the Large Speculator's NET position ( the black line ) and the Commercial's NET position ( the red line ).

Chart # 4 ... a simplistic but useful oscillator created by a formula that is based upon the changing relationship of the Large Specs to the Commercials Net positions. When the line is rising, the bar is green ( bullish ) and if falling, red ( bearish).

Hope this is helpful.