buythebottom.com - Glossary
Commercials: An entity involved in the production, processing, or merchandising of a commodity. (1) Commercials players, such as Hershey's, Kellogs and Nesltle know their respetive markets (in this care: sugar) better than anybody else because it is their day-to-day business. They typically control 50-60% of open interest in any given market; moreover they typically have their largest net-long position at market bottoms and largest net-short position at market tops.
Commitments of Traders (COT) Report: A group of statistics published weekly by the CFTC (www.cftc.gov) listing current contract commitments among various futures market participants. (1) The COT report gives investors a snapshot of money-flow into or out of a particular market, and most importantly which market participants are responsible for it. The commercial players are generally seen as smart-money and their actions typically result in the commencement/termination of trends in the market.
Commodity Futues Trading Commission (CFTC): A U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. It ensures the open and efficient operation of the futures markets to guard investors from manipulation, abusive trade practices, and fraud. (1)
COT chart: A line-chart of the weekly change in net position of Commercials and Large Traders. Commercials are represented by the orange line, and Large Traders by the blue line. Regardless of the particular group, a rising line represents buying / accumulation and a descending line represents selling / distribution.
Large Traders: Large speculators who are often characterized as trend followers. They are typically funds who jump into an existing trends, but often end up having their largest net-long position at market tops and largest net-short position at market bottoms. Large traders do not typically have the same level of expertise and understanding as the commercials and that perhaps explains why they are consistently wrong at market turn-points. They control roughly 30-40% of open interest.
Small Traders: Small traders control only a small portion of open interest - around 5-20%. Their actions in the market (buying/selling) should be noted but are typically not large enough to influence the overall trend.
Technical Analysis: The study of market action, usually with price charts.
Trend: Refers to the direction of prices. Rising peaks and troughs (higher highs & higher lows) constitute and uptrend; falling peaks and troughs (lower highs & lower lows) constitute a downtrend. A trading range is charactereized by horizontal peaks and troughs. Trends are generally classified into major (longer than a year), intermediate (one to six months), or minor (less than a month). (1)
Trendlines: Straight lines drawn on a chart below reaction lows (in an uptrend) or above rally peaks (in a downtrend) that determine the steepeness of the current trend. The breaking of a trenline usually signals a trend reversal. (1) Click here for examples.
Volatility Index (VIX): The CBOE VIX is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility.