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Thanks to the 1990s technology revolution the average investor can monitor the global financial markets in real-time and buy and sell stocks with just one click today. However, hi-tech advances have yet to grant average investors access to specific market fundamentals – including equity short interest and Commitment of Traders data - in a timely manner. Accordingly, while the average investor can readily trade Google shares or copper contracts, they are unable to access Google’s short interest or copper’s speculative long position before the data is dated and usually useless.
In response to the delayed dissemination of equity exchange statistics the investor could scream conspiracy. After all, those parties paying millions to be privy to floor dealings undoubtedly acquire insights into market fundamentals that are not immediately available to the average investor. Moreover, it goes without saying that those individuals running the show (think Grasso) have their own or their membership interests in mind, not the average investor’s interests. To look at it another way, NYSE member organizations were able to report their margin debt on a monthly basis in 1992, but they are unable to report their margin debt figures more rapidly 13-years later (or after what was arguably one of the greatest periods of technological change ever)? The conspiracy theory is that while more timely margin debt, short selling, and related statistics would be an asset to the average investor, they are an even greater asset to the insiders that secretly monitor them.
As for the CFTC – which Congress created in 1974 and whose mandate is to ‘protect market participants against manipulation, abusive trading practices, and fraud’ – they have managed to get the COT data out a lot faster than they did back in 1990 (when the data was released monthly with 6-day lag). However, let’s not forget that technology readily exists to make this information even more quickly available to all market participants. To be sure, if any major retailer can use point of sale systems to monitor product being scanned in any store, why does the CFTC take 3-days to compile and release COT data?
Suffice to say, save allowing the investor faster access to SEC filings because of Ken Lay*, and helping to facilitate trades more rapidly (which also facilitates more commissions), technological advances have not helped the average investor. Rather, the divide between those in the know and those out of the loop - or between insiders and outsiders - still exists today.
With this in mind, it should be remembered that any analysis of the COT numbers is based solely on a rear view mirror: the data released every Friday is current only as of Tuesday.
Gold Commercials Rake It In
The world didn’t end, and the commercials were not – once again – forced to cover. Rather, during last weeks slide in the price of gold the commercials undoubtedly locked in profits.
If the COT data was updated daily we would know what the current commercial position is. Unfortunately this information is too valuable for insiders, so the average gold speculator must draw conclusions from historical data. The speculation to be made is as follows: gold and silver are a better buy today than they were before last week began.
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Assuming the commercials lowered their net short position during the sell off that occurred after May 3 (the latest numbers available) the net commercial short position may look like this today.
Realizing that it is more prudent to accumulate gold when the commercials are short 11 million ounces instead of say 22 million ounces, the conclusion is that a large reduction in net commercial short interest is bullish.
An even more dramatic reversal in commercial short interest was seen in silver last week: the commercials decreased their net short position (futures & options) by more than 100 million ounces to 224 million ounces, which is an extremely low total by silver bull market standards. The silver statistics current as of May 3 - which also included a sharp decline in tech fund long interest - are responsible for support in silver prices this week.
Will the Tables Ever Be Level?
* Primarily in response to Ken Lay disclosing a multimillion dollar sale of Enron shares after the company went bankrupt, new rules made it compulsory for insider transactions to be filed within 2-days with the SEC (as opposed to by the 10th day of each month - or, potentially, 40-days after the transaction). Despite insider complaints the new SEC rule has worked well. Furthermore, despite the fact that the data could be delivered immediately upon any insider action, having the filings made public after two days is a great service to the average investor. For all of the knocks against the SEC, they reacted well to what was clearly a serious problem with insider transactions rule that had never been changed since 1934.
The technology exists for COT data to be updated in real-time or at the end of each day. The technology exists for short selling, margin debt, program trading, and related statistics to be updated in real-time or at the end of each day. However, until every exchange in the US is floorless and/or investors demand this information, the realization is that it will remain the secret of the chosen few.
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