Constructing a COT index from the commercial-speculative spread

Start from the monthly three-group book

The public monthly table is a Commitments of Traders snapshot of futures open interest split among three trader groups: commercial hedgers, reportable non-commercial speculators, and the residual small-trader remainder. It covers only markets where five or more traders exceed the reporting-level thresholds and partitions reportable open interest into commercial hedgers and non-commercial speculators, with the remainder labeled small traders.

Compiled trader-group positions were issued only monthly, yet the figures were released to news wires within four to six trading days of tabulation and typically circulated the following morning. Daily filings of actual large commercial-hedger futures positions were used to construct a sentiment-style index that replaces advisor polls and delayed market-letter tallies.

Publication stopped in 1982 and resumed in January 1983 with altered collection procedures and higher reporting levels, after which commodity funds displaced large individual speculators inside the large-speculator bucket. In editorial terms, TradersWeek treats the construction task as converting that monthly book into a historically ranged commercial-versus-speculative spread so one market can be placed in a weeks-to-months regime context.

Convert each book into a net share

Group net position equals longs minus shorts and can be scaled to non-spreading open interest. On January 1, 1990 in sugar No. 11, commercials were 27 percent long and 39 percent short for a 12 percent net-short reading, while large speculators were 4 percent net long and small traders 8 percent net long.

Rank the commercial-speculative spread on 0-100

The constructed COT index places commercial net contracts minus the combined net of large speculators and small traders on a 0-100 scale by measuring that difference against its own historical maximum and minimum over a comparison window. Working extremes cited for the scale were 90-100 at one pole and below 5 at the other, relaxable to 75 and 25 when the reading moved more than 50 points in one month.

High index readings correspond to commercial-relative oversold conditions and low readings to overbought conditions, the reverse of conventional public-sentiment scales, because the construction tracks the commercial rather than the public side.

Keep the reading as a timing overlay

A sharp one-month change in the constructed reading, illustrated by a 77-point drop to zero in gold after commercials reduced long holdings, was framed as a timing overlay to other methods rather than a stand-alone system, because the series is built from reported positions rather than from price, volume, or open interest. In editorial terms, TradersWeek reads that overlay as the way to put a single trade into a weeks-to-months regime context after the three-group book has been converted into a historically ranged spread.