Is it time to exit the short in CAD? What would have Yoda said if he saw the latest COT data?

Is it time to exit the short in CAD? What would have Yoda said if he saw the latest COT data?


Last week the major currencies declined against the dollar.

Was this a surprise? Certainly not to the followers of this blog since in the last post we've discussed the idea of being short in CAD and AUD.

Now let's focus on the Canadian Dollar because it is exhibiting some exit signs. Here is the chart.

Canadian Dollar analysis

First of all, the latest Commitments of Traders (COT) data shows that the decline caught Small Speculators (red line in the pane below the chart) by surprise and a lot of long positions were flushed away. 

The blue line, in the same pane, shows the commitments of another group of traders - the Commercials. As you can see, they were buying hard the last decline. That is bullish.

What is also bullish is the divergence between the chart and the On Balance Volume. If you look back at the chart, you'll see how in the last four days CAD is going down while the OBV is not making new lows! 

It seems that the selling is slowing down. But was there enough in terms of a distance, covered by the down move? To know this, we should check were any significant targets reached.

An 'old-school' technical analysis technique might help us with that. You've probably learned it when studied the basics of technical analysis. It says that the move after a consolidation (most of the time it is explained with a certain chart pattern) should be of the same size as the movement before it. That is visualised on the chart with two purple lines. As you can see, the market reached that target.

One more target can be derived from the move itself, and it is based on the No Nose (0N) bar we saw on Monday (September 21). That technique is described in the Talking Chart book, and according to it, the move should at least make a pause (if not end) somewhere before the yellow line. So, we can conclude, that a meaningful target for current drop has been reached. 

From a price action perspective, the last two days are a 1xT up bar and an inside LB down bar. If we see a break above the high of the inside bar that would be a signal for closing shorts. But will it be a good buy point? Maybe but with limited potential, because as we saw in the mini price action course, the best moves happen after a higher short-term low. So it is wise to wait for such.


I have two charts for you this week but first, have you heard of this:

Size matters not!Yoda, Star Wars movie

I doubt the Jedi master would have said that if he had seen the latest Commitments of Traders data for Nasdaq. Let's take a look.

Nasdaq analysis

This is one of the biggest Commercials net long positions I have ever seen. It is also a moment for the Large Speculators when they are extremely net short. If you go back and check similar situations in the past, you will see that such a combination led to a bullish move.

Here comes the second chart. This time it is S&P500.

SP500 analysis

If we apply the same classical old-school technique, from the above, we'll get 3130 as a target for this down move. But since we are getting closer and closer to a cyclical and seasonal bottom and the On Balance Volume is showing accumulation, we might not reach that target.

All this is bullish for the indices, but we live in uncertain times and again that mini price action trading course is teaching us the wisest thing which would be to wait for a higher short-term low, where the best buy can be expected.

Now, let's find your missing piece!

Vassil Banov,
Founder of Piece of Trading

Trades mentioned here are either taken or will be taken by the author if the right conditions appear. They are NOT recommendations nor any of this constitute investment advice. Please read the Risk Disclaimer
Seasonal indicators courtesy of Larry Williams, Charts made with TradeStation®.

TAGS: S&P500, SPY, SPX, US500, COT, Commitments of Traders, Canadian Dollar, NASDAQ, Cycles, Fundamental Analysis

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