Advanced Positioning, Flow, and Sentiment Analysis in Commodity Markets: Bridging Fundamental and Technical Analysis

281 Pages·2020·9.79 MB·english

by  Mark J. S. Keenan

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Bridging Fundamental and Technical Analysis
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econd dition
Mark J S Keenan
This edition first published 2020
© 2020 John Wiley & Sons Ltd
Edition History
Shadwell Publications (for Amazon) (1e, 2018)
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Library of Congress Cataloging-in-Publication Data
Names: Keenan, Mark J S, author.
Title: Advanced positioning, flow, and sentiment analysis in commodity
markets : bridging fundamental and technical analysis / Mark J S Keenan.
Other titles: Positioning analysis in commodity markets
Description: Second edition. | Chichester, West Sussex : Wiley, 2020. |
First edition published as Positioning analysis in commodity markets by
Shadewell Publications, 2018. | Includes bibliographical references and
index.
Identifiers: LCCN 2019027667 (print) | LCCN 2019027668 (ebook) | ISBN
9781119603825 (cloth) | ISBN 9781119603740 (adobe pdf) | ISBN
9781119603818 (epub)
Subjects: LCSH: Commodity exchanges—Mathematical models. | Commodity
futures.
Classification: LCC HG6046 .K43 2020 (print) | LCC HG6046 (ebook) | DDC
332.64/4—dc23
LC record available at https://lccn.loc.gov/2019027667
LC ebook record available at https://lccn.loc.gov/2019027668
Cover Design: Wiley
Cover Image: © bookzv/Shutterstock
Set in 10/13pts PerpetuaStd by SPi Global, Chennai, India
Printed in Great Britain by Bell & Bain
10 9 8 7 6 5 4 3 2 1
To my wife, Eloïse,
for her continuous support
&
for always being the most incredible person I know.
CONTENTS
About the Author xi
Acknowledgements xiii
Preface xv
vii
About the Companion Website xvii
Introduction 1
CHAPTER 1 Advanced Positioning, Flow, and Sentiment Analysis
in Commodity Markets 7
1.1 Positioning Analysis – What Is It? 8
1.2 The History of Positioning Data, the COT Report,
and the Agencies that Provide the Data 10
1.3 Misunderstandings and Issues in Positioning Analysis 10
1.4 Futures and Options Data 17
CHAPTER 2 The Structure of the Positioning Data 19
2.1 The Structure of Positioning Data 20
2.2 P ositioning Data for the London Metal
Exchange (LME) – The MiFID Classifications 28
2.3 Other Types of Positioning and Flow Data 33
2.4 The Structure of Commodity Markets 34
CHAPTER 3 Performance Attribution – An Insight into Sentiment and
Behavioural Analysis? 45
3.1 The Proliferation of Speculative Positioning Data 46
3.2 Why is Positioning Data Interesting 47
3.3 Measuring the Skill or Performance of MMs 48
3.4 N et Futures Positioning vs Net Trader Number
Positioning or Alignment 55
CHAPTER 4 Concentration, Clustering, and Position Size –
Price Risks and Behavioural Patterns 59
4.1 Concentration, Clustering, and Position Size 60
4.2 C oncentration, Clustering, Position Size, and Their
Relationship to Price Over Time 62
CHAPTER 5 ‘Dry Powder (DP)’ Analysis – An Alternative Way
to Visualise Positioning 71
5.1 Dry Powder (DP) Analysis 72
5.2 DP Indicator Variations 75
5.3 DP Indicators and Trading Signals 82
CHAPTER 6 Advanced DP Analysis – Deeper Insights and More Variables 87
6.1 Advanced DP Indicator Charts 88
6.2 DP Indicators, Price, and Curve Structure 96
6.3 DP Hedging Indicators 99
6.4 DP Factor, Fundamental, and Currency Indicators 101
CHAPTER 7 Decomposing Trading Flow and Quantifying
Position Dynamics 111
7.1 Decomposing Net Positioning – The Methodology 112
7.2 Decomposing Long and Short Positioning – The Methodology 115
viii
7.3 Who Has Been Driving Prices? 116
S 7.4 Who is Trading With Whom? 118
T
N 7.5 The Impact on Prices 122
E
T 7.6 Speed of Positioning Changes 124
N
O
C CHAPTER 8 Overbought/Oversold (OBOS) Analysis – The Intersection of
Extremes 127
8.1 The Overbought/Oversold (OBOS) Philosophy 128
8.2 Constructing the Framework 128
8.3 The OBOS Concentration Indicator 132
8.4 Key Attributes of the OBOS Approach 133
8.5 Behavioural Patterns within the Boxes 134
8.6 OBOS Variations 138
8.7 The DP/OBOS Hybrid Indicator 141
CHAPTER 9 Advanced OBOS Analysis – Extremes in Sentiment and Risk 147
9.1 The OBOS Framework – Clustering and Position Sizes 147
9.2 OBOS Factor Indicators 155
9.3 C ommodity Risk Premia – Positioning Analysis
and Risk Management 159
CHAPTER 10 Sentiment Analysis – Sentiment Indices
and Positioning Mismatches 163
10.1 The Difference between Trader Numbers and Open Interest 164
10.2 Trader Sentiment (TS) Indices 166
10.3 Mismatches in Positioning and Price Inflexion Points 172
CHAPTER 11 Newsflow in Positioning Analysis 177
11.1 Newsflow Data in Commodity Markets 178
11.2 Building Basic Newsflow Indices 181
11.3 Combining Newsflow with Positioning 186
11.4 Economic Policy Uncertainty 190
CHAPTER 12 Flow Analysis – The ‘Flow Cube’ and the ‘Build Ratio’ in
Commodity Markets 191
12.1 The Flow Cube 192
12.2 The Flow Cube down the Forward Curve 198
12.3 The LBMA-i Trade Data 202
CHAPTER 13 Chinese Commodity Markets – Analysing Flow 203
13.1 The Chinese Commodity Exchanges 203
13.2 The Size of the Chinese Commodity Exchanges 205
13.3 Speculative vs Hedging Activity in Chinese Commodities 208
13.4 The Flow Cube and Build Ratio in Chinese Commodities 210
13.5 The OBOS Framework and the Speculation Ratio 212
CHAPTER 14 Machine Learning – A Machine’s Perspective
on Positioning 215
14.1 Introduction to Machine Learning (ML) 216
ix
14.2 Decision Trees 217
14.3 Feature Importance 227 C
O
14.4 Random Forests 229 N
T
14.5 Using ML to Trade 232 E
N
T
APPENDIX 1 History of the COT Report 235 S
APPENDIX 2 The COT Reports 237
INDEX 249
ABOUT THE AUTHOR
xi
Mark Keenan is Managing Director, Global Commodities Strategist & Head of Research
Asia-Pacific at Société Générale Corporate & Investment Bank (SG CIB) based in
Singapore.
With over 20 years of research, trading, and investment experience across all the major energy,
metal, agriculture and bulk commodity markets, Mark has worked with corporates, trade houses,
investment institutions, and hedge funds to develop, improve, and optimise trading, hedging, and
investment solutions. He has specific expertise in quantamental analysis, focusing on supply and
demand dynamics in combination with newsflow, sentiment, trading flow, and positioning data to
better understand price behaviour and manage risk.
Mark has worked in asset management, risk management, and investment banking in both
London and Singapore. He appears regularly on CNBC and Bloomberg television and is quoted
widely in global press and media channels.
He has a master’s degree in Molecular and Cellular Biochemistry from Oxford University.
Contact details:
[email protected]
ACKNOWLEDGEMENTS
S
ociété Générale, for its support in my writing this book.
Malavika Dinaker and David Schenck, part of the commodity research team in Société Géné-
rale and based in Singapore and London respectively, for their input and collaboration on several
xiii
areas in the book.
Disclaimer
Société Générale (SG) has not, however, endorsed this publication and bears no responsibility in
any capacity whatsoever for any of the material in this book. All views, insights, interpretations,
and conclusions are the author’s own.
Where applicable, all references to any SG research publications are given in the book. This
book is based on new material, but also updates and builds on some of the work in the previous
book, Positioning Analysis in Commodity Markets – Bridging Fundamental and Technical Analysis, by Mark
Keenan. Relevant references from the 1st edition are still therefore applicable.