What Happened to the Eurodollar COT Model?

By Tom McClellan

eurodollar COT leading indication

One of my favorite predictive models had me looking for a decent selloff in the summer of 2018, but the U.S. stock market decided not to participate.  So what happened?

The model in this week’s chart contains data from the weekly Commitment of Traders (COT) Report, published by the CFTC.  This data is on the eurodollar futures contract, the most liquid and widely traded of all futures contracts.  I should emphasize that in this context, the term “eurodollar” is not a currency futures contract, but rather it refers to dollar-denominated time deposits in European banks.  So it is an interest rate futures contract, which major banks utilize to hedge their deposit and loan balances.

The net position of the big-money commercial traders of eurodollar futures turns out to give a really good 1-year leading indication of what stock prices are going to do.  It is not a perfect leading indication, just a really good one.

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