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Soultrader

Spread Analysis Question

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I was reading an article on spread analysis today and there are some points I have yet to comprehend completely. The article focused on using the spread as a leading indicator to sense bullishness or bearishness in the futures market.

 

The futures market is classified into 3 groups of market participants: noncommercial, commercial, and nonreportable. As an intraday trader, we need to follow the footsteps of these noncommercial traders as they reported to make up approx 80% of the total volume. Noncommercial traders are referred to as the big boys or the large speculators in the markets.

 

The question I have is regarding the activity by these noncommercial traders to push the nearby contract in relation to the deferred contract. The article mentions when the spread is narrow, noncommercial traders hold a neutral to bearish outlook while a wider spread would indicate a bearish outlook.

 

Can anyone explain this concept to me? Why would traders trade the future contract and not the current? How can one apply spread analysis to their trading? Thanks

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Very interesting...I can completely understand the wider spread thing, but as far as why some traders would trade the further contract is beyond me. Doesn't make sense because of the lack of liquidity that these "big boys" would be needing, right? Also, what was the article you were reading?

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Wow...a bit over my head right now...he talks a lot about corn and ag/energy commodities. Think they may have a different mindset than index futures traders? I really have no idea, as that spread analysis seems a bit intense for my type of coffee drinking.

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Sounds to me like a COT report related article.

 

I have not read the article but I would say looking at open interest and vloume is far more easier than trying to figure out the COT report which is always 1 week old of data.

 

There are many clues in the open interest and volume indicators for any month.

 

 

CBOT - Outlook and Opportunities for Grain Spreads This Coming Winter

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