The Williams Commercial Index is Larry Williams' measure of commercial positioning for swing trades and for position trades. The Commercials are the producers, processors, and merchants who use futures to hedge their own business. WILLCO is taken from the weekly Commitments of Traders (COT) report. The US Commodity Futures Trading Commission (CFTC) publishes that report every Friday. The positions in it are the positions held on the preceding Tuesday. WILLCO does not say whether the Commercials are net long or net short in contracts. It says where this week's commercial position sits against their own last 26 weekly reports. A reading of 100 can occur while the Commercials are still net short. It means only that this week is the most bullish their position has been in those 26 weeks.
Commercials versus Total Open Interest.
The calculation has two steps. Commercial Longs minus Commercial Shorts is divided by Total Open Interest. That result is called R. Dividing by Open Interest puts a large market and a small market on the same footing. R can be negative. It is negative when the Commercials are net short. WILLCO then ranks this week's R against 26 weekly readings (t). Those readings are the current report and the 25 reports before it. No later report is used. The rank runs from 0 to 100. A reading of 100 means this week's R is the highest of those 26 weeks. A reading of 0 means it is the lowest. If the highest R and the lowest R are the same number, WILLCO is set to 50.
Weekly CFTC Legacy COT report, Futures Only.
The calculation uses three figures from the CFTC Legacy COT report, Futures Only. Those figures are Commercial Longs, Commercial Shorts, and Total Open Interest. Each reading is placed on the Friday the report is released, normally at 3:30 p.m. Eastern Time. It is not placed on the Tuesday when the positions were counted. If a report is delayed or missing, the chart keeps the last published reading. It does not estimate the missing week, and it does not invent a number.
High WILLCO = Low Price: Prepare to Buy | Low WILLCO = High Price: Prepare to Sell.
Eight Weekly WILLCO Charts: Equities, Metals, Energy, and Agriculture
Eight weekly updating WILLCO charts at the bottom of this blog's page cover equities, metals, energy, and agriculture: the S&P 500 (ES), Gold (GC), Crude Oil (CL), Soybeans (ZS), Chicago Wheat (ZW), Sugar (SB), Coffee (KC), and Cocoa (CC).
The upper part of each chart shows weekly price bars for the front-month continuous contract. Those prices are not adjusted when one contract expires and the next one takes its place. A weekly bar uses the first session's open, the high and the low of the week, and the last session's close. The change from an expiring contract to the next one can leave a gap even though the market itself did not move. A break of the previous week's high or low that comes only from that gap should be treated with caution.
The lower part of each chart shows WILLCO on a fixed scale from 0 to 100. A green band marks 80 to 100. A red band marks 0 to 20. A dotted line marks 50. Each chart shows the latest 69 weeks. The calculation also uses 26 earlier weekly reports. Those reports lie off the left side of the chart and are not drawn. During the week that is still open, the price bar is updated as new prices arrive. WILLCO stays on the last published reading until the next Friday.
The lower part of each chart shows WILLCO on a fixed scale from 0 to 100. A green band marks 80 to 100. A red band marks 0 to 20. A dotted line marks 50. Each chart shows the latest 69 weeks. The calculation also uses 26 earlier weekly reports. Those reports lie off the left side of the chart and are not drawn. During the week that is still open, the price bar is updated as new prices arrive. WILLCO stays on the last published reading until the next Friday.
High WILLCO = Low Price: Prepare to Buy | Low WILLCO = High Price: Prepare to Sell.Veteran traders, analysts and economists consider the Commercials (producers, processors, merchants, and hedgers) the true "Smart Money" because they have deep physical or fundamental insight into the underlying commodity and fade the retail and speculative trends at major market turns. However, Non-Commercial Traders (Large Speculators, Managed Money) are most commonly referred to as the "Smart Money" because they represent large Institutional Players, Hedge Funds, and Commodity Trading Advisors (CTAs) trading purely for financial profit.
Why WILLCO
A conventional COT index ranks the raw commercial net, which is commercial longs minus commercial shorts, and it usually ranks that net over a year or more. The index most charts call the COT Index does this over 156 weeks. WILLCO changes both parts. It divides the net by total open interest, and it ranks that result over the last 26 weeks only. Dividing by open interest keeps a change in the size of the market from distorting the reading. A large market and a small market can then be read on the same scale from 0 to 100.
In the agricultural markets, the commercials are often net short, because producers sell futures against the crop they grow. The raw net can therefore look bearish week after week, even in a week when the commercials are buying part of those shorts back. WILLCO does not treat that standing net short as a sell signal. It records whether this week's position is more bullish, or more bearish, than the commercials' own last 26 weeks. Speculators hold the other side of these same contracts. Their position is largely the mirror of the commercial position, so adding it does not supply a separate fact. Every market uses the same scale from 0 to 100. A reading still belongs to that market alone. An extreme in Wheat says nothing about Soybeans.
In the agricultural markets, the commercials are often net short, because producers sell futures against the crop they grow. The raw net can therefore look bearish week after week, even in a week when the commercials are buying part of those shorts back. WILLCO does not treat that standing net short as a sell signal. It records whether this week's position is more bullish, or more bearish, than the commercials' own last 26 weeks. Speculators hold the other side of these same contracts. Their position is largely the mirror of the commercial position, so adding it does not supply a separate fact. Every market uses the same scale from 0 to 100. A reading still belongs to that market alone. An extreme in Wheat says nothing about Soybeans.
Trading Signals and Execution
Only the two extreme zones produce a signal.► From 80 to 100, the commercials' position is among the most bullish it has been in the last 26 weeks. This reading appears while the price is still low. The signal is to buy, or to cover shorts, and only after the price rises through the high of the previous week.
►From 0 to 20, the commercials' position is among the most bearish it has been in the last 26 weeks. This reading appears while the price is still high. The signal is to sell, or to go short, and only after the price falls through the low of the previous week.
►From 20 to 80 there is no signal. A reading near 50 does not point up or down.
A high WILLCO does not mean the Commercials are net long, and a low WILLCO does not mean they are net short. A reading of 100 means this week's commercial net, relative to open interest, is the highest of those 26 weeks, even when that net is still short. A reading of 0 means it is the lowest of those 26 weeks, even when that net is still long. WILLCO supplies the condition. The price supplies the signal to act.
The buy comes when a reading of 80 or higher is followed by a rise through the high of the previous week. The sell, or the short, comes when a reading of 20 or lower is followed by a fall through the low of the previous week. There is no need to wait for WILLCO to turn down from a high reading, or to turn up from a low one. A fall from 95 to 85 is still inside 80 to 100, so the condition is still the buy.
The Commercials are often early. In Soybeans, WILLCO entered the zone from 80 to 100 in June, while the price was still about 1,050 to 1,100 cents a bushel, and the price later rose toward 1,350. WILLCO then entered the zone from 0 to 20 in September, near that high, and the price later fell toward 1,200. A gap that comes only from the change of contract should be treated with caution. A signal in one market is not a signal in another. A high reading is not an overbought condition to sell against, and a low reading is not an oversold condition to buy against. The upper extreme is the bullish condition. The lower extreme is the bearish condition.
The buy comes when a reading of 80 or higher is followed by a rise through the high of the previous week. The sell, or the short, comes when a reading of 20 or lower is followed by a fall through the low of the previous week. There is no need to wait for WILLCO to turn down from a high reading, or to turn up from a low one. A fall from 95 to 85 is still inside 80 to 100, so the condition is still the buy.
The Commercials are often early. In Soybeans, WILLCO entered the zone from 80 to 100 in June, while the price was still about 1,050 to 1,100 cents a bushel, and the price later rose toward 1,350. WILLCO then entered the zone from 0 to 20 in September, near that high, and the price later fell toward 1,200. A gap that comes only from the change of contract should be treated with caution. A signal in one market is not a signal in another. A high reading is not an overbought condition to sell against, and a low reading is not an oversold condition to buy against. The upper extreme is the bullish condition. The lower extreme is the bearish condition.
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