We are faced with a problem as we delve into the COT readings of the commercials. It is this: do we monitor their long positions or their short positions? As I’ve shown in the prior chapters, it appears that either side of the equation can be used. The resolution is easy. Let’s use both their buying and selling!

What I mean by this is that the best view can be garnered from taking the net long/short position of these wise men and putting that into the perspective of OI with the following formula. I have it in my Genesis software.

What the formula is doing is taking a stochastic of the net of commercial longs minus shorts divided by the total open interest of the last many weeks. (Vara is computer talk for a variable). You can play with this variable a great deal to see what number of weeks you think works best. While it varies from time to time and market to market, I have come to believe that, all things considered, a 26-week window to take this measurement is the best, across the board. In the old days, as I have discussed, we used a three-year look-back. In this day and age of volatile markets, though, a world full of fast changes and instant news, I have defaulted to the 26-week or one-half year window to get our perspective on how the commercials have been investing their money.