July 28 Weekend Wrap

This week’s COT reporting period: July 17-July 23

Soybeans:

For the week, August soybeans lost $1.41, September -50.75, November -45.50. The COT report showed that managed money added 2,981 contracts to their long positions and also added 9,362 contracts to their short positions. Commercial interests liquidated 2,933 contracts of their long positions and also liquidated 13,537 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio of 3.31:1, which is down from the previous week of 3.94:1 and the ratio of 2 weeks ago of 4.20:1.

Soybean meal:

For the week, August soybeans lost $52.10, September -19.78, December -12.60. The COT report showed that managed money liquidated 3,134 contracts of their long positions and added 1,517 contracts to their short positions. Commercial interests liquidated 4,951 contracts of their long positions and also liquidated 13,910 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.67:1, which is down from the previous week of 2.94:1 and the ratio of 2 weeks ago of 2.92:1.

Soybean oil:

For the week, August soybean oil lost 1.92 cents, September -1.85, December -1.59. The COT report showed that managed money liquidated 5,884 contracts of their long positions and added 3,617 contracts to their short positions. Commercial interests liquidated 2,850 contracts of their long positions and also liquidated 11,249 contracts of their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.90:1 which is up from the previous week of 1.63:1 and the ratio of 2 weeks ago of 1.69:1.

Corn:

For the week, September corn lost 52 cents, December -24.75. The COT report showed that managed money added 4,796 contracts to their long positions and added a massive 41,710 contracts to their short positions. Commercial interests added 21,308 contracts to their long positions and liquidated 2,925 contracts of their short positions. As of the latest report, managed money is short corn by a ratio of 1.10:1, which is up dramatically from the previous week when managed money was long by a ratio of 1.07:1. Two weeks ago, managed money was short by a ratio of 1.03:1. 

Wheat:

For the week, September wheat lost 14.25 cents. The COT report showed that managed money added 330 contracts to their long positions and also added 13,367 contracts to their short positions. Commercial interests liquidated 1,259 contracts of their long positions and also liquidated 12,885 contracts of their short positions. As of the latest report, managed money is short wheat by a ratio of 1.53:1, which is up from the previous week of 1.39:1 and slightly lower than the ratio of 2 weeks ago of 1.61:1.

Cotton:

For the week, December cotton lost 1.06 cents. The COT report showed that managed money added 1,809 contracts to their long positions and also added 1,965 contracts to their short positions. Commercial interests added 47 contracts of their long positions and also added 1,021 contracts to their short positions. As of the latest report, managed money is long cotton by a ratio of 5.64:1, which is down from the previous week of 6.60:1 and the ratio of 2 weeks ago of 7.05:1.

COT Report: July 17-July 23                 Year to Date
September soybean meal     +2.96%            +4.61%
December cotton                  +1.54%             +8.10%
September soybeans            -0.86%              -4.42%
September bean oil              -2.04%             -13.95%
September wheat                 -2.35%              -19.42%
September corn                    -4.17%              -20.80% 

 Live cattle:

For the week, October cattle lost 37 points. The COT report showed that managed money added 221 contracts to their long positions and also added 2,298 contracts to their short positions. Commercial interests added 4,396 contracts to their long positions and also added 2,504 contracts to their short positions. As of the latest report, managed money is long cattle by a ratio of 1.77:1, which is down from the previous week of 1.86:1 and the ratio of 2 weeks ago of 2.01:1.

Crude oil:

For the week, September crude oil lost $3.17. The COT report showed that managed money added 32,810 contracts to their long positions and also added 2,788 contracts to their short positions. Commercial interests added 4,385 contracts to their long positions and also added 10,738 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 11.16:1, which is up slightly from the previous week of 11.10:1 and the ratio of 2 weeks ago of 9.34:1. The current ratio is at the very high-end of the range going back 2 years.

Heating oil:

For the week, September heating oil lost 7.75 cents. The COT report showed that managed money added 9,819 contracts to their long positions and liquidated 6,244 contracts of their short positions. Commercial interests liquidated 21,822 contracts of their long positions and also liquidated 5,853 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.16:1, which is up substantially from the previous week of 1.42:1 and the ratio of 2 weeks ago when managed money was short by a ratio of 1.01:1.

Gasoline:

For the week, September gasoline lost 5.48 cents. The COT report showed that managed money added 16,362 contracts to their long positions and also added 1,244 contracts to their short positions. Commercial interests added 1,724 contracts to their long positions and also added 9,650 contracts to their short positions. As of the latest report, managed money is long gasoline by a ratio of 5.72:1, which is up from the previous week of 5.00:1 and more than double the ratio of 2 weeks ago of 2.65:1.

Ethanol:

For the week, September ethanol lost 19.1 cents.

Natural gas:

For the week, September natural gas lost 22.5 cents. The COT report showed that managed money liquidated 948 contracts of their long positions and also liquidated 17,557 contracts of their short positions. Commercial interests added 2,016 contracts to their long positions and also added 5,197 to their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.06:1, which is a change from the previous week when they were short by a ratio of 1.004:1. Two weeks ago, managed money was short by a ratio of 1.02:1.

COT Report: July 17-July 23     Year to Date
September natural gas   +1.66%       -0.58%
September WTI              +1.38%      +11.69%
September heating oil   +0.98%      +0.65%
September gasoline        -0.62%       +9.98%
September ethanol         -5.09%       +1.28%               

Copper:

For the week, September copper lost 3.80 cents. The COT report showed that managed money added 460 contracts to their long positions and liquidated 2,218 contracts of their short positions. Commercial interests added 567 contracts to their long positions and liquidated 440 of their short positions. As of the latest report, managed money is short copper by a ratio of 1.44:1, which is down from the previous week of 1.54:1 and the ratio of 2 weeks ago of 1.93:1.

Palladium:

For the week, September palladium lost $25.75. The COT report showed that managed money added a massive 2,136 contracts to their long positions and liquidated 26 contracts of their short positions. Commercial interests liquidated 239 contracts of their long positions and liquidated 94 contracts of their short positions. As of the latest report, managed money is long palladium by a ratio of 34.51:1, which is up from the previous week of 32.55:1 and 3 times the ratio of 2 weeks ago of 11.88:1.

Platinum:

For the week, October platinum lost $8.40. The COT report showed that managed money added 577 contracts to their long positions and liquidated 887 contracts of their short positions. Commercial interests added 321 contracts to their long positions and also added 991 contracts to their short positions. As of the latest report, managed money is long platinum by a ratio of 2.73:1, which is up from the previous week of 2.50:1, and up substantially from the ratio of 2 weeks ago of 2.23:1.

Gold:

For the week, August gold advanced $28.60. The COT report showed that managed money added 5,256 contracts to their long positions and liquidated 8,257 contracts of their short positions. Commercial interests liquidated 1,668 contracts of their long positions and also liquidated 1,270 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 1.98:1, which is up from the previous week of 1.64:1 and the ratio of 2 weeks ago of 1.29:1.

Silver:

For the week, September silver gained 31.1 cents. The COT report showed that managed money liquidated 231 contracts of their long positions and also liquidated 1,600 contracts of their short positions. Commercial interests added 108 contracts to their long positions and liquidated 222 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.27:1, which is up from the previous week of 1.19:1 and the ratio of 2 weeks ago of 1.17:1.

COT Report: July 17-July 23            Year to Date
August gold                  +4.07%                      -20.76%
September silver          +2.35%                       -34.23%
October platinum        +1.63%                         -7.69%
September copper       +1.04%                        -15.57%
September Palladium +0.49%                        +2.97%

Canadian dollar: On July 26, the September Canadian dollar generated a short-term buy signal, but remains on an intermediate term sell signal.

For the week, the September Canadian dollar advanced 82 points. The COT report showed that leveraged funds liquidated 8,999 contracts of their long positions and also liquidated 12,919 contracts of their short positions. As of the latest report, managed money is short the Canadian dollar by a ratio of 2.25:1, which is up from the previous week of 1.97:1 and the ratio of 2 weeks ago of 2.04:1.

Australian dollar:

For the week, the September Australian dollar advanced 71 points. The COT report showed that leveraged funds liquidated 4,529 contracts of their long positions and also liquidated 1,483 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by a ratio of 1.88:1, which is up from the previous week of 1.73:1 and the ratio of 2 weeks ago of 1.57:1.

Swiss franc: On July 26, the September Swiss franc generated a short and intermediate term buy signal.

For the week, the September Swiss franc gained 1.45 cents. The COT report showed that leveraged funds liquidated 4,034 contracts of their long positions and also liquidated 3,834 contracts of their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 1.08:1, which is fractionally higher than the previous week’s ratio of 1.07:1 and down substantially from the ratio of 2 weeks ago of 1.31:1.

British pound: On July 26, the September British pound generated a short and intermediate term buy signal.

For the week, the September British pound advanced 1.23 cents. The COT report showed that leveraged funds liquidated 5,354 contracts of their long positions and also liquidated 1,302 contracts of their short positions. As of the latest report, leveraged funds are short by 3.56:1, which is up dramatically from the previous week of 2.82:1 and the ratio of 2 weeks ago of 2.04:1.

Euro:

For the week, the September euro advanced 1.40 cents. The COT report showed that leveraged funds added 4,854 contracts to their long positions and also added 239 contracts to their short positions. As of the latest report, leveraged funds are short the euro by a ratio of 1.43:1 which is down from the previous week of 1.59:1 and the ratio of 2 weeks ago of 1.64:1. The euro generated a short and intermediate term buy signal on July 22.

Japanese yen:

For the week, the September yen gained 206 points. The COT report showed that leveraged funds added 2,185 contracts to their long positions and also added 2,953 contracts to their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 3.32:1 which is down from the previous week of 3.48:1, but up from the ratio of 2 weeks ago of 3.00:1.

Dollar index: On July 26, the cash dollar index generated an intermediate term sell signal, and on July 23 the September dollar index generated a short-term sell signal.

For the week, the September dollar index lost 95 points. The COT report showed that leveraged funds were dated 2,529 contracts of their long positions and also liquidated 3,474 contracts of their short positions. As of the latest report, leveraged funds are short the dollar index by a ratio of 1.41:1, which is nearly the same as the previous week of 1.40:1 but down slightly from the ratio of 2 weeks ago of 1.47:1.

COT Report: July 17-July 23                    Year to Date       Short to long Ratio of Managed Money
September pound            +1.61%                    -5.20%                    3.56:1
September Canadian $  +0.89%                    -2.80%                    2.25:1
September Australian $+0.62%                    – 9.53%                    1.88:1
September Swiss franc  +0.59%                     -1.97%                     1.08:1 (long to short)
September euro              +0.56%                    +0.35%                    1.43:1
September yen                -0.27%                     -11.95%                    3.32:1
September dollar index  -0.64%                    +2.05%                    1.41:1

The currencies comprising the dollar index have rallied extensively during the past two weeks and the dollar index has been weakened to the extent that it is now on a short and intermediate term sell signal. If one looks at the short to long ratios of managed money, it is apparent that the rally in the pound, euro, Canadian dollar, yen, Swiss franc and even the Australian dollar have much farther to go. However, all with the exception of the yen and Aussie are overbought relative to their 50 day moving average. 

During the past week, the September euro generated a short and intermediate term buy signal, the September British pound generated a short and intermediate term buy signal and the September Canadian dollar generated a short-term buy signal. The only currency that has yet to generate a new buy signal is the September yen. However, the yen is on the cusp of doing this and we expect this to occur within the next day or two. For some strange reason, managed money is more than twice as short in the British pound than the Australian dollar, even though the British pound is significantly outperforming the Aussie on a year to date basis. From July 10 when the dollar index started falling in earnest through July 26, the Swiss franc has been the best performer of the major currencies that comprise the dollar index (see table below).

Performance July 10-July 26
September Swiss franc     +4.71%
September euro                +3.82%
September pound             +3.47%
September yen                  +2.76%
Canadian dollar                +2.43%
The Australian dollar, which is not part of the dollar index advanced 0.91% in this time frame.

After the yen generates buy signals, and after managed money shorts are blown out of the market, there will be a terrific opportunity in a couple of yen currency crosses. Two of our favorites against the yen is long NZDJPY and long CHFJPY. Both of these are significantly overbought relative to their 50 day moving average and need to pullback before being candidates for long positions.

From July 10 through July 26, CHFJPY advanced 1.89%, year to date +11.75%, while NZDJPY is essentially unchanged at +0.19%, but its performance year to date is +11.03%. Both crosses exhibit longer-term strength as their 50 day moving average is above the 150 and 200 day moving averages.

 S&P 500 E mini:

For the week, the September S&P 500 E mini lost 2.90 points. The COT report showed that leveraged funds added 3,306 contracts to their long positions and also added 16,552 contracts to their short positions. As of the latest report, leveraged funds are short the E mini by a ratio of 1.65:1, which is up slightly from the previous week of 1.62:1 and the ratio of 2 weeks ago of 1.60:1.

Although the financial community is bullish on US equities, is important to keep in mind that equity performance in many major economies of the world are doing poorly. For example, the 50 day moving average is below the 200 day moving average for the Hang Seng, Shanghai Composite and Brazilian Bovespa indices. The Singapore Straits Times Index 50 day moving average is coming close to crossing below the 200 day as is the Australian All Ordinaries Index.

It is apparent that double tops are being made in the FTSE 100, German DAX, French CAC, and the Indian Sensex 30. To put the poor performance of the developed markets in perspective consider the ETF, EFA. We have provided some of the component countries and their weights in the index. There are more in the list but we have included all the majors.

Japan (22.6200%) United Kingdom (19.5800%) France (9.1900%) Switzerland (8.9000%) Germany (8.6000%) Australia (7.7700%)Netherlands (4.4300%) Hong Kong SAR China (2.8700%) Sweden (2.8400%) Spain (2.7400%) Italy (1.9800%) Singapore (1.5700%) Belgium (1.1200%) Denmark (1.1100%) Finland (0.7700%) Ireland (0.6900%) Norway (0.5700%) Israel (0.4900%) (0.4500%) Austria (0.2500%) United States (0.2000%)

On a year-to-date basis EFA has gained 6.93% even though Japanese equities account for 22.62 of the ETF’s weight, while the S&P 500 cap weighted index gained 18.61% and the DJIA +18.73%. In short, the stock markets of the developed world are significantly lagging the US. We believe the US will eventually succumb to gravity of the other developed markets. Emerging markets are performing abysmally with the emerging market ETF EEM down 10.19% for the year. Year to date, the Shanghai Composite Index is down 8.99% while the Hang Seng is down 0.52%. In short, we think the weight of the worlds equity markets will hit the US markets hard, and we think this is imminent.