June 2 Weekend Wrap

The current COT tabulation period is May 22-May 28.

Soybeans:

For the week, July soybeans gained 33.75 cents, August +35.25, November +56.50. The COT report showed that managed money added 16,654 contracts to their long positions and liquidated 690 contracts of their short positions. Commercial interests liquidated 15,658 contracts of their long positions and also liquidated 13,736 contracts of their short positions. According to the most recent report, managed money is long soybeans by a ratio of 3.16:1, which is up from the previous week of 2.84:1 and the ratio of 2 weeks ago of 2.88:1.

From May 14 through May 28, July soybeans have advanced 94.50 cents, or 6.68%. During this time, the long to short ratio has increased only slightly, which means that managed money is not buying into this rally. We think soybeans are headed significantly higher and will shortly take out the high of $15.46 3/4 made on May 23. For a time, we thought the high made on May 23 was a likely top due to the parabolic nature of the move. However, we have changed our mind. There is money on the sidelines which can easily move into soybeans once they take out the May 23 high. Soybeans have a strong tendency to make their seasonal high in June. On May 9, OIA announced that soybeans generated a short-term buy signal and on May 21 generated an intermediate term buy signal. Do not short this market.

Soybean meal:

For the week, July soybean meal gained $19.00, August +20.60, December +29.40. The COT report showed that managed money added 8,015 contracts to their long positions and liquidated 479 contracts of their short positions. Commercial interests added 2,314 contracts to their long positions and also added 3,422 contracts to their short positions. As of the most recent report, managed money is long soybean meal by a ratio of 4.37:1, which is up substantially from the previous week of 3.81:1 and the ratio of 2 weeks ago of 2.57:1.

From May 14 through May 28, July soybean meal has advanced $30.50, or 7.41%, and is outperforming beans in this time frame. The long to short ratio has gone up dramatically compared to soybeans. We think meal has much farther to go on the upside and the tightness in beans coupled with significant demand in soybean meal is setting up a potential blow off move. As it stands, July soybean meal is trading at its highest level since September 2012 and the high occurred on September 14 when July meal reached $465.70. On the continuation chart, soybean meal must  break above the May 14 high of $460.10, for the move to continue. We expect this to occur shortly.

Soybean oil:

For the week, July soybean oil lost 86 points, August -78, December -68. The COT report showed that managed money added 1,739 contracts to their long positions and liquidated 3,400 contracts of their short positions. Commercial interests added 668 contracts to their long positions and also added 8,423 to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.16:1, which is down from the previous week of 1.25:1 and the ratio of 2 weeks ago of 1.28:1.

Corn:

For the week, July corn advanced 4.75 cents, September +30.50, December +30.75. The COT report showed that managed money added 23,067 contracts to their long positions and liquidated 15,203 contracts of their short positions. Commercial interests liquidated 5,847 contracts of their long positions and added 18,150 contracts to their short positions. As of the latest report, managed money is long corn by a ratio of 1.95:1 which is up from the previous week of 1.60:1 and the ratio of 2 weeks ago of 1.87:1.

 Wheat:

For the week, July wheat gained 8.00 cents, September +11.00, December + 12.00. The COT report showed that managed money added 1,530 contracts to their long positions and liquidated 5,706 contracts of their short positions. Commercial interests liquidated 2,240 of their long positions and added 6,646 contracts to their short positions. As of the latest report, managed money is short wheat by a ratio of 1.49:1, which is down slightly from the previous week of 1.60:1, but up from the ratio of 2 weeks ago of 1.23:1.

Although we have recommended writing out of the money calls in the July option, we are getting concerned that the movement higher in the rest of the grain complex may pull wheat higher as well. Due to this potential risk, we do not see the reward  of the trade being worthwhile considering the possibility of an adverse move. We recommend that speculators liquidate short call positions and move to the sidelines.

COT Report May 22-May 28    Year to Date
July corn      + 4.14%                         -5.06%
July beans    + 2.10%                        +8.22%
July wheat     +1.95%                         -11.12%
July meal       +0.82%                       +9.80%
July bean oil   +0.12%                        -4.43%     

Cotton:

For the week, July cotton lost 2.13 cents. The COT report showed that managed money liquidated 8,570 contracts of their long positions and added 3,273 contracts to their short positions. Commercial interests added 3,347 contracts to their long positions and liquidated 11,316 contracts of their short positions. As of the latest report, managed money is long cotton by a ratio of 5.20:1, which is down substantially from the previous week of 9.01:1 and the ratio of 2 weeks ago of 13.41:1.

Although the long to short ratio has fallen significantly in the current reporting period, based upon recent history, it has further to fall, which means more selling pressure by managed money. On May 19, we recommended bearish positions for cotton and gave the reasons in the May 19 Weekend Wrap. Since then, cotton has fallen sharply, but is overdue for a good-sized technical bounce. However, once this occurs, we believe that cotton will resume its downtrend.

 COT Tabulation Date         Closing Price     Long to Short Ratio
May 28                                       81.42                 5.20:1
May 21                                        83.86                9.01:1
May 14                                        86.92               13.41:1
May 7                                            87.15                  8.76:1
April 30                                        87.47                  6.32:1
April 23                                        85.10                  4.60:1
April 16                                        85.42                   4.15:1
April 9                                          86.61                   4.27:1
April 2                                          90.34                   5.81:1
March 26                                     89.33                    5.55:1
March 19                                      91.53                    5.89 1
March 12                                      88.16                    6.66:1

Crude oil:

For the week, July WTI crude oil lost $2.18. The COT report showed that managed money liquidated 9,134 contracts of their long positions and added 1,819 contracts to their short positions. Commercial interests added 2,634 contracts to their long positions and also added 3,601 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 6.69:1, which is down from the previous week of 7.32:1 and the ratio of 2 weeks ago of 7.04:1.

Now that heating oil is on a short-term sell signal, and gasoline is likely to do so on Monday, or Tuesday at the latest, we think the risk of initiating bearish positions on rallies have diminished considerably. The market has looked top-heavy, but has levitated higher despite the bearish fundamentals. With products weak and natural gas on a short-term sell signal, it is apparent that the entire petroleum complex is headed lower. It appears that equities are rolling over and this will only add to the downside momentum in the complex.

Heating oil: On May 31, July heating oil generated a short-term sell signal. This is a reversal of the buy signal generated on May 7. Heating oil remains on an intermediate term sell signal.

For the week, July heating oil lost 7.30 cents. The COT report showed that managed money liquidated 2,066 contracts of their long positions and also liquidated 790 contracts of their short positions. Commercial interests liquidated 8,655 contracts of their long positions and also liquidated 6,166 of their short positions. As of the latest report, managed money is short heating oil by a ratio of 1.18:1 which is up slightly from the previous week of 1.13: 1, but below the ratio of 2 weeks ago of 1.25:1.

Gasoline:

For the week, July gasoline lost 7.32 cents. The COT report showed that managed money liquidated 2,148 contracts of their long positions, but added 1,949 contracts to their short positions. Commercial interests liquidated 232 contracts of their long positions and also liquidated 4,626 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 2.24:1, which is down from the previous week of 2.53:1 and the ratio of 2 weeks ago of 2.77:1. The current ratio is the lowest of the past several weeks and is the lowest in at least 2 years.

Ethanol:

For the week, June ethanol gained 14.4 cents, July +10.00. The June contract made a new contract high of $2.754.

Natural gas: On May 31, July natural gas generated a short-term sell signal, which reversed the buy signal generated on May 23. Natural gas remains on an intermediate term buy signal

For the week, July natural gas lost 30 cents. The COT report showed that managed money added 25,184 contracts to their long positions and also added 6,330 contracts to their short positions. Commercial interests liquidated 4,244 contracts of their long positions and also liquidated 3,740 of their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.32:1, which is up from the previous week of 1.25:1 and the ratio of 2 weeks ago of 1.22:1.

COT Report May 22-May 28    Year to Date
July Brent crude oil   + 0.83%           -6.82%
July gasoline               +0.53%         –   2.70%
July ethanol                 +0.04%        +16.99%
July heating oil            -0.12%           – 7.25%
July natural gas           -0.52%          +11.96%
July crude oil               -0.92%           – 2.17%  

Copper:

For the week, July copper lost 30 points. The COT report showed that managed money liquidated 728 contracts of their long positions and also liquidated 899 contracts of their short positions. Commercial interests added 399 contracts to their long positions and also added 894 contracts to their short positions. As of the latest report, managed money is short copper by a ratio of 1.33:1, which is the same as the previous week of 1.33:1, but down from the ratio of 2 weeks ago of 1.48:1.

Palladium:

For the week, September palladium advanced $25.15. The COT report showed that managed money added 1,416 contracts to their long positions and also added 57 contracts to their short positions. Commercial interests added 291 contracts to their long positions and also added 613 contracts to their short positions. As of the latest report, managed money is long Palladium by a ratio of 31.06:1 which is down slightly from the previous week of 31.62:1 and the ratio of 2 weeks ago of 31.76:1.

September palladium closed at $751.05 on Friday, which is only $37.40 below its contract high of 788.45.

Platinum:

For the week, July platinum gained $9.90. The COT report showed that managed money added 12 contracts to their long positions and added 836 contracts to their short positions. Commercial interests liquidated 398 contracts of their long positions and also liquidated 612 contracts of their short positions.

July platinum closed at $1461.80, which is substantially below its contract high of 1743.20.

Gold:

For the week, August gold gained $5.50. The COT report showed that managed money added 1,193 contracts to their long positions and liquidated 9,486 contracts of their short positions. Commercial interests liquidated 19,325 contracts of their long positions and also liquidated 16,088 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 1.70:1, which is up from the previous week of 1.47:1 and the ratio of 2 weeks ago of 1.54:1.

Silver:

For the week, July silver lost 25.3 cents. The COT report showed that managed money liquidated 736 contracts of their long positions and added 566 contracts to their short positions. Commercial interests liquidated 3,135 contracts of their long positions and also liquidated 2,881 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.03:1, which is down from the previous week of 1.09:1 and the ratio of 2 weeks ago of 1.18:1.

COT Report May 22-May 28    Year to Date
September palladium +1.05%         +6.50%
June gold                     +0.42%         -17.11%
July platinum              +0.20%         -5.76%
July copper                   -0.63%         -10.33%
July silver                       0.67%         -26.83% 

Canadian dollar:

For the week, the June Canadian dollar lost 29 points. The COT report showed that leveraged funds liquidated 2,860 contracts of their long positions and also liquidated 4,035 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 3.00:1, which is up from the previous week of 2.80:1, but down from the ratio of 2 weeks ago of 3.48:1.

Australian dollar:

For the week, the June Australian dollar lost 65 points. The COT report showed that leveraged funds liquidated 6,970 contracts of their long positions and added 138 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.38:1 which is up from the previous week of 1.22:1 and up dramatically from the ratio of 2 weeks ago when leveraged funds were long by a ratio of 1.06:1.

For months we have been writing about the overbought status of the Australian dollar versus the Canadian dollar. We discussed how the long to short ratio in the Australian dollar was undeservedly stratospheric compared to the short to long ratio in the Canadian dollar when evaluating the two currencies on a performance basis. Despite the fact that the Canadian dollar is significantly outperforming the Australian dollar year to date, the short to long ratio in the Canadian dollar is more than twice what it is for the Australian dollar.

We are seeing a similar lopsided dynamic in the current price level of Australian dollar because it is now trading at the same level as it was one year ago. However, the short to long ratios of 1 year ago were far more bearish than the current ratio. For example, during the week of May 28, 2012, the Australian dollar made a low of 95.64 and the short to long ratio was 3.98:1. By the June 5 report, the short to long ratio had skyrocketed to 6.51:1. With the current short to long ratio at 1.38:1, there is room for significant increases in the number of new short sellers entering the market. As we have said recently, the market is massively oversold on a price basis, but compared to year ago levels based upon COT  readings, it is not oversold at all. The Australian dollar is due for a good-sized bounce. However, once this has occurred , and new shorts have been blown out, it will again be time to initiate new bearish positions. Stay with the short call position that was recommended on April 29 and 30.

Swiss franc:

For the week, the June Swiss franc gained 25 points. The COT report showed that leveraged funds added 615 contracts to their long positions and also added 5,076 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.85:1, which is up from the previous week of 2.52:1 and the ratio of 2 weeks ago of 2.06:1.

British pound:

For the week, the June British pound gained 68 points. The COT report showed that leveraged funds added 2,491 contracts to their long positions and also added 8,593 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 3.20:1 which is up from the previous week of 3.19:1, and up substantially from the ratio of 2 weeks ago of 2.36:1.

Euro:

For the week, the June euro gained 64 points. The COT report showed that leveraged funds liquidated 4,420 contracts of their long positions and also liquidated 3,995 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.86:1 which is up from the previous week of 2.65:1 and the ratio of 2 weeks ago of 1.79:1. The current ratio is among the highest seen in the last several months.

Japanese yen:

For the week, the June yen gained 34 points. The COT report showed that leveraged funds liquidated 1,599 contracts of their long positions and added 3,952 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.68:1 which is up from the previous week of 2.47:1 and the ratio of 2 weeks ago of 2.06:1.

Dollar index:

For the week, the June dollar index lost 35 points. The COT report showed that leveraged funds liquidated 865 contracts of their long positions and also liquidated 2,749 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.12:1, which is down slightly from the previous week of 1.16:1 and the ratio of 2 weeks ago of 1.13:1.

 COT Report May 22-May 28    Year to Date
June dollar index  +0.49%                 +4.16%
June yen                 +0.46%                -14.05%
June Swiss franc    -0.30%                  -4.97%
June euro               -0.43%                   -1.64%
June pound            -0.57%                  -6.50%
June Canadian $   -1.07%                    -3.73%
June Australian $ -1.62%                    -6.81% 

S&P 50o E mini:

For the week, the June S&P 500 E mini lost 21.60 points. The COT report showed that leveraged funds liquidated 14,148 contracts of their long positions and added 10,931 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.85:1 which is up from the previous week of 1.78:1 and the ratio of 2 weeks ago of 1.61:1.

We strongly urge the initiation of long put protection if this has not been done already.