June 9 Weekend Wrap

June 9 Weekend Wrap

The current COT reporting period is Wednesday May 29-Tuesday June 4

The World Agriculture Supply Demand report (WASDE) will be released by the USDA on June 12.

Soybeans:

For the week, July soybeans gained 18.25 cents, August +18.50, November +26.75. The COT report showed that managed money added 5,056 contracts to their long positions and liquidated 10,417 contracts of their short positions. Commercial interests added 9,308 contracts to their long positions and liquidated 18,490 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio of 3.98:1, which is up significantly from the previous week of 3.16:1 and the ratio of 2 weeks ago of 2.84:1.

With soybeans trading at their highest level in several months, we examined the COT report of November 6, 2012 when soybeans were trading at approximately the same level as they are today. The November 6 COT report showed that managed money was long by a ratio of 13.66:1. On November 6, 2012, November soybeans closed at $15.16 3/4 and the range of soybean prices during the COT reporting period was from 15.70 1/4  to 15.05 3/4 . As we have said before, managed money is not buying into this rally, which in our view heightens the likelihood of a continued advance. There is no resistance on the continuation chart until soybeans reach $15.72, which was the high made on October 9 and 24 2012. After this, the next resistance is $16.15. We expect that soybeans will continue to advance, and the catalyst for this may be the WASDE report to be released by the USDA on June 12. It is certainly possible, that the current USDA projection of ending stocks of 125 million could be reduced. Within the next week or two, the 50 day moving average in July soybeans will cross above the 200 day moving average. The 50 day moving average of $14.16 1/2 will cross above the 150 day moving average of 14.17 during the next couple of days.

Soybean meal:

For the week, July soybean meal advanced $5.30, August +5.40, December +11.70. The COT report showed that managed money added 3,491 contracts to their long positions and liquidated 1,477 contracts of their short positions. Commercial interests liquidated 1,478 contracts of their long positions and added 1,948 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio of 4.98:1, which is up from the previous week of 4.37:1 and the ratio of 2 weeks ago of 3.81:1.

On June 5, July soybean meal reached $462.00, which is the highest price since December 17, 2012 when it reached 460.80. On December 18, 2012, the COT report showed that managed money was long soybean meal by a ratio of 4.89:1. Interestingly, this is about the same as the current ratio of 4.98:1. We think soybean meal has the wherewithal to advance by a greater percentage than soybeans. Soybeans are being crushed for meal and meal demand has been extraordinary. If current ending stocks of soybeans are reduced, there could be a major scramble for supplies of meal. Within the next week or two, the 50 day moving average in July soybean meal will cross above the 200 day moving average. The 50 day moving average of $414.10 will cross above the 150 day moving average of 414.30 during the next day or so.

Soybean oil:

For the week, July soybean oil gained 15 points, August +17, December +13. The COT report showed that managed money liquidated 3,900 contracts of their long positions and added 9,432 contracts to their short positions. Commercial interests added 12,312 contracts to their long positions and liquidated 5,002 contracts of their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.41:1, which is up from the previous week of 1.16:1 and the ratio of 2 weeks ago of 1.25:1.

Corn:

For the week, July corn advanced 4.25 cents, September +5.75, December +8.75. The COT report showed that managed money liquidated 6,158 contracts of their long positions and added 6,588 contracts to their short positions. Commercial interests added 9,559 contracts to their long positions and also added 628 contracts to their short positions. As of the latest report, managed money is long corn by a ratio of 1.82:1 which is down from the previous week of 1.95:1, but above the ratio of 2 weeks ago of 1.60:1.

On June 7, July corn made a new high for the move at $6.74, which is the highest price since March 28, when corn collapsed by nearly a dollar in two days. On April 2 when the carnage was over for the most part, the long to short ratio was 2.43:1, or considerably higher than the current ratio of 1.82:1. We think corn will struggle work its way above the gap left between March 28 and April 1. Do not short corn. It remains on a short-term buy signal, but an intermediate sell signal.

Wheat:

For the week, July Chicago wheat lost 9.25 cents, September -10.75, December -10.75. The COT report showed that managed money added 10,037 contracts to their long positions and liquidated 8,641 contracts of their short positions. Commercial interests added 6,802 contracts to their long positions and also added 16,120 contracts to their short positions. As of the latest report, managed money is short wheat by a ratio of 1.23:1, which is down from the previous week of 1.49:1 and the ratio of 2 weeks ago of 1.60:1.

COT Report May 29-June 4    Year to Date
July soybean meal +2.31%               +11.10%
July wheat             +2.20%               -12.28%
July soybeans        +1.29%                 +9.53%
July corn                -0.90%                 -4.45%
July bean oil          -1.92%                   -4.13%        

Cotton:

For the week, July cotton gained 5.50 cents, December +3.12. The COT report showed that managed money liquidated 5,995 contracts of their long positions and added 3,127 contracts to their short positions. Commercial interests liquidated 676 contracts of their long positions and also liquidated 9,318 contracts of their short positions. As of the latest report, managed money is long cotton by a ratio of 3.57:1, which is down significantly from the previous week of 5.20:1 and the ratio of 2 weeks ago of 9.01:1.

Crude oil:

For the week, July crude oil gained $4.06. The COT report showed that managed money added only 185 contracts to their long positions and added 3,246 contracts to their short positions. Commercial interests liquidated 12,288 contracts of their long positions and also liquidated 14,815 contracts of their short positions. As of the latest report, managed money is long crude oil by a ratio of 6.13:1, which is down from the previous week of 6.69:1 and the ratio of 2 weeks ago of 7.32:1.

Heating oil:

For the week, July heating oil gained 11.17 cents. The COT report showed that managed money liquidated 7,270 of their long positions and added 3,075 contracts to their short positions. Commercial interests added 16,220 contracts to their long positions and also added 9,440 contracts to their short positions. As of the latest report, managed money is short heating oil by a ratio of 1.64:1 which is up significantly from the previous week of 1.18:1 and the ratio of 2 weeks ago of 1.13:1.

Gasoline:

For the week, July gasoline advanced 11.66 cents. The COT report showed that managed money liquidated 7,411 contracts of their long positions and also liquidated 7,826 contracts of their short positions. Commercial interests liquidated 3,590 of their long positions and also liquidated 3,712 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 2.86:1, which is up from the previous week of 2.24:1 and the ratio of 2 weeks ago of 2.53:1.

Ethanol:

For the week, July ethanol lost 6 cents.

Natural gas:

For the week, July natural gas lost 15.6 cents. The COT report showed that managed money liquidated 16,563 contracts of their long positions and added 11,148 contracts to their short positions. Commercial interests added 823 contracts to their long positions and also added 82 contracts to their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.19:1, which is down significantly from the previous week of 1.32:1 and the ratio of 2 weeks ago of 1.25:1.

Although there is support for July natural gas at the 200 day moving average of $3.82, the reality is if the market breaks this level, we could see a move to $3.71, which is the 150 day moving average on the natural gas continuation chart. On May 31, July natural gas generated a short-term sell signal, but it remains on an intermediate term buy signal. We would stand aside until such time that natural gas reverses the short-term sell signal

COT Report May 29-June 4    Year to Date
July ethanol      +2.04%                 +14.17%
July gasoline      -0.72%                   +1.88%
July heating oil   -1.14%                    -3.35%
July Brent           -1.19%                     -2.50%
July WTI             -1.81%                    +2.68%
July nat gas        -5.27%                    +7.50%   

Copper:

For the week, July copper lost 2.40 cents. The COT report showed that managed money added 1,413 contracts to their long positions and liquidated 849 contracts of their short positions. Commercial interests liquidated 790 contracts of their long positions and added 1,268 contracts to their short positions. As of the latest report, managed money is short copper by a ratio of 1.23:1, which is down from the previous week of 1.33:1 and the ratio of 2 weeks ago of 1.33:1.

Palladium:

For the week, September palladium advanced $7.55. The COT report showed that managed money added 801 contracts to their long positions and also added 90 contracts to their short positions. Commercial interests liquidated 484 contracts of their long positions and also liquidated 647 contracts of their short positions. As of the latest report, managed money is long palladium by a ratio of 28.52:1, which is down from the previous week of 31.06:1 and the ratio of 2 weeks ago of 31.62:1.

Platinum: On June 5, July platinum generated a short-term buy signal, but remains on an intermediate term sell signal.

For the week, July platinum advanced $40.80. The COT report showed that managed money added 248 contracts to their long positions and liquidated 1,947 contracts of their short positions. Commercial interests liquidated 1,261 contracts of their long positions and also liquidated 1,167 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 3.17:1, which is up from the previous week of 2.64:1 and the ratio of 2 weeks ago of 2.84:1.

Gold:

For the week, August gold lost $10.00. The COT report showed that managed money liquidated 2,022 contracts of their long positions and also liquidated 8,573 of their short positions. Commercial interests liquidated 8,656 contracts of their long positions and also liquidated 13,097 of their short positions. As of the latest report, managed money is long gold by a ratio of 1.91:1, which is up from the previous week of 1.70:1 and the ratio of 2 weeks ago of 1.47:1.

Silver:

For the week, July silver lost 50 cents. The COT report showed that managed money added 935 contracts to their long positions and liquidated 320 contracts of their short positions. Commercial interests added 2,012 contracts to their long positions and also added 1,690 contracts to their short positions. As of the latest report, managed money is long silver by a ratio of 1.08:1, which is up from the previous week of 1.03:1 and about the same as the ratio of 2 weeks ago of 1.09:1.

COT Report May 29-June 4    Year to Date
July platinum        +2.17%                    -2.96%
July copper            +1.64%                   -11.02%
June gold                +1.31%                   -17.77%
July silver              +0.99%                 – 28.85%
Sept palladium     -0.42%                    +7.40%  

Canadian dollar: The Canadian dollar did not generate a short or intermediate term buy signal.

For the week, the June Canadian dollar advanced 1.48 cents. The COT report showed that leveraged funds liquidated 5,436 contracts of their long positions and added 1,488 contracts to their short positions. As of the latest report, leveraged funds are short the Canadian dollar by a ratio of 4.24:1, which is up substantially from the previous week when they were short by a ratio of 3.00:1 and the ratio of 2 weeks ago of 2.80:1.

Australian dollar: the Australian dollar remains on a short and intermediate term sell signal

For the week, the June Australian dollar lost 68 points. The COT report showed that leveraged funds liquidated 10,103 contracts of their long positions and added 7,651 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.89:1, which is up substantially from the previous week of 1.38:1 and the ratio of 2 weeks ago of 1.22:1.

We are seeing a lopsided COT dynamic in the current price level of Australian dollar. It is now trading at the same level as it was one year ago (see table below). However, the short to long ratio of 1 year ago was 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, 2012 report, the short to long ratio had skyrocketed to 6.51:1. With the current short to long ratio at 1.89:1, significant numbers of new short sellers could enter the market. The economic situation in Australia is gloomier today than it was one year ago. The market is massively oversold on a price basis, but compared to year ago COT levels, it is not oversold at all. The Australian dollar had an extremely sharp rally of 1.83 cents on June 3, but the rally didn’t last and rolled over on June 4. Remarkably, on June 3, open interest did not decline, which would have been our preference, but instead increased by 2,016 contracts. On April 23, 2013, the Australian dollar generated a short and intermediate term sell signal. We recommended that speculators write out of the money call options on April 29 and 30.

Swiss franc: On June 7, the June Swiss franc generated a short-term buy signal, but not an intermediate term buy signal.

For the week, the June Swiss franc advance 2.75 cents. The COT report showed that leveraged funds liquidated 3,460 contracts of their long positions and also liquidated 3,934 of their short positions. As of the latest report, leveraged funds are short by a ratio of 3.68:1, which is up substantially from the previous week of 2.85:1 and the ratio of 2 weeks ago when they were short 2.52:1.

British pound: On June 6, the June British pound generated a short-term buy signal, and on June 7, generated an intermediate term buy signal.

For the week, the June British pound advanced 3.78 cents area the COT report showed that leveraged funds liquidated 9,080 contracts of their long positions and also liquidated 8,132 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 3.95:1, which is up from the previous week of 3.20:1 and the ratio of 2 weeks ago of 3.19:1.

From May 22 through June 6, the June British pound advanced 5.7 cents, or 3.81%. Yet open interest during this time declined only 10,157 contracts, which is somewhat less than 5%. The ratio which was tabulated on June 4 indicates that professional money managers remain heavily net short. However, open interest declined on June 5 and June 6 by 3,127 and 3,222 contracts respectively. Any currency that generated a short and/or intermediate term buy signal this past week is likely to pullback, but the rally may continue, especially if the yen continues to rally.

Euro: On June 6, the June euro generated a short-term buy signal and on June 7 generated an intermediate term buy signal.

For the week, the June euro advanced 2.41 cents. The COT report showed that leveraged funds added 368 contracts to their long positions and liquidated 27,424 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.10:1, which is down significantly from the previous week of 2.86:1 and the ratio of 2 weeks ago of 2.65:1.

Although the short to long ratio was reduced in the latest COT report, it appears that managed money has more inventory to liquidate, especially when taking into account the open interest action relative to the price advance from May 29 through June 6. From May 29 through June 6, the June euro advanced 3.71 cents while open interest in this time frame declined only 13,434 contracts. Additionally, since the June 4 tabulation of the COT report through June 6, open interest has increased by 10,047 contracts. This is the result of a massive increase of open interest of 12,673 on June 6 when the euro rallied 1.60 cents. In other words managed money has done very little liquidation on the rally that began on May 29. We think this increases the likelihood of a further rally in the euro, not because euroland is in great financial shape, but because funds are being repatriated into the euro and other currencies as a result of the destruction of the yen carry trade. The market should have a sharp pullback, but this may be just a pause that refreshes. Much of this depends upon the direction of the yen. We pride ourselves on keeping an eye on risk management, and the recent trade in the euro illustrates this. Prior to May 29, we were advocating bearish positions to be initiated at the 1.2950 level with an exit point of 1.30 00-1.3032. On May 29, we advised speculators to exit these positions and move to the sidelines.

From the May 29 report:

We advocated that bearish positions to be initiated at the 1.2950 area with tight exit points at 1.3000-1.3032. All bearish positions should be liquidated at this juncture, and speculators should stand aside.

Japanese yen:

For the week, the June yen advanced 331 points. The COT report showed that leveraged funds liquidated 184 contracts of their long positions and also liquidated 12,129 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.37:1, which is down from the previous week of 2.68:1 and the ratio of 2 weeks ago of 2.47:1.

From May 29 through June 6, the June yen advanced 6.16% in 12 trading sessions and remarkably, open interest declined only 7,219 contracts. On June 7, the June yen reached its highest level since April 4 on extremely heavy volume of 550,553 contracts, which is the highest volume for 2013 and the highest in the 4th quarter 2012. The move on June 7 exceeded June 6 in terms of price and volume, and is indicative of a market that has had a blow off. Often times, tops are made on big volume, large trading ranges and lower closes. We think it is possible there will be a test of Friday’s high, but believe it will fail. On June 7, the June yen generated a short-term buy signal, but was unable to generate in intermediate term buy signal. After making an attempt to take out Friday’s high, we think the yen will trade in a in a sideways to lower pattern. This market is too volatile to trade and speculators should be spectators.

Dollar index: On June 7, the June dollar index generated a short and intermediate term sell signal.

For the week, the June dollar index lost 1.74 points the COT report showed that leveraged funds liquidated 8,022 contracts of their long positions and also liquidated 11,309 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.06:1 which is down from the previous week of 1.12:1 and the ratio of 2 weeks ago of 1.13:1.

The table below shows the relative strength of major currencies during the recent COT report and year to date. We added the short to long ratio from the recent COT report to illustrate how lopsided managed money positions can be in currencies. The June Swiss franc and June Canadian dollar are significantly outperforming the Australian dollar and Japanese yen year to date, but leveraged funds are heavily short the outperforming currencies versus the under performing currencies. Go figure.

COT Report May 29-June 4    Year to Date     Short to Long Ratio
June Swiss franc   +2.75%             -2.46%                  3.68:1
June yen                +2.03%             -11.19%                  2.37:1
June euro               +1.79%             +0.68%                 2.10:1
June pound           +1.61%               -4.17%                   3.95:1
June Canadian $ +0.36%          -2.26%                4.24:1
June Australian$ +0.10%         -7.48%                 1.89:1
June dollar index  -1.85%               +2.10%                  1.06:1

 Interest Rates:

On June 7, the interest rate on the 10 year note closed at 2.16%, which is just shy of the 52-week high of 2.21%. On May 2, interest on the 10 year treasury note was 1.631% and by June 7 had risen 32.50%. In late June-early July 2011, the 50 day moving average crossed beneath the 200 day moving average, which signaled lower interest rates until this reversed during January 2013. Since then, the 50 day moving average continues to trade above the 200 day moving average.

The reason this is important is that mortgage rates have already started to increase and have reached the 4.00% level. This undoubtedly is going to negatively affect the housing sector, which has been a source of strength for the US economy. Additionally, those that hold fixed income instruments  are going to be severely affected as well. Based upon our analysis of the price and open interest of the 10 year treasury note, there has been some minor liquidation, but as of the June 4 report released on June 7, leveraged funds remain long by a ratio of 3.16:1. Remarkably, this is higher than the long to short ratio of 3.04:1 of the April 30 COT report when interest rates were much lower.  From May 2- June 6, open interest has fallen only 105,596 contract even though the 10 year treasury note has fallen 2.82%. In other words, managed money does not believe that interest rates are going higher. The belief that quantitative easing is going to continue is most likely the reason why managed money feels comfortable being long.

S&P 500 E mini:

For the week, the June S&P 500 E mini gained 9.60 points. The COT report showed that leveraged funds added 9,882 contracts to their long positions and liquidated 35,180 contracts of their short positions. As of the latest report, leveraged funds are short the S&P 500 E mini by a ratio of 1.75:1, which is down from the previous week of 1.85:1 and the ratio of 2 weeks ago of 1.78:1.