May 26 Weekend Wrap
For this week’s COT report, the tabulation period is from May 15-May 21.
Soybeans: On May 21, July soybeans generated in intermediate term buy signal.
For the week, July soybeans gained 27.75 cents, August +24.00, November +19.50. The COT report showed that managed money added 27,661 contracts to their long positions and also added 10,495 contracts to their short positions. Commercial interests liquidated 1,240 contracts of their long positions and added 2,082 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 2.84:1 which is down slightly from the previous week of 2.88:1 and slightly above the ratio of 2 weeks ago of 2.81:1. The current low long to short ratio is supported by our report on May 22, which highlighted the dismal increase of open interest despite the significant advance in soybeans.
From the May 22 report:
“For the past 4 trading sessions beginning on May 17, soybeans have advanced 66.75 cents while open interest has increased only 7,210 contracts. The cumulative four-day open interest increase is approximately 50% less than average of the 4 day cumulative volume. As we have stated in the previous two reports, the minor increase of open interest indicates that speculators are not buying into the soybean rally.”
Soybean meal: On May 21, July soybean meal generated in intermediate term buy signal.
For the week, July soybean meal gained $3.10, August +3.20, December +9.00. The COT report showed that managed money added 4,627 contracts to their long positions and liquidated 5,951 contracts of their short positions. Commercial interests liquidated 1,054 contracts of their long positions and added a massive 13,329 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio of 3.81:1, which is up substantially from the previous week of 2.57:1 and the ratio of 2 weeks ago of 2.15:1. The extract below from the May 22 report confirms the significant increase in the long to short ratio of managed money compared to soybeans.
From the May 22 report:
“From May 17 through May 22, July soybean meal has advanced $25.70 while open interest has increased 11,157 contracts. The cumulative four-day increase of open interest is approximately 35% above average based upon four-day cumulative volume. Open interest in soybeans during the same four-day period is 50% less than average. The performance from May 17 through May 22 shows that soybean meal has gained 6.19% while soybeans have gained 4.68%. In short, market participants are much more strongly committed soybean meal than soybeans based upon performance and the open interest increase of the past four days.”
Soybean oil:
For the week, July soybean oil lost 28 points, August -19, December -2. The COT report showed that managed money liquidated 1,092 contracts of their long positions and also liquidated 2,862 contracts of their short positions. Commercial interests added 2,016 contracts to their long positions and also added 10,562 contracts to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.25:1, which is down from the previous week of 1.28:1 and the ratio of 2 weeks ago of 1.44:1.
Corn:
For the week, July corn advanced 4.50 cents, December +17.00. The COT report showed that managed money added 5,335 contracts to their long positions and added a massive 24,738 contracts to their short positions. Commercial interests added 8,005 contracts to their long positions and liquidated 13,520 contracts of their short positions. As of the latest report, managed money is long by a ratio of 1.60:1, which is down substantially from the previous week of 1.87:1 and the ratio of 2 weeks ago of 1.76:1.
Wheat:
For the week, July wheat gained 14.25 cents, December +10.50. The COT report showed that managed money liquidated 4,147 contracts of their long positions and added a massive 21,502 contracts to their short positions. Commercial interests added 8,174 contracts to their long positions and liquidated 16,900 contracts of their short positions. As of the latest report, managed money is short by a ratio of 1.60:1, which is up substantially from the previous week of 1.23:1 and the ratio of 2 weeks ago of 1.17:1.
COT Report May 15-May 21 Year to Date
July soybean meal +6.53% +5.13%
July soybeans +4.49% +5.81%
July bean oil -0.56% -2.73%
July corn -1.92% -5.74%
July wheat -4.26% -12.13%
Cotton: On May 23, July cotton generated in intermediate term sell signal.
For the week, July cotton lost 4.92 cents. The COT report showed that managed money added 280 contracts to their long positions and added 2,228 contracts to their short positions. Commercial interests added 8,757 contracts to their long positions and also added 8,978 contracts to their short positions. As of the latest report, managed money is long cotton by a ratio of 9.01:1, which is down substantially from the previous week of 13.41:1, but above the ratio of 2 weeks ago of 8.76:1.
During the current COT tabulation period, cotton fell 3.06 cents, yet the long to short ratio of 9.01:1 is higher than it was 2 weeks ago 8.76:1 when cotton closed at 87.15 on May 7. Since then, July cotton has fallen over 3 cents, yet the long to short ratio is slightly above the level of 2 weeks ago when cotton was trading approximately 4% higher. As the table below shows, the long to short ratio is at its second highest level going back to March 12, 2013, even though cotton closed at its lowest price in 11 weeks. This tells us more liquidation is ahead. Our new downside target is 80.00, which is where cotton found support on the continuation chart during the first quarter of 2013. Continue to hold bearish positions, but expect a short-term rally.
From the May 19 Weekend Wrap:
“Cotton has a strong seasonal tendency to decline from mid-May through late summer and early fall. Cotton remains on a short-term sell signal, and has never come close to generating a short-term buy signal during the past 30 days. With managed money all in on the long side of the cotton trade, the market remains vulnerable to a move lower that could take July cotton to 81.50 cents. Another very negative factor is the rising dollar, which is going to have a negative impact on export demand. Further dampening demand is the weak economies of the euro zone and China. We recommend that clients initiate bearish positions on rallies, which can take the form of short futures, short calls, or long puts.”
COT Report May 15-May 21 Year to Date
July cotton -3.52% +6.01%
Bal (cotton ETF -3.42% +4.40%
COT Tabulation Date Closing Price Long to Short Ratio
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
Coffee: On May 20, July coffee generated a short-term sell signal.
The purpose of this review is to show prospective clients how we approach markets when a buy signal has been generated, and it turns out to be a false signal. The report on May 8 reflected the date that coffee generated a short-term buy signal. Any client that purchased call options on May 14 and 15 when futures were trading at $1.40 had minor losses when the report of May 16 indicated that bullish positions including call options be liquidated. Since making that call, coffee has fallen to $1.2950 on May 24, 2013, which is 12.55 cents below the May 16 close (1.4205).
The advantage of using OIA Direct is that speculators can receive an analysis of the markets in real-time, which can be crucial in a situation like coffee (see membership options: openinterestanalyst.com). In the reports of May 16 and 17, we stated that coffee would generate a short-term sell signal if it did not trade above 1.3885. This occurred on May 20, and OIA announced that coffee had generated a short-term sell signal.
Coffee: On May 8, July coffee generated a short-term buy signal.
“July coffee gained 1.45 cents on volume of 26,519 contracts. Open interest increased by a substantial 1,160 contracts, which relative to volume is approximately 70% above average, meaning that new longs were aggressively entering the market and pushing coffee prices higher. As this report is being compiled, July coffee is trading higher on the day and will likely close at a new high for the move. As is usually the case after the generation of a buy signal, a pullback lasting 1-2 and possibly 3 days is likely. On May 9, coffee has made a new high for the move at $1.4875, which is the highest price since March 5 when it made a high of 1.4995. Do not chase the rally.”
From the May 13 report:
“We want to see the market pull back approximately 2 cents before recommending the initiation of bullish positions. We recommend the use of options on futures, which allows speculators to weather the occasional sharp move lower. Also, using options allows speculators to better control risk by calibrating this based upon the strike price.”
From the May 14 report:
“July coffee has pulled back 3.20 cents and has made a new low for the move at 1.4005, which is at its 50 day moving average of 1.4020. The pullback is healthy and coffee remains on a short-term buy signal, but an intermediate term sell signal. We recommend the use of call options to initiate bullish positions, which allows speculators to adjust their risk based upon the option’s strike price.”
From the May 15 report:
“As this report is being compiled on May 16, coffee has made a low of 1.3825, but has rallied to 1.4025. Originally we thought coffee would move to the 1.42 level, but the market moved to the lower end of the trading range, however coffee remains on a short-term buy signal, but an intermediate term sell signal. In our view, the low on May 16 is at, or near to the reaction low made from the May 10 high of 1.4880. We recommend that clients purchase call options, which will give them the flexibility of managing their risk based upon their choice of option strikes.”
From the May 16 report:
For the past 3 days, coffee has declined 5.90 cents while open interest has declined by 434 contracts. This is bullish congruent price and open interest action. Despite this, the market has fallen more than we anticipated, and as this report is being compiled on May 17, July coffee is trading 1.85 cents lower and has made a low of 1.3755 on very light volume. We do not like the way coffee is trading and are reversing our buy recommendation, and now advise clients to move to the sidelines. For those who are long call options, we recommend these be liquidated. For coffee to generate a short-term sell signal, the high of the day must be below $1.3885. Stand aside.
Crude oil:
For the week, July WTI declined $2.14 and Brent crude oil declined $1.92. The COT report showed that managed money added 20,193 contracts to their WTI positions and also added 1,524 contracts to their short positions. Commercial interests liquidated 4,223 contracts of their long positions and added 3,141 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 7.32:1, which is up slightly from the previous week of 7.04:1, but up substantially from the ratio of 2 weeks ago of 6.05:1.
It is interesting to note that the long to short ratio in WTI crude oil has advanced from 6.05:1 to 7.32:1 from May 7-May 21, but crude oil has advanced only 32 cents in this time frame. In short, managed money is more bullish on May 21 than they were 2 weeks ago, despite the market being essentially unchanged during this time. The reason we bring this up is to show the biases of managed money for certain commodities. Below, see the analysis of this phenomenon in natural gas.
Heating oil:
For the week, July heating oil lost 8.01 cents. The COT report showed that managed money added 1,162 contracts to their long positions and liquidated 2,540 contracts of their short positions. Commercial interests liquidated 5,457 contracts of their long positions and also liquidated 6,702 contracts of their short positions. As of the latest report, managed money is short heating oil by a ratio of 1.13:1, which is down from the previous week of 1.25:1 and the ratio of 2 weeks ago of 1.30:1.
Gasoline:
For the week, July gasoline lost 6.32 cents and the July ethanol contract lost 7.5 cents. The COT report showed that managed money added 4,321 contracts to their long positions and also added 3,453 contracts to their short positions. Commercial interests liquidated 5,532 contracts of their long positions and also liquidated 3,859 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 2.53:1, which is down from the previous week of 2.77:1 and the ratio of 2 weeks ago of 2.90:1. The current ratio is the lowest registered during the past several weeks and is the lowest in over 2 years.
Natural gas: On May 23, July natural gas generated a short-term buy signal.
For the week, July natural gas added 18.2 cents. The COT report showed that managed money liquidated 8,883 contracts of their long positions and also liquidated 6,889 contracts of their short positions. Commercial interests liquidated 2,240 contracts of their long positions and also liquidated 4,590 contracts of their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.25:1, which is up slightly from the previous week of 1.22:1, but down from the ratio of 2 weeks ago of 1.32:1.
We showed how the long to short ratio increased approximately 20% in crude oil from May 7-May 21 while crude oil remained essentially unchanged. In the case of natural gas, the opposite has occurred. From May 7 through May 21, natural gas advanced 26.5 cents, but the long to short ratio fell from 1.32:1 on May 7 to 1.25:1 on May 21. In order to provide some additional perspective, we examined the long to short ratios of crude oil and natural gas in 2013 beginning with the first COT report tabulated on January 8, 2013 through the current report of May 21. Additionally, we compared the ratios and closing prices of crude oil and natural gas on those dates. For this purpose, we are using natural gas and crude oil continuation charts to capture the action of the lead month. When looking at the table below, one item jumps out. Managed money is nearly 6 times more bullish on crude oil than they are on natural gas (6 x 1.25 nat gas ratio = 7.50:1 WTI) even though crude oil has advanced only $3.03, or approximately 3.25% versus natural gas, which has advanced 97.4 cents or approximately 30% from January 8 through May 21.
Although managed money has gone from a net short position in natural gas on January 8 to a net long position, the short to long ratio of natural gas is half of what it is for gasoline, which is down fractionally year to date. The lopsided long to short ratios of crude oil, gasoline and natural gas compared to their price performance gives speculators insight into where managed money is likely to deploy assets as natural gas continues to outperform. Speculators should be looking to implement bullish positions in natural gas. Any setback is a terrific buying opportunity. The 50 day moving average on the July contract is $4.16, and since July closed at $4.284, setbacks likely will be shallow.
Commodity COT Date Closing Price Long to Short ratio
WTI crude January 8 $93.15 4.93:1
WTI crude May 21 $96.18 7.32:1
Natural gas January 8 $3.218 1.38:1 (short to long)
Natural gas May 21 $4.192 1.25:1
COT Report May 15-May 21 Year to Date Long-Short Ratio
July natural gas +4.26% +20.21% 1.25:1
July WTI +1.53% +0.19% 7.32:1
July heating oil +1.49% -4.81% 1.13:1 (short to long ratio)
Brent crude +1.11% -4.40% 3.44:1
July gasoline +0.24% -.085% 2.53:1
Copper: On May 21, July copper generated a short-term buy signal.
For the week, July copper lost 2.75 cents. The COT report showed that managed money added 345 contracts to their long positions and liquidated 3,730 contracts of their short positions. Managed money added 1,087 contracts to their long positions and also added 4,000 contracts to their short positions. As of the latest report, managed money is short copper by a ratio of 1.33:1, which is down from the previous week of 1.48:1 and the ratio of 2 weeks ago of 1.62:1.
Palladium:
For the week, June palladium lost $13.80. The COT report showed that managed money added 106 contracts to their long positions and also added 6 contracts to their short positions. Commercial interests liquidated 439 contracts of their long positions and added 526 contracts to their short positions. As of the latest report, managed money is long palladium by a ratio of 31.62:1, which is about unchanged from the previous week of 31.76:1, but up dramatically from the ratio of 2 weeks ago of 9.85:1.
Platinum:
For the week, July platinum lost $16.10. The COT report showed that managed money liquidated 1,399 contracts of their long positions and added 1,972 contracts to their short positions. Commercial interests added 1,315 contracts to their long positions and liquidated 2,258 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 2.84:1, which is down substantially from the previous week of 3.59:1 and the ratio of 2 weeks ago of 3.35:1.
Gold:
For the week, June gold gained $21.90. The COT report showed that managed money added 555 contracts to their long positions and also added 3,581 contracts to their short positions. Commercial interests liquidated 1,950 contracts of their long positions and added 5,318 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 1.47:1, which is down from the previous week of 1.54:1 and the ratio of 2 weeks ago of 1.72:1. The current ratio is the lowest recorded in over a year.
Silver:
For the week, July silver gained 14.4 cents. The COT report showed that managed money liquidated 55 contracts of their long positions and added 1,659 contracts to their short positions. Commercial interests added 1,246 contracts to their long positions and also added 1,432 contracts to their short positions. As of the latest report, managed money is long silver by a ratio of 1.09:1 which is down from the previous week of 1.18:1 and the ratio of 2 weeks ago of 1.37:1.
COT Report May 15-May 21 Year to Date
June palladium +2.26% +3.33%
July copper +1.35% -10.25%
July platinum -2.68% -5.93%
June gold -3.49% -17.67%
July silver -4.34% -26.38%
Canadian dollar: On May 21 the Canadian dollar generated a short-term sell signal.
For the week, the June Canadian dollar lost 45 points. The COT report showed that leveraged funds added 1,636 contracts to their long positions and liquidated 9,815 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.80:1, which is down from the previous week of 3.48:1 and the ratio of 2 weeks ago when leveraged funds were short by a ratio of 4.67:1. The current ratio is the lowest in several months.
Ironically, leveraged funds are net short at the lowest level in several months, though the Canadian dollar trading at the lower end of its recent trading range. However, the market is due for a bounce. When the Canadian dollar was on a buy signal, leveraged funds held their highest net short position.
Australian dollar:
For the week, the June Australian dollar lost 89 points. The COT report showed that leveraged funds liquidated a massive 13,814 contracts of their long positions and added 3,767 contracts to their short positions. As of the latest report, leveraged funds are now short by a ratio of 1.22:1, which is a dramatic change from the previous week when they were long by a ratio of 1.06:1, and the ratio of 2 weeks ago when they were long by a ratio of 1.38:1.
Leveraged funds have gotten net short in the Australian dollar for the first time in at least several months. This is occurring just as the Australian dollar is at a level where it should find good support. The market is massively oversold and due for a good-sized rally.
Swiss franc:
For the week, the June Swiss franc gained 1.17 cents. The COT report showed that leveraged funds liquidated 729 contracts of their long positions, and added a large 3,192 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.52:1, which is up substantially from the previous week of 2.06:1 and the ratio of 2 weeks ago of 1.38:1.
British pound: On May 22, the June British pound generated a short-term sell signal.
For the week, the June British pound lost 55 points. The COT report showed that leveraged funds liquidated 3,839 contracts of their long positions and added a massive 19,600 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 3.19:1, which is up dramatically from the previous week of 2.36:1 and the ratio of 2 weeks ago of 2.47:1.
Euro:
For the week, the June euro gained 88 points. The COT report showed that leveraged funds liquidated 4,764 contracts of their long positions and added a massive 27,236 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.65:1, which is up dramatically from the previous week of 1.79:1 and the ratio of 2 weeks ago of 1.59:1.
The large jump in the short to long ratio in the euro caused us to go back into our records and examine the previous time(s) that the ratio was at, or near the current one. The table below is instructive once the euro chart is examined in conjunction with the long to short ratio and the closing prices on the dates of the COT reports. The ratios of March 26 and April 2 occurred at the bottom of the market, and managed money continued to add to their short positions as the market moved higher as shown by the ratio on April 9. Our current posture is that bearish positions be initiated on rallies to the 1.2950 area with an exit at 1.3000-1.3032 depending upon your risk tolerance. We are a bit concerned that managed money increased their short positions heavily in the most recent COT reporting period when the euro closed only fractionally lower. This is not to say that we are anything but bearish the euro, only that a brief rally can occur when professional money managers are heavily net short.
Date of COT report Closing Price Long to Short Ratio
March 26, 2013 1.2865 2.55:1
April 2, 2013 1.2822 2.62:1
April 9, 2013 1.3105 3.18:1
May 21, 2013 1.2903 2.65:1
Japanese yen:
For the week, the June yen gained 208 points. The COT report showed that leveraged funds liquidated 8,763 contracts of their long positions and also liquidated 1,805 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.47:1 which is up from the previous week of 2.06:1 and the ratio of 2 weeks ago of 2.13:1.
Dollar index:
For the week, the June dollar index lost 63 points. The COT report showed that leveraged funds added 6,551 contracts to their long positions and also added 8,732 contracts to their short positions. As of the latest report, leveraged funds remain short by a ratio of 1.16:1, which is up slightly from the previous week of 1.13:1 but down from the ratio of 2 weeks ago when leveraged funds were short by a ratio of 1.20:1.
COT Report May 15-May 21 Year to Date
June dollar index +0.26% +4.71%
June euro -0.24% -2.11%
June yen -0.31% -14.35%
June pound -0.45% -6.92%
June Swiss franc -0.47% -5.20%
June Aussie$ -0.70% -6.18%
June Canadian$ -0.89% -3.44%
S&P 500 E mini:
For the week, the June S&P 500 E mini lost 12.40 points. The COT report showed that leveraged funds liquidated 71,782 contracts of their long positions and also liquidated 19,536 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.78:1, which is up from the previous week of 1.61:1 and the ratio of 2 weeks ago of 1.50:1.
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