October 6, 2013 Weekend Wrap

Due to the federal government closure, this will be an abbreviated Weekend Wrap. The COT figures have not been released and will not be released until the federal government is back in operation. Additionally, all reports from the USDA have been suspended as well. When the COT figures are released, we will include them in this weekend’s report.

Note: The CFTC released the October 1 report on October 25. We added the COT stats to the October 6 report on that date. 

Soybeans:

For the week, November soybeans lost 24.75 cents, January -26.50. The COT report showed that managed money liquidated 18,310 contracts of their long positions and also liquidated 3,226 contracts of their short positions. Commercial interests added 5,191 contracts to their long positions and liquidated 7,717 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio 10.33:1, which is above the previous week of 9.52:1 and the ratio of 2 weeks ago of 7.30:1.

Soybean meal:

For the week, October soybean meal advanced $11.40, December +10 cents. The COT report showed that managed money liquidated 3,517 contracts of their long positions and added 39 contracts to their short positions. Commercial interests liquidated 7,696 contracts of their long positions and also liquidated 16,286 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 4.70:1, which is below the previous week’s ratio of 4.94:1 and the ratio of 2 weeks ago of 5.50:1.

Soybean oil:

For the week, October soybean oil lost 1.52 cents, December -1.57. The COT report showed that managed money liquidated 1,397 contracts of their long positions and added 141 contracts to their short positions. Commercial interests liquidated 3,164 contracts of their long positions and also liquidated 2,806 contracts of their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.51:1 which is above the previous week of 1.46:1 and the ratio of 2 weeks ago of 1.44:1.

Corn:

For the week, December corn lost 10.75 cents, March -10.50. The COT report showed that managed money added 1,410 contracts to their long positions and also added 15,530 contracts to their short positions. Commercial interests added 11,019 contracts to their long positions and liquidated 5,006 contracts of their short positions. As of the latest report, managed money is short corn by a ratio of 1.27:1 which is above the previous week of 1.20:1 and the ratio of 2 weeks ago of 1.07:1.

Chicago wheat:

For the week, December Chicago wheat advanced 4.00 cents, March +4.75. The COT report showed that managed money added 282 contracts to their long positions and liquidated a massive 38,443 contracts of their short positions. Commercial interests liquidated 5,534 contracts of their long positions and added a massive 27,636 contracts to their short positions. As of the latest report, managed money is long wheat by a ratio of 1.01:1, which is a dramatic reversal from the previous week when they were short by a ratio of 1.40:1 and the ratio of 2 weeks ago of 1.62:1.

Kansas City wheat:

For the week, December KC wheat advanced 18.50 cents, March +16.50. The COT report showed that managed money added 930 contracts to their long positions and liquidated a massive 10,196 contracts of their short positions. Commercial interests added 3,298 contracts to their long positions and also added a massive 13,301 contracts to their short positions. As of the latest report, managed money is long Kansas City wheat by a ratio of 2.73:1, which is a dramatic increase from the previous week of 1.61:1 and the ratio of 2 weeks ago of 1.52:1.

Cotton:

For the week, October cotton advanced 17 points, December +55, March +79. The COT report showed that managed money added a massive 10,670 contracts to their long positions and also added 559 contracts to their short positions. Commercial interests added 6,511 contracts to their long positions and also added 16,848 contracts to their short positions. As of the latest report, managed money is long cotton by a ratio of 6.34:1, which is a hefty increase from the previous week of 5.56:1 and the ratio of 2 weeks ago of 5.05:1.

Unfortunately, we are unable to determine to what degree managed money expanded their long positions due to the closure of the government and therefore there is no COT report to guide us. However, there has been a very important development with respect to spread action in the near versus deferred months. For example, the December 2013-March 2014 spread closed on Friday at 5 points premium to December. This is the lowest close for the spread since June 11 when the spread closed at 5 point premium to March. On August 19, the December 2013- March 2014 spread topped out at 3.28 cents premium December. On August 19 December cotton closed at 93.32. In short, the inversion continues to narrow, and it is only a matter of time before December sells at a discount to March. In our view, the impending change in trend of the spread is bearish for cotton prices. In our experience, spreads often foretell the direction of the market. In light of not having the COT data, we are shooting blanks in evaluating the current state of the market without the weekly reports. Despite not having this data, we have seen cotton unable to break through to the 88 cent level, despite 5 attempts beginning on September 30 through October 4.

Live cattle:

For the week, October live cattle lost 20 points, December +35, February +43. The COT report showed that managed money added 7,310 contracts to their long positions and liquidated 14,132 contracts of their short positions. Commercial interests liquidated 3,042 contracts of their long positions and added 13,206 contracts to their short positions. As of the latest report, managed money is long live cattle by a ratio of 2.78:1, which is a dramatic increase from the previous week of 1.79:1 and the ratio of 2 weeks ago of 1.59:1.

Crude oil:

For the week, November crude oil advanced 97 cents, December +1.19, January +1.32, February +1.39. The COT report showed that managed money liquidated 17,536 contracts of their long positions and added 1,041 contracts to their short positions. Commercial interests liquidated 12,315 contracts of their long positions and also liquidated 5,746 contracts of their short positions. As of the latest report, managed money is long crude oil by a ratio of 6.28:1, which is below the previous week’s ratio of 6.86:1, but above the ratio of 2 weeks ago of 5.72:1.

The spread action in crude oil has been distinctly bearish, and on October 4 the spread closed at $1.99 premium to November. The last time the spread closed near this level occurred on June 21, 2013 at $1.91 premium to November. On that date, November crude oil closed at $92.74. Like cotton, we think the spread is telling us that lower prices are ahead. Additionally, crude generated a short-term sell signal on September 23 and gasoline is on a short and intermediate term sell signal, while heating oil is on a short-term sell signal.

Heating oil:

For the week, November heating oil advanced 1.42 cents. The COT report showed that managed money liquidated 5,136 contracts of their long positions and added 1,039 contracts to their short positions. Commercial interests added 5,850 contracts to their long positions and liquidated 6,859 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 1.83:1, which is below the previous week’s ratio of 2.22:1 and the ratio of 2 weeks ago of 2.77:1.

Gasoline:

For the week, November gasoline lost 5.26 cents, December -4.14, January -3.67. The COT report showed that managed money liquidated 4,944 contracts of their long positions and added 1,289 contracts to their short positions. Commercial interests liquidated 411 contracts of their long positions and also liquidated 2,626 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 4.86:1, which is dramatically below the previous week of 6.28:1 and the ratio of 2 weeks ago of 5.81:1.

Natural gas:

For the week, natural gas lost 5.6 cents, December -9.5, January -8.7. The COT report showed that managed money liquidated 2,268 contracts of their long positions and added 17,274 contracts to their short positions. Commercial interests added 5,001 contracts to their long positions and also added 3,347 contracts to their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.09:1 which is an increase from the previous week of 1.02:1, but a reversal from the ratio of 2 weeks ago when managed money was long by a ratio of 1.03:1.

Copper:

For the week, December copper lost 2.85 cents. The COT report showed that managed money added 818 contracts to their long positions and liquidated 1,735 contracts of their short positions. Commercial interests liquidated 1,341 contracts of their long positions and added 2,361 contracts to their short positions. As of the latest report, managed money is long copper by a ratio of 1.35:1, which is an increase from the previous week of 1.22:1 and the ratio of 2 weeks ago of 1.14:1.

Stocks in the warehouses of the Commodity Exchange of New York, London Metal Exchange are at four-year lows and Shanghai stocks are at over one year lows. However, during the past month, copper has been trading in a sideways pattern, and there does not seem to be enough speculative interest on the long side to boost prices out of their current range. According to the latest COT report, which was tabulated on September 24, managed money was long by a ratio of 1.22:1, which is the highest of the previous 2 weeks but significantly below the ratio of August 27 of 1.61:1 and the ratio of the previous week, 1.65:1.

On September 18, December copper generated a short-term buy signal and has been on an intermediate term buy signal. Taking the recent low on September 24 of 3.2355 through October 3 when December copper closed at 3.2685, open interest declined 826 contracts. From the close on September 24 through the close of October 3 copper prices advanced 1.20 cents, therefore the decline of open interest during a modest rise should be considered somewhat negative but not much should be read into this. From a seasonal point of view, copper prices should decline or trade weakly through most of October and then rise through the remainder of the year. At this juncture, we recommend that clients stand aside and let prices consolidate, or breakout of  their trading range in either direction.

Palladium:

For the week, December palladium lost $29.85. The COT report showed that managed money added 302 contracts to their long positions and liquidated 359 contracts of their short positions. Commercial interests added 10 contracts to their long positions and also added 164 contracts to their short positions. As of the latest report, managed money is long palladium by a ratio of 20.31:1, which is a significant increase from the previous week of 15.33:1 and the ratio of 2 weeks ago of 10.65:1.

Platinum:

For the week, January platinum lost $31.20. The COT report showed that managed money liquidated 153 contracts of their long positions and added 2,720 contracts to their short positions. Commercial interests added 119 contracts to their long positions and liquidated 110 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 3.90:1 which is a dramatic reduction from the previous week of 5.83:1 and the ratio of 2 weeks ago of 6.16:1.

Gold:

For the week, December gold lost $29.30. The COT report showed that managed money liquidated 1,258 contracts of their long positions and added 1,371 contracts to their short positions. Commercial interests added 8,128 contracts to their long positions and also added 4,415 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 2.69:1 which is slightly below the previous week’s ratio of 2.83:1, but above the ratio of 2 weeks ago of 2.32:1.

Silver:

For the week, December silver lost 7.9 cents. The COT report showed that managed money liquidated 2,809 contracts of their long positions and added 5,011 contracts to their short positions. Commercial interests added 992 contracts to their long positions and also added 276 contracts to their short positions. As of the latest report, managed money is long silver by a ratio of 1.85:1, which is the same as the previous week of 1.85:1, but slightly below the ratio of 2 weeks ago of 2.02:1.

Canadian dollar:

For the week, the December Canadian dollar gained 4 points. The COT report showed that leveraged funds added 1,630 contracts to their long positions and also added 1,378 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.05:1, which is about the same as the previous week of 1.06:1, but dramatically below the ratio of 2 weeks ago when they were short by 2.32:1.

Australian dollar:

For the week, the December Australian dollar advanced 1.16 cents. The COT report showed that leveraged funds liquidated 5,015 contracts of their long positions and also liquidated 13,215 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.61:1, which is down slightly from the previous week of 1.81:1, but above the ratio of 2 weeks ago of 1.29:1.

Swiss franc:

For the week, the December Swiss franc lost 16 points. The COT report showed that leveraged funds added 2,186 contracts to their long positions and also added 2,207 contracts to their short positions. As of the latest report, leveraged funds are long by a ratio of 1.77:1, which is down somewhat from the previous week of 2.00:1 but above the ratio of 2 weeks ago of 1.57:1.

British pound:

For the week, the December British pound lost 1.08 cents. The COT report showed that leveraged funds added 2,979 contracts to their long positions and liquidated 1,802 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by a ratio of 3.44:1, which is slightly above the previous week of 3.14:1 but dramatically above the ratio of 2 weeks ago of 2.54:1.

 Euro:

For the week, the December euro advanced 37 points. The COT report showed that leveraged funds liquidated 3,957 contracts of their long positions and also liquidated 5,842 contracts of their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 3.29:1, which is above the previous week of 2.91:1 and dramatically above the ratio of 2 weeks ago of 1.81:1.

Yen: On October 2, the December yen generated a short and intermediate term buy signal.

For the week, the December yen advanced 90 points. The COT report showed that leveraged funds liquidated 3,600 contracts of their long positions and also liquidated 9,180 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.82:1, which is slightly above the previous week of 2.79:1 and the ratio of 2 weeks ago of 2.68:1.

Dollar index:

For the week, the December dollar index lost 15 points. The COT report showed that leveraged funds added 1,284 contracts to their long positions and liquidated 174 contracts of their short positions. As of the latest report, leveraged funds are short the dollar index by a ratio of 1.52:1, which is slightly below the previous week of 1.64:1, but significantly above the ratio of 2 weeks ago of 1.03:1.

S&P 500 E mini:

For the week, the December S&P 500 E mini lost 1.60 points. The COT report showed that leveraged funds added 19,832 contracts to their long positions and liquidated 18,049 contracts of their short positions. As of the latest report, leveraged funds are short the S&P 500 E mini by a ratio 1.55:1, which is slightly below the previous week of 1.67:1, but slightly above the ratio of 2 weeks ago of 1.51:1.

In past reports, we have discussed the divergence between the Dow Jones Industrial Average and the other major indices. We thought perhaps that with the rebalancing by the index committee that the Dow would begin to show comparable if not outperformance of the other indices. On September 20, Nike, Visa and Goldman Sachs were added to the index. However, since September 20, the DJIA continues to underperform and by a substantial margin. We consider this to be a potential warning that the Dow may presage weakness in the other indices. The table below tells the story. On a year-to-date basis, the only index that the DJIA outperforms is the New York Composite Index, which is an index composed of over 2000 stocks traded on the New York Stock Exchange.

 09/20/2013 – 10/04/2013
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