Weekend Wrap for December 1, 2013

Due to the Thanksgiving holiday, the COT report was not released on Friday. When the report is issued on Monday, we will incorporate the data into the December 1 report.

The USDA released its export reports on November 29 and will be included in this report. As a result of the holiday, this report will be shorter than usual.

 Soybeans: On November 25, January soybeans generated a short-term buy signal and remains on an intermediate term buy signal.

For the week, January soybeans advanced 17.00 cents, March +11.75, May +7.25. The COT report showed that managed money added 14,688 contracts to their long positions and also added 1,773 contracts to their short positions. Commercial interests liquidated 906 contracts of their long positions and added 9,388 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 7.03:1, which is an increase from the previous week of 6.93:1 and the ratio of 2 weeks ago of 6.24:1.

The USDA reported that 1405.9 thousand metric tons (tmt) were sold in the recent reporting period, which brings total commitments season to date of 1.351 billion bushels (bb), and is 100 million bushels below the USDA projection for the entire season of 1.450 bb. This is the best pace of exports to date since the 2007-2008 season. It certainly explains the impetus for rally on November 29.

Soybean meal: On November 25, January soybean meal generated a short-term buy signal and remains on an intermediate term buy signal.

For the week, December soybean meal advanced $28.80, January +15.60, March +11.80. The COT report showed that managed money added 2,508 contracts to their long positions and liquidated 4,542 contracts of their short positions. Commercial interests liquidated 9,566 contracts of their long positions and added 5,725 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio 3.61:1, which is up from the previous week of 2.86:1 and the ratio of 2 weeks ago of 3.44:1.

The USDA reported that 1576.9 tmt was sold in the most recent reporting period, which brings total commitments season to date of 5668.5 tmt versus USDA projections for the season of 9299 tmt. The pace of exports to date is the best since 2008-2009.

Soybean oil:

For the week, December soybean oil lost 94 points, January -99 March -76. The COT report showed that managed money liquidated 1,425 contracts of their long positions and also liquidated 5,124 contracts of their short positions. Commercial interests added 7,846 contracts to their long positions and also added 9,115 contracts to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.60:1, which is somewhat less than the previous week of 1.66:1, but above the ratio of 2 weeks ago of 1.43:1.

Corn:

For the week, December corn lost 7.00 cents, March -4.75, May -4.50. The COT report showed that managed money liquidated a massive 53,039 contracts of their long positions and added 17,619 contracts to their short positions. Commercial interests liquidated 22,349 contracts of their long positions and also liquidated 58,985 contracts of their short positions. As of the latest report, managed money is short corn by a ratio of 1.60:1 , which is up significantly from the previous week of 1.19:1 and the ratio of 2 weeks ago of 1.24:1. We checked our records back to the September 3, 2013 COT report and found the current short to long ratio is the highest recorded. 

The USDA reported that 1007 tmt had been sold, which brings total commitments season to date of 722.3 million bushels versus USDA projections for the entire season of 1.400 bb. The pace of exports to date is the best since the 2007-2008 season. 

Chicago wheat:

For the week, December Chicago wheat advanced 5.50 cents, March +11.75, May +12.50.The COT report showed that managed money added 3,741 contracts to their long positions and added 11,496 contracts to their short positions. Commercial interests liquidated 6,525 contracts of their long positions and also liquidated 14,337 contracts of their short positions. As of the latest report, managed money is short Chicago wheat by a ratio of 1.72:1 , which is above the previous week’s ratio of 1.66:1 and the ratio of 2 weeks ago of 1.55:1. The current ratio is the highest recorded in several months.

Kansas City wheat:

For the week, December Kansas City wheat advanced 11.50 cents, March +8.25, May +8.50.The COT report showed that managed money liquidated 583 contracts of their long positions and added 4,874 contracts to their short positions.Commercial interests liquidated 741 contracts of their long positions and also liquidated 6,158 contracts of their short positions. As of the latest report, managed money is long Kansas City wheat by a ratio of 1.80:1, which is down from the previous week of 2.28:1 and the ratio of 2 weeks ago of 3.52:1.The current ratio is the lowest in at least a couple of months. Interestingly, managed money is as bearish on Chicago wheat as they are bullish on Kansas City wheat even though Kansas City wheat has significantly underperformed Chicago wheat.

The USDA reported wheat sales in all categories totaled  562 tmt, which brings total commitments season to date of 822.2 million bushels versus USDA projections of 1.100 bb.

November 1-November 29                     Year to Date
January soybean meal  +10.59%                  +19.13%
January soybeans           +5.67%                    +2.22%
March Chicago wheat     -1.32%                    -19.39%
January soybean oil         -2.11%                      19.35%
March corn                      -3.36%                     -30.35%
March KC wheat             -4.48%                     -19.32%  

Cotton:

For the week, December cotton advanced 2.93 cents, March +2.12, May +2.17.The COT report showed that managed money added 3,193 contracts to their long positions and also added 458 contracts to their short positions. Commercial interests liquidated 4,758 contracts of their long positions and also liquidated 2,860 contracts of their short positions. As of the latest report, managed money is long cotton by a ratio of 1.27:1, which is up from the previous week of 1.18:1 and the ratio of 2 weeks ago of 1.20:1.

Sugar #11:

For the week, March sugar lost 25 points, May -23, July -22.The COT report showed that managed money liquidated 10,652 contracts of their long positions and added 7,790 contracts to their short positions. Commercial interests added 1,625 contracts to their long positions and liquidated 36 729 contracts of their short positions.As of the latest report, managed money is long by a ratio of 2.91:1, which is down from the previous week of 3.54:1 and the ratio of 2 weeks ago of 3.93:1. It is remarkable that the slide in sugar prices has not reduced the long to short ratio very much, which is a major negative factor for prices going forward.

Live cattle: On November 29, February cattle generated a short-term buy signal and generated an intermediate term buy signal on November 27. 

For the week, December live cattle advanced 2.00 cents, February +2.45, April +2.40.The COT report showed that managed money liquidated 4,367 contracts of their long positions and added 1,766 contracts to their short positions. Commercial interests added 1,719 contracts to their long positions and liquidated 4,146 contracts of their short positions. As of the latest report, managed money is long cattle by a ratio of 4.38:1, which is down from the previous week of 4.95:1 and the ratio of 2 weeks ago of 5.74:1.

Lean hogs:

For the week, December lean hogs gained 5 points, February +90, April +90.The COT report showed that managed money liquidated 5,113 contracts of their long positions and added 1,690 contracts to their short positions. Commercial interests added 4,369 contracts to their long positions and liquidated 3,311 contracts of their short positions. As of the latest report, managed money is long hogs by a ratio of 5.91:1 , which is down from the previous week of 7.24:1 and the ratio of 2 weeks ago of 8.65:1.

 WTI Crude oil:

For the week, January WTI crude oil lost $2.12 while January Brent crude advanced $1.19.The COT report showed that managed money liquidated 1126 contracts of their long positions and added 5,356 contracts to their short positions. Commercial interests liquidated 18,265 contracts of their long positions and also liquidated 12,734 contracts of their short positions. As of the latest report, managed money is long WTI crude oil by a ratio of 5.29:1, which is down from the previous week of 5.94:1, but up from the ratio of 2 weeks ago of 4.22:1.

Heating oil: On November 26, January heating oil generated an intermediate term buy signal and had generated a short-term buy signal on November 21.

For the week, January heating oil lost 85 points.The COT report showed that managed money added 5,598 contracts to their long positions and liquidated 10,168 contracts of their short positions. Commercial interests liquidated 20,478 contracts of their long positions and also liquidated 4,752 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 1.49:1,which is a complete reversal from the previous week when they were short by a ratio of 1.20:1 and the ratio of 2 weeks ago of 1.28:1.

 Gasoline:

For the week, January gasoline lost 4.83 cents.The COT report showed that managed money added 2,575 contracts to their long positions and liquidated 3,305 contracts of their short positions. Commercial interests liquidated 15,783 contracts of their long positions and also liquidated 8,131 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 7.54:1, which is up significantly from the previous week of 4.73:1 and the ratio of 2 weeks ago of 3.37:1.

Natural gas: On November 25, January natural gas generated a short-term buy signal, but remains on an intermediate term sell signal.

For the week, January natural gas advanced 14.3 cents.The COT report showed that managed money added 9,771 contracts to their long positions and liquidated a massive 52,198 contracts of their short positions. As of the latest report, managed money is short by a ratio of 1.07:1 , which is down significantly from the previous week of 1.32:1 and the ratio of 2 weeks ago of 1.37:1.

November 1-November 29               Year to Date
January natural gas      +7.70%              -2.59%
January ethanol            +5.20%             -15.68%
January gasoline           +3.07%              +5.41%
January heating oil       +2.65%              +1.90%
Brent crude oil              + 1.55%               +5.35%
WTI crude oil                 -3.96%               -0.49%                

Copper:

For the week, March copper lost 1.35 cents.The COT report showed that managed money added 1,571 contracts to their long positions and liquidated 2,749 contracts of their short positions. Commercial interests liquidated 5,876 contracts of their long positions and liquidated 3,894 contracts of their short positions. As of the latest report, managed money is short copper by a ratio of 1.67:1, which is down from the previous week of 1.87:1, but up significantly from the ratio of 2 weeks ago of 1.29:1.

Palladium:

For the week, March palladium advanced $3.30.The COT report showed that managed money liquidated 1,974 contracts of their long positions and also liquidated 333 contracts of their short positions. Commercial interests added 407 contracts to their long positions and liquidated 1,298 contracts of their short positions. As of the latest report, managed money is long palladium by a ratio of 13.57:1 , which is up slightly from the previous week of 12.30:1 but down from the ratio of 2 weeks ago of 15.68:1.

Platinum:

For the week, January platinum lost $13.90.The COT report showed that managed money liquidated 705 contracts of their long positions and added 5,058 contracts to their short positions. Commercial interests added 1,178 contracts to their long positions and liquidated 1,969 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 2.94:1 , which is down significantly from the previous week of 6.10:1 and the ratio of 2 weeks ago of 10.18:1.

Gold:

For the week, February gold advanced $5.80.The COT report showed that managed money liquidated 3,712 contracts of their long positions and added 14,858 contracts to their short positions. Commercial interests added 6,932 contracts to their long positions and liquidated 11,390 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 1.21:1, which is down from the previous week of 1.55:1 and the ratio of 2 weeks ago of 1.84:1.

Silver:

For the week, March silver advanced 13.2 cents.The COT report showed that managed money added 565 contracts to their long positions and also added 3,986 contracts to their short positions. Commercial interests liquidated 741 contracts of their long positions and also liquidated 2,479 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.07:1, which is down significantly from the previous week of 1.22:1 and the ratio of 2 weeks ago of 1.49:1. During the carnage in gold and silver of the past several months, managed money has never been net short silver or gold. 

Canadian dollar:

For the week, the December Canadian dollar lost 84 pips.The COT report showed that leveraged funds liquidated 1,336 contracts of their long positions and added 8,052 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.16:1, which is up significantly from the previous week of 1.74:1 and the ratio of 2 weeks ago of 1.77:1.

Australian dollar:

For the week, the December Australian dollar lost 61 pips.The COT report showed that leveraged funds liquidated 531 contracts of their long positions and also liquidated 2,812 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by a ratio of 2.14:1, which is down slightly from the previous week of 2.21:1 and about the same as the ratio of 2 weeks ago of 2.12:1.

Swiss franc:

For the week, the December Swiss franc advanced 3 pips.The COT report showed that leveraged funds added 174 contracts to their long positions and liquidated 981 contracts of their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 2.10:1, which is up from the previous week of 1.68:1 and the ratio of 2 weeks ago of 1.47:1.

British pound:

For the week, the December British pound advanced 1.56 cents.The COT report showed that leveraged funds added 5,508 contracts to their long positions and also added 1,759 contracts to their short positions. As of the latest report, leveraged funds are long the British pound by a ratio of 2.43:1, which is about the same as the previous week of 2.40:1 and the ratio of 2 weeks ago of 2.30:1.

Euro:

For the week, the December euro advanced 36 pips.The COT report showed that leveraged funds liquidated 7,904 contracts of their long positions and added 5,626 contracts to their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.26:1, which is down from the previous week of 1.58:1 and the ratio of 2 weeks ago of 1.64:1. The current ratio is the lowest since the COT reporting date of September 10, 2013 when the long to short ratio reached 1.18:1. Taking into account price performance over the past week combined with the low long to short ratio, the stage is set for a move higher in the euro.

Yen:

For the week, the December yen lost 110 pips.The COT report showed that leveraged funds added 4,945 contracts to their long positions and also added 14,321 contracts to their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 3.19:1, which is about the same as the previous week of 3.23:1 and up somewhat from the ratio of 2 weeks ago of 2.95:1.

Dollar index:

For the week, the December dollar index lost 9 points.The COT report showed that leveraged funds liquidated 1,253 contracts of their long positions and also liquidated 366 contracts of their short positions. As of the latest report, leveraged funds are short the dollar index by ratio of 2.90:1, which is up from the previous week of 2.58:1, but down from the ratio of 2 weeks ago of 3.40:1.

November 1-November 29                Year to Date
December British pound   + 1.94%          +0.83%
December dollar index      +0.45%          +0.52%
December euro                    -.037%          +2.57%
December Swiss franc        -0.17%           +0.15%
December Canadian$        -1.86%             -5.63%
December Australian $     -3.60%           -10.31%
December yen                    -4.04%           -15.73%

Interest rates:

We want to spend some time discussing interest rates and the implications of rising rates on longer dated fixed income instruments, specifically the 10 year note, which has become the benchmark for longer-term rates. Year to date, the interest rate on the 10 year note has risen 56.09% and the S&P 500 has risen 26.62%. During the 4th quarter, interest on the 10 year note rose 4.82% while the S&P 500 advanced 7.39%. In short, the equity markets have risen along with interest rates because the rising interest rates do not appear threatening, and the consensus thinks there is a ceiling of approximately 3.00% for the 10 year note.

This week, the 50 week moving average of interest on the 10 year note of 2.272 crossed above the 150 week moving average of 2.264. We consider this to be a major development, which underscores the intermediate and longer term uptrend in government interest rates on longer term dated instruments. In addition, the interest rate on the 10 year note crossed above 200 week moving average resistance the week of June 17, 2013, and has not penetrated, let alone come close to testing the average. We think the pace of interest rate rises will quicken, and this may begin with the upcoming employment report to be released on December 6. If the report comes in above expectations, we see a sharp rise in interest rates as inevitable. The question is: what impact will this have on equities. Conceivably, a rise to 3% may cause the market to correct, but the correction may be mild at first. However, couple rising interest rates with the realization that tapering by the Federal Reserve is a necessity, and you have a recipe for a potential market correction that could exceed expectations.

The fact is rising interest rates are massively deflationary for equities, housing and commodity prices. As we have pointed out before, our favorite commodity index GCC is equally weighted with 17 commodities, which removes the weighting bias inherent in many commodity indices. The index has been declining and currently is at levels last seen in June 2010.  We view the bear market in precious metals also as another indication of deflation, We anticipate lower prices for copper, although copper has held up fairly well considering the negative trend of most commodities. On November 12, copper generated a short and intermediate term sell signal, and remains on sell signals today.

We think housing has topped out. Although the ishares shares homebuilding ETF, ITB has rallied of late, and year to date is up 9.36% versus the S&P 500 with a gain of 26.62%. During the 4th quarter thus far, ITB has gained 3.49% versus the S&P 500 of 7.39%. The 50 day moving average of ITB of 22.36 is below the 200 day moving average of 22.87. We believe once interest rates penetrate the 3% level, there will be a wholesale exodus out of longer dated fixed income, which will exacerbate the move of higher interest rates. This will further dampen home buying and we would not be surprised to see declining housing prices again. If Japanese longer dated yields begin to rise, this could provide additional impetus for higher US rates.

 S&P 500 E mini:

For the week, the December S&P 500 E mini gained 2.80 points.The COT report showed that managed money added 7,324 contracts of their long positions and liquidated 3,206 contracts of their short positions. As of the latest report, leveraged funds are short the E mini by a ratio of 1.21:1, which is about the same as the previous week of 1.23:1 and the ratio of 2 weeks ago of 1.21:1.