The COT report was tabulated during the period of Wednesday, February 5 through Tuesday, February 11.

Last week, we postulated that inflation, especially food inflation was about to pick up and we listed commodities in various stages of buy and/or sell signals. We have updated the list to reflect last week’s action and on February 14 only sugar #11 and copper remain on short and intermediate term sell signals.

The following commodities on short and intermediate term buy signals as of February 14: soybeans, soybean meal, corn, cotton, coffee, cocoa, live cattle, lean hogs, heating oil, natural gas, WTI crude oil, Brent crude oil, gasoline, gold.

Commodities on short-term buy signals, but  intermediate term sell signals:
Chicago wheat, Kansas City wheat, soybean oil, silver, platinum.

Silver will generate an intermediate term buy signal if the low for the day is above 20.919. Platinum will generate an intermediate term buy signal if the daily low is above 1421.90.

Commodities on short and intermediate term sell signals as of February 14: sugar #11, copper.

 Last week, we discussed  our use of the Greenhaven Continuous Commodity Index (GCC) and how it is actually confirming the large number of short and intermediate term buy signals generated by OIA’s methodology. As mentioned last week, the GCC is a tradable index that is equally weighted (5.88% each) for 17 commodities. The index components are: corn, silver, sugar, soybeans, platinum, orange juice, natural gas, hogs, cattle, coffee, WTI crude oil, heating oil, copper, gold, cotton, cocoa, and wheat.  

The Greenhaven index bottomed at 25.09 on November 19 and made a subsequent attempt to test that low on January 9, but failed with a low of 25.32. This past week, GCC rallied 1.85% and year to date has advanced 4.98% while the S&P 500 cash index has lost 0.53%. On February 14, GCC made a new high for the move at $27.00, which is its highest print since September 19, 2013 (27.00) and closed at 26.98, the highest level since August 28, 2013 (27.04). 

With the March dollar index on a confirmed short and intermediate term sell signal, conceivably we could see an acceleration in the performance of commodities that comprise the index. If the dollar continues its downtrend, US commodities will become more competitive on the world market, which would likely increase demand, especially for commodities that are currently viewed as bargains. Another factor bolstering commodity prices may be the re-emergence of hot hedge fund money chasing performance. While this is not in evidence at this juncture, if commodity prices continue to advance, we think there is a high probability that some money may be diverted to the commodity sector.

Last week we wrote about milk prices and that this commodity is integral to basic food prices. We have no idea how long the rally will last, but it is apparent the shortage of dairy products is a worldwide phenomenon, and as usual in the commodity sector, is driven by heavy Chinese demand. As we said last week, if the price of milk stays elevated for an extended period of time, higher prices will work their way into the food chain, which has enormous implications for food-based inflation. On the other hand, if this is no more than a short-lived rally, demand destruction to milk based products should be limited.

 Soybeans:

For the week, March soybeans advanced 6.00 cents, May +7.50, July +9.50. The COT report revealed that managed money added 25,120 contracts to their long positions and liquidated 385 contracts of their short positions. Commercial interests added 7,852 contracts to their long positions and also added 26,279 contracts to their short positions. As of the latest report, managed money is long soybeans by ratio 8.91:1, which is up substantially from the previous week of 7.67:1 and the ratio of 2 weeks ago of 5.59:1. 

The current ratio is the highest since the COT tabulation date of December 24, 2013 when managed money was long soybeans by ratio of 10.29:1. During the time frame of December 18 through December 24, March soybeans traded in a range of 13.06-13.39 1/4 and on the tabulation date closed at 13.22 1/4.

The trading range for the current COT report was $13.05-13.37 1/2 and March soybeans closed at 13.34 3/4 on February 11. In short, though soybeans are trading within the approximate range as reflected in the December 24 COT report, the long to short ratio in the February 11 report of 8.91:1 remains below December’s 10.29:1.

Soybean meal:

For the week, March soybean meal advanced $3.60, May +2.40, July +2.80. The COT report revealed that managed money added 2,494 contracts of their long positions and liquidated 2,181 contracts of their short positions. Commercial interests added 3,380 contracts to their long positions and also added 5,401 contracts to their short positions. As of the latest report, managed money is long soybean meal by ratio of 4.11:1, which is up from the previous week of 3.64:1 and the ratio of 2 weeks ago of 3.47:1.

Soybean oil:

For the week, March soybean oil advanced 59 points, May + 59, July +58. The COT report revealed that managed money liquidated 2,562 contracts of their long positions and also liquidated 12,865 contracts of their short positions. Commercial interests liquidated 24,137 contracts of their long positions and also liquidated 9,727 contracts of their short positions. As of the latest report, managed money is short soybean oil by ratio of 2.13:1, which is down from the previous week of 2.29:1 and the ratio of 2 weeks ago of 2.30:1.

Corn:

For the week, March corn advanced 1.00 cent, May +0.75, July – 0.50. The COT report revealed that managed money added 6,466 contracts to their long positions and liquidated 35,482 contracts of their short positions. Commercial interests added 4,073 contracts to their long positions and also added 24,480 contracts to their short positions. As of the latest report, managed money is long corn by ratio of 1.30:1, which is up significantly from the previous week of 1.05:1 and a complete reversal from 2 weeks ago when managed money was short by a ratio of 1.20:1.

Chicago wheat:

For the week, March Chicago wheat advanced 21.00 cents, May + 17.00, July + 16.75. The COT report revealed that managed money liquidated 944 contracts of their long positions and also liquidated 11,434 contracts of their short positions. Commercial interests liquidated 4,835 contracts of their long positions and added 4,327 contracts to their short positions. As of the latest report, managed money remains short Chicago wheat by ratio of 1.46:1, which is down from the previous week of 1.56:1 and the ratio of 2 weeks ago of 1.68:1.

Last week, there was an important development in Chicago wheat that we wanted to discuss because we think it has bullish implications for Chicago wheat. For the first time in over one year, the March 2014 contract is selling at a premium to May 2014 wheat. The previous high during the past year was when March 2014 Chicago wheat sold at a 0.25 cent discount to May 2014 premium.

 In short, during the past year, March wheat has never sold at a premium to May until this week when March 2014 closed at a 2.25 cent premium to May 2014. The spread made its recent low during the mid January 2014 time frame when March Chicago wheat was trading in the low $5.60 area. For example, on January 21 and 22, March wheat made a low of $5.60 3/4 and the March 2014-May 2014 spread closed at 6.75 cents premium to May. As the market rallied, the March- May 2014 spread narrowed and March sold at a premium to May for the first time on February 11 when the spread closed at 1.25 cents premium to March.

This is precisely the kind of spread action that is positive for higher prices going forward.

Kansas City wheat:

For the week, March Kansas City wheat advanced 25.25 cents, May +27.50, July +30.25. The COT report revealed that managed money liquidated 2,469 contracts of their long positions and also liquidated 7,179 contracts of their short positions. Commercial interests liquidated 6,097 contracts of their long positions and also liquidated 2,226 contracts of their short positions. As of the latest report, managed money is long Kansas City wheat by ratio of 1.51:1, which is up from the previous week of 1.26:1 and the ratio of 2 weeks ago of 1.14:1.

Year to date, March soybean meal is the leader having gained 7.91%, March corn + 5.51%, March Kansas City wheat +5.31%, March soybeans + 3.48%, March soybean oil + 0.05%, Chicago wheat – 1.12%.

Cotton:

For the week, March cotton advanced 8 points, May +1.19 cents, July + 1.47 cents. The COT report revealed that managed money added 2,617 contracts to their long positions and liquidated 4,694 contracts of their short positions. Commercial interests added 585 contracts to their long positions and also added 10,515 contracts to their short positions. As of the latest report, managed money is long cotton by ratio 7.45:1, which is up substantially from the ratio of the previous week of 4.48:1 and the ratio of 2 weeks ago of 4.28:1.

In wheat, we pointed out how the March-May spread was acting in a bullish fashion, which bodes well for higher prices. In the case of cotton, the March contract continues to increase its contango against the May and July contracts. For example, the March-July 2014 spread closed at 1.03 cents premium to July on February 14, which is the lowest close for the spread since December 3 when March-July 2014 closed at 1.02 cents premium to July. On December 3, March cotton closed at 78.61 compared to the February 14 close of 87.55. The March-May 2014 spread has performed much worse with March cotton selling at a 1.50 cent discount to May 2014, which is by far the lowest close in at least one year.

Stocks held in ICE certified warehouses stands at 248,837 bales, which is up from 216,810 bales on February 7. This is the highest level of stocks since December 2 when total stocks numbered 237,696. The above paragraph noted, the March-July 2014 spread closed at 1.02 cents premium to July on December 3,which is nearly close on February 14. Interestingly, stocks on December 2, 2013 were nearly at the same level as February 14, 2014. While open interest action relative to the price advance has been positive, the long to short ratio is at a significantly elevated level and is higher than the ratio of 7.06:1 that OIA calculated from the January 7, 2014 COT report. March cotton remains on a short and intermediate term buy signal, and if stocks were not as large as they are and spreads were not acting bearishly, we could  become somewhat more enthusiastic about cotton. Although cotton may trade higher, we think the downside risk is not worth the upside potential. 

 Sugar #11:

For the week, March sugar lost 10 points, May -3, July -1. The COT report revealed that managed money liquidated 5,209 contracts of their long positions and also liquidated 5,379 contracts of their short positions. Commercial interests added 4,275 contracts to their long positions and also added 9,333 contracts to their short positions. As of the latest report, managed money is short sugar by ratio of 1.19:1, which is exactly the same as the previous week (1.19:1) and below the ratio of 2 weeks ago of 1.33:1.

Coffee:

For the week, March coffee advanced 4.20 cents, May +4.45, July +4.50. The COT report revealed that managed money liquidated 878 contracts of their long positions and also liquidated 9,091 contracts of their short positions. Commercial interests added 4,914 contracts to their long positions and also added 14,727 contracts to their short positions. As of the latest report, managed money is long coffee by ratio 1.67:1, which is up significantly from the previous week of 1.25:1 and a complete reversal from 2 weeks ago when managed money was short coffee by ratio of 1.19:1.

Cocoa:

For the week, March cocoa advanced $12.00, May +27.00, July + 29.00. The COT report revealed that managed money liquidated 379 contracts of their long positions and added 2,687 contracts of their short positions. Commercial interests liquidated 955 contracts of their long positions and also liquidated 3,481 contracts of their short positions. According to the latest report, managed money is long cocoa by a ratio of 6.43:1, which is down significantly from the previous week of 7.90:1 and the ratio of 2 weeks ago of 7.94:1.

Last week we discussed that the March-July 2014 spread closed at $23.00 premium to July 2014 on February 7, which is the widest spread going back to February 11, 2013. This week, the March-July 2014 spread continued to widen by another $13.00 as March contract enters 1st notice day. Additionally, the July 2014 contract sells at a premium to May and this spread continued to widen as well. Although March and May cocoa remain on short and intermediate term buy signals, we advise a defensive posture for clients who are long cocoa. Spreading is primarily the domain of commercial interests, and spread action is not indicating near term tightness in cocoa. Rather it is discouraging sellers of cash cocoa and encouraging the holding of inventory by increasing carry charges in forward months.

 Year to date, March coffee is the leader with a gain of 26.38%, March Cocoa +8.31%, March cotton + 3.44%, March sugar -4.75%.

Live cattle:

For the week, April live cattle advanced 70 points, June +20, August +58. The COT report revealed that managed money added 1,573 contracts to their long positions and also added 1,309 contracts to their short positions. Commercial interests liquidated 1,547 contracts of their long positions and added 2,377 contracts to their short positions. As of the latest report, managed money remains long by a stratospheric 10.73:1, which is down somewhat from the previous week of 11.78:1, but up from the ratio of 2 weeks ago of 9.28:1.

Lean hogs:

For the week, April lean hogs advanced 1.45 cents, June +77 points, August +47 points. The COT report revealed that managed money added 4,527 contracts to their long positions and also added 664 contracts to their short positions. Commercial interests added 1,880 contracts to their long positions and also added 7,309 contracts to their short positions. As of the latest report, managed money is long hogs by ratio of 3.72:1, which is up from the previous week of 3.60:1, but down from the ratio of 2 weeks ago of 4.00:1.

Year to date, April hogs is the leader with a gain of 6.07%, April cattle +4.29%.

WTI crude oil: On February 10, March WTI crude oil generated an intermediate term buy signal after generating a short-term buy signal on January 24.

For the week, March WTI crude oil advanced 42 cents, April +78, May +85. The COT report revealed that managed money added 12,701 contracts to their long positions and liquidated 9,645 contracts of their short positions. Commercial interests added 25,788 contracts to their long positions and also added 31,790 contracts to their short positions. As of the latest report, managed money is long WTI crude oil by a stratospheric 10.53:1, which is up substantially from the ratio of the previous week of 7.69:1 and almost double the ratio of 2 weeks ago of 5.83:1.

The current ratio is higher than the COT tabulation date of December 31, 2013 when managed money was long WTI crude oil by ratio 8.59:1. During the reporting period of December 25 through December 31, the March contract traded from a high of $100.79 on December 27 to a low of 98.29 on December 31.

To place the current COT ratio of 10.53:1 in perspective, we also examined the period of August 7, 2013 through August 27, 2013, which encompasses 3 COT periods. During this time, WTI crude oil traded in an approximate range of 102.00- 112.00, yet the highest COT reading in this time frame was 7.42:1 based upon the August 13 report. The reading on August 20 was 6.36:1, August 27, 6.40:1. In short, managed money is massively more long today than in any other recent period when prices traded at, or above the same level. This is a clear sign to be cautious, and we have been advising clients to stand aside. March WTI remains on a short and intermediate term buy signal.

Brent crude oil: On February 10, March Brent crude oil generated a short and intermediate term buy signal.

Heating oil:

For the week, March heating oil advanced 2.79 cents, April +1.51, May +1.28. The COT report revealed that managed money added 1,486 contracts to their long positions and liquidated 544 contracts of their short positions. Commercial interests liquidated 1,408 contracts of their long positions and added 99 contracts to their short positions. As of the latest report, managed money is long heating oil by ratio 2.66:1, which is up from the previous week of 2.39:1 and the ratio of 2 weeks ago of 2.12:1.

Gasoline: On February 10, March gasoline generated a short and intermediate term buy signal.

For the week, March gasoline advanced 5.64 cents, April +4.84, May +4.16. The COT report revealed that managed money liquidated 483 contracts of their long positions and also liquidated 142 contracts of their short positions. Commercial interests added 8,673 contracts to their long positions and also added 15,681 contracts to their short positions. As of the latest report, managed money is long gasoline by 1.99:1, which is exactly the same as the previous week of 1.99:1 and down slightly from the ratio of 2 weeks ago of 2.12:1. The current ratio is extremely low for gasoline and clearly represents the bearish mindset of managed money even though gasoline prices have advanced. Rarely, is the long to short ratio of gasoline below that of heating oil.

Natural gas:

For the week, March natural gas advanced 43.9 cents, April +6.1, May +3.6. The COT report revealed that managed money added 10,037 contracts to their long positions and liquidated 1,210 contracts of their short positions. Commercial interests liquidated 2,435 contracts of their long positions and also liquidated 1,190 contracts of their short positions. As of the latest report, managed money is long natural gas by ratio of 2.22:1, which is up from the previous week of 2.12:1, but down slightly from the ratio of 2 weeks ago of 2.40:1.

Year to date, March natural gas is the leader with a gain of 22.99%, March ethanol + 18.15%, March WTI crude oil +1.82%, March heating oil + 0.61%, March gasoline + 0.16%, March Brent crude – 1.30%.

Copper:

For the week, March copper advanced 2.85 cents. This COT report revealed that managed money liquidated 1,942 contracts of their long positions and added 7,027 contracts to their short positions. Commercial interests added 7,278 contracts to their long positions and also added 1,905 contracts to their short positions. As of the latest report, managed money is short copper by a ratio of 1.50:1, which is up from the previous week’s ratio of 1.20:1, but a complete reversal from the ratio of 2 weeks ago when managed money was long by a ratio of 1.39:1.

Palladium:

For the week, March palladium advanced $28.80. The COT report revealed that managed money liquidated 178 contracts of their long positions and added 984 contracts to their short positions. Commercial interests added 404 contracts to their long positions and also added 744 contracts to their short positions. As of the latest report, managed money is long palladium by ratio 3.48:1, which is down from last week of 4.21:1 and substantially below the ratio of 2 weeks ago of 6.47:1. The current ratio is the lowest that we have seen in at least one year.

Platinum: On February 14, April platinum generated a short-term buy signal, but remains on an intermediate term sell signal.

For the week, April platinum advanced $50.90. The COT report revealed that managed money added 311 contracts to their long positions and also added 1,776 contracts to their short positions. Commercial interests added 629 contracts to their long positions and liquidated 225 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 3.46:1, which is down from the previous week of 4.29:1 and down substantially from the ratio of 2 weeks ago of 5.73:1. The current ratio is the lowest since 2.90:1 made in the COT report of January 7, 2014. In short, managed money has gotten bearish at the bottom.

Gold: On February 11, April gold generated an intermediate term buy signal after generating a short-term buy signal on January 13.

For the week, April gold advanced $55.70. The COT report revealed that managed money added 9,410 contracts to their long positions and also added 976 contracts to their short positions. Commercial interests liquidated 3,784 contracts of their long positions and also liquidated 3,259 contracts of their short positions. As of the latest report, managed money is long gold by ratio of 1.80:1, which is up slightly from the previous week of 1.68:1 and the ratio of 2 weeks ago of 1.76:1.

OIA finds it remarkable that as the gold market has rallied beginning in early January, the long to short ratio remains in the basement despite April gold advancing 9.36% ($112.80) year to date. The long to short ratio of gold is 1.80:1 while the crude oil long to short ratio is a massive 10.53:1 despite March WTI crude oil advancing only 1.82% ($1.79) year to date. 

Gold has had a steady advance since early January, yet managed money for the most part is sitting on the sidelines. According to be COT report tabulated on December 31, managed money was long gold by ratio of 1.14:1, or net long position of 17,725 contracts. On December 31, April gold had made a secondary low of 1182.30. By February 11, the net long position had grown to 52,086 contracts, or a gain of 34,361 contracts from December 31.

By contrast, in WTI crude,  managed money was net long 262,359 contracts on December 31 and this had grown to 292,058 contracts on February 11, or an increase of 29,699 contracts.

In summary, the net long position of manage money in gold increased by only 34,361 contracts from December 31 through February 11 despite a sizable gain of 112.80 versus a $1.79 advance for WTI when the net long position increased by 29,699 contracts.

OIA thinks it is important to point out that lopsided and distorted investment decisions are often made by professional money managers. We intend to do more of this in the future as part of educating our readers that there is much more to markets than just price. Much is revealed after digging deeper as opposed to accepting things at face value. OIA takes advantage of  distortions created by the herd instinct of trend following, systematic fund managers and reports them to our clients. 

From the February 6 report:

“Even though there is a lack of speculative interest in gold, we think it is headed higher, and may be on the verge of a major move. We recommend that bullish positions be initiated immediately, and encourage the use of long call options as a risk mitigation tool. Gold remains on a short-term buy signal, but an intermediate term sell signal.”

Silver: On February 12, March silver generated a short-term buy signal, which reversed the short-term sell signal generated on January 31. March silver remains on an intermediate term sell signal, but could generate an intermediate term buy signal on February 17 or 18.

For the week, March silver advanced $1.485. The COT report revealed that managed money added 1,804 contracts to their long positions and liquidated 5,768 contracts of their short positions. Commercial interests liquidated 779 contracts of their long positions and added 1,270 contracts to their short positions. As of the latest report, and managed money is long silver by a ratio of 1.43:1, which is up from the previous week of 1.08:1 and the ratio of 2 weeks ago of 1.16:1.

Although on the year to date basis, silver is now leading the pack, the fact remains the bulk of the advance occurred on Friday.

From the February 6 report: 

“Although silver has frequent setbacks, we see a pattern of consistent recoveries, and based upon our calculations, it would not take much for silver to generate a short and intermediate term buy signal. Although silver can be highly volatile, current volatility is at the very low-end of the trading range going back to April 2013. As a result, we recommend the use of options and advise that long straddles or longs strangles be initiated immediately.”

“Do not use the March option because there isn’t much time left until expiration. Instead use the May or July option for the long straddle or strangle position. Call with any question. We are recommending long straddles and strangles in silver due to its under performance relative to gold and its potential volatility moving forward. Clients willing to assume higher risk should buy out of the money calls. Silver remains on short and intermediate term sell signals.”

Year to date, March silver is the leader having gained 10.08%, April gold +9.36%, April platinum +4.16%, March palladium +2.86%, March copper -3.95%.

Canadian dollar:

For the week, the March Canadian dollar advanced 44 pips. The COT report revealed that leveraged funds liquidated 2,221 contracts of their long positions and also liquidated 1,725 contracts of their short positions. As of the latest report, leveraged funds are short the Canadian dollar by ratio of 8.09:1, which is up significantly from the previous week of 6.82:1 and the ratio of 2 weeks ago of 7.26:1. The current ratio is the highest that we have seen in at least one year.

The March Canadian dollar will generate a short-term buy signal if the low for the day is above 91.29.

Australian dollar:

For the week, the March Australian dollar advanced 80 pips. The COT report revealed that leveraged funds liquidated 714 contracts of their long positions and also liquidated 12,169 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by ratio 5.84:1, which is down from the previous week of 6.65:1 and the ratio of 2 weeks ago of 6.39:1.

Swiss franc: On February 14, the March Swiss franc generated a short-term buy signal, which reversed the short-term sell signal generated on January 31. It remains on an intermediate term buy signal.

For the week, the March Swiss franc advanced 74 pips. The COT report revealed that leveraged funds liquidated 983 contracts of their long positions and added 1,130 contracts to their short positions. As of the latest report, managed money is long the Swiss franc by ratio of 1.55:1, which is down from the previous week of 1.84:1 and nearly the same as the ratio of 2 weeks ago of 1.56:1.

British pound: On February 13, the March British pound generated a short-term buy signal, which reversed the short-term sell signal generated on February 4. The March pound remains on an intermediate term buy signal.

For the week, the March British pound advanced 3.32 cents. The COT report revealed that leveraged funds added 88 contracts to their long positions and also added 1,582 contracts to their short positions. As of the latest report, leveraged funds are long the British pound by ratio 3.58:1, which is down from the previous week of 3.75:1 and the ratio of 2 weeks ago of 3.64:1.

Euro: On February 14, the March euro generated a short and intermediate term buy signal, which reversed the short and intermediate term sell signal generated on January 31.

For the week, the March euro advanced 72 pips. The COT report revealed that leveraged funds added 9,378 contracts to their long positions and also added 5,235 contracts to their short positions. As of the latest report, leveraged funds remain long the euro by a ratio of 1.27:1, which is up slightly from the previous week of 1.21:1, but down substantially from the ratio of 2 weeks ago of 1.93:1.

Although the March euro is on a short and intermediate term buy signal, the difference this time is that the dollar index is on a short and intermediate term sell signal. The week dollar is reflecting strength of the pound, yen and Swiss franc.

 Yen:

For the week, the March yen advanced 40 pips. The COT report revealed that leveraged funds added 919 contracts to their long positions and liquidated 2,926 contracts of their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 1.96:1, which is down slightly from the previous week of 2.00:1 and the ratio of 2 weeks ago of 2.03:1.

Dollar index: On February 14, the March dollar index generated a short and intermediate term sell signal.

For the week, the March dollar index lost 58 points. The COT report revealed that leveraged funds liquidated 737 contracts of their long positions and also liquidated 1,238 contracts of their short positions. As of the latest report, leveraged funds are short the dollar index by ratio of 5.02:1, which is up from the previous week of 4.70:1 and the ratio of 2 weeks ago of 3.96:1.

Year to date, the leader is the March Japanese yen with a gain of 3.30%, March Australian dollar + 1.53%, March British pound + 1.09%, March dollar index – 0.14%, March Swiss franc – 0.35%, March euro – 0.64%, March Canadian dollar – 3.11%.

S&P 500 E mini:

For the week, the March S&P 500 E mini advanced 41.50 points. The COT report revealed that leveraged funds liquidated 47,060 contracts of their long positions and added 84,781 contracts to their short positions. As of the latest report, leveraged funds are short the E mini by ratio of 1.81:1, which is up from the previous week of 1.53:1 and the ratio of 2 weeks ago of 1.57:1.

AAII Index                      Recent week      2 weeks ago    3 weeks ago
  Bullish 40.2% 27.9% 32.2%
  Bearish 27.3 36.4 32.8
  Neutral 32.5 35.7 35.1
Source: American Association of Individual Investors