E-mail comments or questions to: garry@openinterestanalyst.com
Corn:
For the week, May corn closed 2 1/2 cents lower. The Commitment of Traders Report, which is tabulated on Tuesday and released Friday showed that in the money managed category speculators liquidated 21,266 contracts of their long positions, and added 12,898 contracts to their short positions. Commercial interests added 7,958 contracts to their long positions and liquidated 36,588 contracts of their short positions.
Corn had quite a ride for the week having reached a high of $6.56 per bushel on Monday and then proceeded to slide down to $6.04 on Thursday, and rally 40 cents to close at $6.44 on Friday. In the next couple of weeks, some seasonal weakness may show up. For example, last year the corn market topped out on April 11, 2011 at $7.88 3/4 and then proceeded to drop by over a dollar to $6.80 1/2 on May 6 2011. The April 11 high was the highest price for corn in history until June 10, 2011 when the market topped out at $7.99 3/4, which was the all-time high. The 50 day moving average for May corn is $6.44 and the 200 day moving average is $6.64 1/2. If there is follow-through buying next week, for the rally to move another leg higher, the market’s daily low must be at least $6.47 1/2, and more preferably $6.50 7/8. Also, the market has to reach at least $6.68 per bushel.
Soybeans:
For the week, May soybeans closed 37 1/4 cents higher. The Commitment of Traders Report showed that in the money managed category, speculators added 6,559 contracts to their long positions and liquidated 4,370 contracts of their short positions. Commercial interests added 18,730 contracts to their long positions, and added 31,745 contracts of their short positions.
For the first quarter, May soybeans closed 15.25% higher. In order to put this year’s performance in perspective, I am providing the table below, which shows seven other years when price appreciation was nearly equal to, or greater than 2012. On the right, I show performance for the subsequent three months covering April 1 through June 30. Taking out the anomalous year of 1973, the average performance for the six other years is -4.15% in the second quarter. It is important for speculators to view the past performance of previous years, in order to keep their bullish enthusiasm in check. Last year, the May bean market topped out at $14.67 1/2 on February 9, 2011, then took a dive down to $12.70 on March 15. From March 15, to March 31, the market rallied $1.62 to $14.32, then it turned $1.16 lower to $13.16 1/2 on April 15, 2011. The purpose of writing a short history of the first and second quarter performance of May 2011 soybeans is to emphasize that swings in this market can be devastating. Speculators cannot allow themselves be carried away by excessive bullishness. Risk management is the key.
This past week, the 50 day moving average of May soybeans of 12.95 crossed above its 200 day moving average of 12.87. Remember, at some point, markets tend to correct close to their 50 day moving average. Another interesting fact was the performance of of beans versus oil and meal. For the week, beans were +2.73%, bean oil +0.40% and soybean meal +4.21%. On a year to date basis, beans have appreciated +15.25%, bean oil +4.40%, and soybean meal +23.08%. Of the three, soybean meal is the star performer and on Friday, May soybean meal reached a high of $393.50 per ton on the soybean meal continuation chart. This is the highest front month price for meal since February 9, 2011 when it reached a high of $390.50 per ton. By contrast, soybeans reached its high of 14.67 1/2 on February 9, 2011, and as of Friday they are 50 cents off last year’s level.
March 1-March 31 (1972-2012) Best Performance
Year Performance (%) April 1-June 30 Performance (%)
1973 +27.23 +93.38
1977 +26.12 -14.49
2004 +25.64 +11.53
1997 +24.52 -10.28
2012 +15.25 ——
2000 +13.87 -13.08
2005 +13.20 +0.70
1978 +12.61 +0.71
Sugar #11:
For the week, May sugar lost 92 points. The Commitment of Traders Report showed that in the money managed category, speculators added 10,744 contracts to their long positions and added 1,803 contracts to their short positions. Commercial interests added 4,385 contracts to their long positions and added 12,868 contracts of their short positions. Stand aside.
Crude oil:
For the week, May New York crude oil lost $3.85. The market closed at $103.02, which was the lowest close since February 15, 2012 when the market closed at $102.62 The Commitment of Traders Report showed that in the money managed category speculators liquidated 7,318 of their long positions and liquidated 1,023 of their short positions. Commercial interests added 6,824 contracts to their long positions, and also added 8,300 contracts of their short positions.
On March 29, May crude oil generated a short-term sell signal and the performance of crude has been significantly weaker than gasoline. For example, May crude topped out at $110.95 on March 1. From March 1 through March 30 crude oil has lost $4.47 or -4.16%. On the other hand, May gasoline has gained 7.60 cents or +2.32%.
Gasoline:
For the week, May gasoline lost 6.08 cents. The Commitment of Traders Report showed that in the money managed category speculators added 108 contracts to their long positions and liquidated 1,754 of their short positions. Commercial interests liquidated 16,711 contracts of their long positions, and liquidated 14,004 contracts of their short positions.
The performance of gasoline during the past week was actually quite constructive. Backwardation (or inversion), increased, which is when front months sell at a premium to back months. This indicates that demand is stronger near-term. Although the May contract lost 6.08 cents for the week, the August contract lost 8.51 cents. On Friday, May gasoline closed at $3.3081 per gallon, which was the lowest close since March 15 when May gasoline closed at $3.2842 per gallon. Since it appears that oil is headed lower and that crude is the loss leader, speculators should focus on levels of support for crude in part to determine a buy zone for gasoline. Open interest action was positive for gasoline during the week through Thursday. I will have Friday’s numbers Monday morning. During the four day time frame, open interest declined by 32,873 contracts, and the mass of the liquidation was done by commercial interests as evidenced by the Commitment of Traders Report. With the bull spread continuing to work on the decline, combined with the decline of open interest, a very bullish set up is in the offing.
Gold:
For the week, June New York gold closed $7.00 higher. The Commitment of Traders Report showed that in the money managed category speculators added 6,608 contracts of their long positions and liquidated 4,377 contracts of their short positions. Commercial interests liquidated 8,695 contracts of their long positions and liquidated 1,184 contracts of their short positions. The market remains on a sell signal, which should enable speculators to acquire positions at lower levels.
Silver:
For the week, May New York silver closed 21 cents higher. The Commitment of Traders Report showed that in the money managed category speculators liquidated 1,112 contracts and added 1,691 contracts to their short positions. Commercial interests added 762 contracts to their long positions, and liquidated 710 contracts of their short positions.
Although the price and open interest action for silver has been abysmal, during the past couple of weeks, the 50 day moving average crossed above the 150 day moving average this week. I consider this to be a positive indicator, but price and open interest action has to improve, and volume has to start increasing to get me enthusiastic on the long side. The volume stats indicate there is a low level participation among speculators, but silver has not yet generated a sell signal. For the market to generate a buy signal, the daily low has to be above my key pivot point of $32.86 per ounce. Another confirmation would be if the daily low was above the pivot point at $33.82.
Euro:
For the week, the June Euro closed 69 points higher. In the leveraged funds category, speculators liquidated 17,681 contracts of their long positions and also liquidated 11,539 contracts of their short positions. The Euro looks very steady at this juncture, and short positions should be avoided.
Australian Dollar:
For the week, the Australian dollar lost 92 points. The Commitment of Traders Report showed in the leveraged funds category, speculators liquidated 4,544 contracts of their long positions and also liquidated 7,517 contracts of their short positions. I am monitoring the Aussie for the placement of bearish positions
S&P 500 E mini:
For the week, the June S&P 500 E mini closed 9.10 points higher. The Commitment of Traders Report showed in the leveraged funds category speculators liquidated 7,718 contracts of their long positions, and also liquidated 15,114 contracts of their short positions.
You can always tell when the market is getting frothy by the number of analysts who come out with sky high projections for the indices. As an example, an analyst named Laszlo Birinyi has made a projection for the S&P 500 targeted at 1700 by year-end according to Bloomberg News. Also on Bloomberg News, the chief market strategist of Pension Partners named Michael Gayed is out doing Mr. Birinyi by predicting that his target for the S&P 500 by year-end is 1800. Extended moves on the upside always brings out wild predictions. During January of 2011, Mr.Birinyi projected that the S&P 500 would reach 2854 by September 14, 2013 according to Bloomberg. To reach that goal from here, the market would have to rally approximately 81 points every month for 18 months.
Remember, the 2007 the high on the S&P 500 was 1565, and the high in 2000 was approximately 1550. With current projections regarding the economy for 2012 and 2013, it is hard to envision the market moving above two double tops that were made when the economy was firing on all cylinders.
Shanghai Composite Index:
One major worry for the world economy and equity markets is the condition of the Chinese economy. The economic stats that come out of China are suspect, therefore I always watch the Shanghai stock market as a more reliable indicator of the condition of their economy. The Shanghai Composite Index closed under its 200 day moving average during mid-May 2011, and has not been above it since last May. The market made a significant low on January 6, 2012 at 2132.63. The index then rallied to a high of 2478.38 on February 27, and there was a subsequent rally attempt that took the index to 2476.22 on March 14. From the March 14 high, the index has cratered 9 1/2% to a low of 2242.34 made on March 29. The market looks like it wants to do a retest of the early January 2012 low. To sum it up, the Shanghai Composite Index as of Friday is approximately 110 points from the January 2012 low, which is the lowest price for the index going back to early 2009. The dismal performance of the Chinese stock market has ominous implications for the global markets.
Interest Rates:
For the week, the June 10 year treasury note closed 14 points higher. The Commitment of Traders Report showed in the leveraged funds category speculators liquidated 49,896 contracts of their long positions and also liquidated 1,907 contracts of their short positions. The massive amount of liquidation by leveraged funds in the Commitment of Traders Report is supported by the open interest decline of 29,187 contracts during the March 21 through March 27, tabulation period, which in part reflects the numbers in the report. For the week, the market made its high at 130-02 on Friday and then proceeded to sell off into the close. For those that were stopped out previously, I suggest that the 130-02 area be used as a hard stop. If the market indices were to fall precipitously, notes would rally in my view.
Odds and Ends
The Japanese Nikkei 225 is the stellar performer for the first quarter of 2012 having gained 21.29%, which significantly outperformed the S&P 500 whose performance was +12%. The Nikkei took off as the yen collapsed and for the first quarter, the yen declined by 7.18% making it the worst performing currency of the first quarter.
The cotton market bottomed out on December 15, 2011 at 84.25 cents per pound and made a secondary low of 87.07 cents on March 15. From there, the market has rallied steadily to 94.39 on March 29. Open interest during this rally has increased by 5,025 contracts. There is a tremendous amount of resistance at the 94.40 level that goes back to February 10, 2012. Also, this is a seasonally weak time for cotton. However, if the market can move significantly above 94.40 level, a further rally may be in the offing. This is not a recommendation to buy cotton, it is a market to watch.
