The COT reporting period for this week covers the time frame of Wednesday, April 3 through Tuesday, April 9.

Soybeans:

For the week, May soybeans advanced 51.25 cents, July +35.50. The COT report showed that managed money liquidated 2,422 contracts of their long positions and added 10,862 contracts to their short positions. Commercial interests added 3,238 contracts to their long positions and liquidated 24,482 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio of 2.57:1, which is down substantially from the previous week of 3.46:1 and the ratio of 2 weeks ago of 5.94:1.

Soybean meal:

For the week, May soybean meal gained $8.40, July +6.90. The COT report showed that managed money liquidated 3,513 contracts of their long positions and added 7,098 contracts to their short positions. Commercial interests added 13,883 contracts to their long positions and liquidated 2,514 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 1.64:1, which is down from the previous week of 2.27:1, and down dramatically from the ratio of 2 weeks ago of 3.49:1.

Soybean oil:

For the week, May soybean oil gained 40 points, July +31. The COT report showed that managed money liquidated 876 contracts of their long positions and added 8,631 contracts to their short positions. Commercial interests added 15,292 contracts to their long positions and also added 4,298 contracts to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.96:1, which is up from the previous week of 1.75:1 and the ratio of 2 weeks ago of 1.69:1.

Corn:

For the week, May corn gained 29.50 cents, July +23.50. The COT report showed that managed money liquidated 27,451 contracts of their long positions and added 16,912 contracts to their short positions. Commercial interests added 6,100 contracts to their long positions and liquidated a massive 46,779 of their short positions. As of the latest report, managed money is long corn by a ratio of 1.88:1, which is down substantially from the previous week of 2.43: 1 and nearly 50% less than the ratio of 2 weeks ago of 3.62:1. This is the lowest ratio in nearly a year.

Wheat:

For the week, May wheat gained 15.75 cents, July +15.25. The COT report showed that managed money added 284 contracts to their long positions and liquidated 9,780 of their short positions. Commercial interests added 2,193 contracts to their long positions and also added 6,881 contracts to their short positions. As of the latest report, managed money is short wheat by a ratio of 1.35:1, which is down somewhat from the previous week of 1.47:1, but higher than the ratio of 2 weeks ago of 1.29:1.

COT report April 3-April 9     Year to Date
May wheat      +5.67%                     -9.27%
May bean oil   +0.79%                     -1.89%
May corn         +0.59%                     -5.96%
May beans       + 0.11%                    +0.98%
May meal          -1.82%                     -2.82% 

Crude oil:

For the week, June crude oil lost $1.40. The COT report showed that managed money liquidated 7,080 contracts of their long positions and added 2,085 contracts to their short positions. Commercial interests added 19,674 contracts to their long positions and also added 12,887 contracts to their short positions. As of the latest report, managed money is long by a ratio of 5.68:1, which is down from the previous week of 6.23:1, but the same as the ratio of 2 weeks ago of 5.66:1.

Interestingly, the current long to short ratio is nearly the same as it was 2 weeks ago. Two weeks ago, on March 26 (COT tabulation date) June crude oil closed at $96.45, which is $2.00 above the close on April 9. In order to provide some historical perspective, the long to short ratio was 3.50:1 when crude oil made its low of $90.23 in early March 2013 and 3.44:1 on March 12. Taking a look farther back to late November-to mid December 2012, the long to short ratio got as low as 1.86:1 on December 11 2012. In this time frame, crude oil traded in a range between $88.00 and 91.00. Based upon the current set up in WTI, it certainly appears that much more liquidation is ahead, especially by managed money. The long-term charts show that the 50 week moving average for the June contract is $92.84 and the 200 week is 91.72. It appears to be a matter of time before the 50 week moving average crosses below the 200 week moving average.

The weekly chart reveals 4 distinct peaks in WTI going back over a year. The first occurred during the week of February 27, 2012 at $110.55, the second during the week of September 10, 2012 at $100.42. The third occurred during the week of January 28, 2013 at $98.24. And the fourth and most recent peak occurred on April 1 at $97.80.

WTI is oversold relative to its 50 day moving average of $94.16 on the WTI continuation chart. A decent size rally should be expected to the $93.50 level. On April 5, 2013, Open Interest Analyst announced that May WTI crude oil generated a short and intermediate term sell signal. As we stated in the April 5 report: “Based upon past history, we expect WTI to have a bounce after the generation of a short and intermediate term sell signal.” Crude did in fact have a bounce up to the $94.70 level, and then reversed to close at the lowest level ($91.29) since March 6 ($90.90). Wait for a rally before implementing bearish positions.

Heating oil:

For the week, June heating oil lost 3.78 cents. The COT report showed that managed money liquidated 1,284 contracts of their long positions and also liquidated 1,753 of their short positions. Commercial interests added 13,897 contracts to their long positions and also added 8,913 contracts to their short positions. As of the latest report, managed money is long heating oil by a ratio of 1.15:1, which is up slightly from the previous week of 1.13:1, but up dramatically from the ratio of 2 weeks ago when managed money was short by a ratio of 1.02:1.

Gasoline:

For the week, June gasoline lost 4.94 cents and ethanol was unchanged for the week. The COT report showed that managed money liquidated 11,092 contracts of their long positions and added 2,276 contracts to their short positions. Commercial interests added 1,451 contracts to their long positions and liquidated 16,325 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 6.80:1, which is down substantially from the previous week of 9.85:1, and the ratio of 2 weeks ago of 10.87:1.

We examined our records on the COT reports in previous periods when gasoline traded at or below the current price. We expected to find long to short ratios that were lower than the current reading of 6.80:1, but we found the opposite. The last time that gasoline traded at current levels was during December 2012, and the table below shows the closing price on the date of each COT report and the long to short ratio. Additionally, we examined the long to short ratios when gasoline prices were lower than December 2012 during late October and early November 2012.

Date of COT Report  Closing Price    Long to Ratio
December 4, 2012         $2.8214                 10.94:1
December 11    ”             $2.7535                   7.30:1
December 18   ”             $2.7920                   7.50:1
December 24   ”             $2.8303                   8.24:1
December 31    ”             $2.8622                   8.47:1  
April 9, 2013                $2.9387                6.80:1    

Additionally, we examined the long to short ratios when gasoline prices traded lower than December 2012.

October 23, 2012           $2.7285                     12.09:1
October 30     ”               $2.7433                       9.77:1   
November 6    ”              $2.8254                       9.75:1

We wanted to get to the root of the low COT ratio on April 9, and thought that perhaps the participation rate was lower on April 9 than it had been during weeks when the long to short ratio was at elevated levels. What we found, was that the participation rate on April 9 was very close to the participation rates when the long to short ratio was at much higher levels. As the table below reveals, there is no pattern of increased participation (long + shorts) by managed money that translated into high long to short ratios. The October 23 data set is especially revealing because it had the highest long to short ratio, but the lowest closing price of any other week. The total number of longs + shorts of managed money for October 23 is only 3440 contracts above the April 9 number, yet the long to short ratio is approximately 75% higher for October 23 than April 9.

Date of COT report     Total longs + shorts/ managed money        Total open interest     Long to Short Ratio
October 23, 2012                 89,064                                                                   280,927                            12.09:1
November 6   ”                     83,750                                                                    265,750                              9.75:1 
December 4    ”                     95,187                                                                     273,735                             10.94:1
December 31   ”                    85,212                                                                      281,699                              8.47:1
April 9, 2013                     85,624                                                                    314,960                            6.80:1

The extraordinarily low long to short ratio  in gasoline may represent a mindset of professional money managers who have become negative on commodities in general, however this does not appear to be the case with crude oil. As we pointed out in the April 7 Weekend Wrap: “Last year at this time, gasoline went from a high on April 16, 2012 of $3.23 down to a low of $2.48 on June 21, 2012. It then rebounded to $3.12 on August 31, 2012.” Gasoline is massively oversold relative to its 50 day moving average of $3.07 on the June gasoline chart. A rally to the $2.97 area would relieve the oversold condition. Gasoline remains on a short and intermediate term sell signal. Stand aside.

Natural gas:

For the week, May natural gas advanced 9.7 cents. The COT report showed that managed money added 13,048 contracts to their long positions and also added 532 contracts to their short positions. Commercial interests added 7,622 contracts to their long positions and also added 12,813 contracts to their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.34:1, which is up slightly from the previous week of 1.30:1 and the ratio of 2 weeks ago of 1.24:1.

The stats that comprise the latest COT report are vastly different to those when natural gas was at the $4.20 level in late October 2011. The current COT report shows a much higher level of participation than does the COT report of October 25, 2011 and November 1, 2011. Remarkably, at the top of the move in late October of 2011, managed money was short natural gas by a ratio of 2 to 1. The high was made on October 28, 2012 at $4.21. On April 9, May natural gas closed at $4.017

Date of COT report     Total longs + shorts/ managed money        Total open interest    Short to Long Ratio
October 25, 2011                361,952                                                                     977,327                           2.01:1
November 1, 2011               354,531                                                                     960,199                          2.06:1
April 9, 2013                       593,315                                                                    1,517,970             (Long)  1.34:1      

Natural gas reached its highest level since late October 2011, and the market has moved steadily higher. It is surprising that the long to short ratio is as low as it is considering natural gas is by far the best performer on a year-to-date basis. Despite this, the long to short ratio is approximately 80% less than gasoline, and 76% less than crude oil. Natural gas should find support at the $4.02 level, and the market is overdue for a pullback. On March 1, 2013, Open Interest Analyst announced that natural gas generated a short-term buy signal, and an intermediate term buy signal on March 8.

From the March 1 report:

“Natural gas remains on an intermediate term sell signal, and clients wanting to get long should use setbacks as buying opportunities. A more conservative way of trading the natural gas market is to write out of the money puts. During past 3 days, each high has been higher, but the market  made a low of $3.408 on Monday, which was the lowest price since $3.395 made on February 28. Managed money is significantly short natural gas, which should provide fuel for an upside move.”

COT report April 3-April 9     Year to Date
May ethanol       +5.93%                 +8.90%
May natural gas +1.79%                +23.05%
May gasoline       -2.83%                  -2.09% 
May WTI             -2.83%                   -2.37%
Brent crude         -3.67%                   -4.63%
May heating oil   -3.76%                   -4.65%

Copper:

For the week, May copper advanced .0060 cents. The COT report showed that managed money added 3,447 contracts to their long positions and liquidated 2,611 contracts of their short positions. Commercial interests liquidated 2,488 contracts of their long positions and also liquidated 4,128 contracts of their short positions. As of the latest report, managed money is short copper by a ratio of 2.33:1, which is down dramatically from the previous week of 2.83:1 and about the same as the ratio of 2 weeks ago of 2.32:1.

Gold:

For the week, June gold lost $74.50. The COT report showed that managed money added 2,919 contracts to their long positions and liquidated 2,872 contracts of their short positions. Commercial interests liquidated 203 contracts of their long positions and also liquidated 6,114 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 1.79:1, which is up slightly from the previous week of 1.67:1, but slightly lower than the ratio of 2 weeks ago of 2.02:1.

Platinum:

For the week, July platinum lost $39.60. The COT report showed that managed money added 495 contracts to their long positions and added 3,272 contracts to their short positions. Commercial interests added 2,287 contracts to their long positions and liquidated 2,435 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 3.20:1, which is down substantially from the previous week of 4.69:1 and the ratio of 2 weeks ago of 4.82:1.

Palladium:

For the week, June palladium lost $14.80. The COT report showed that managed money liquidated 2,620 contracts of their long positions and added 625 contracts to their short positions. Commercial interests added 250 contracts to their long positions and liquidated 1,928 contracts of their short positions. As of the latest report, managed money is long palladium by a ratio of 13.94:1, which is down dramatically from the previous week of 24.17:1 and the ratio of 2 weeks ago of 19.85:1.

Silver:

For the week, May silver lost 88.9 cents. The COT report showed that managed money added 1,623 contracts to their long positions and liquidated 265 contracts of their short positions. Commercial interests added 5,092 contracts to their long positions and also added 2,124 contracts to their short positions. As of the latest report, managed money is short by a ratio of 1.02:1, which is down from the previous week of 1.10:1, but up substantially from the ratio of 2 weeks ago when managed money was long by a ratio of 1.05:1.

The problem with the precious metals is that they have clearly fallen out of favor with the investing public, and as a result, is vulnerable to further downside action. The reason for this is: precious metal ETF’s hold large stockpiles of gold and silver bullion that must be sold as the public redeems its shares. Additionally, there are a number of hedge funds that hold large amounts of futures contracts, physical bullion and gold mining shares. As the disillusionment with this sector begins to snowball, redemptions will increase, which will further pressure silver and gold, and to a much lesser degree platinum and palladium. Gold, silver, platinum and palladium remain on short and intermediate term sell signals.

COT report April 3-April 9     Year to Date
May silver         +2.61%                    -13.83%
May copper      +2.05%                     -8.85%
June gold         +0.62%                    -11.49%
July platinum   -1.69%                      -3.52%
June palladium -5.54%                    +0.53%

Canadian dollar:

For the week, the June Canadian dollar gained 38 points. The COT report showed that leveraged funds liquidated 2,520 contracts of their long positions and added 3,794 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 7.09:1, which is up substantially from the previous week of 5.75:1 and the ratio of 2 weeks ago of 5.43:1.

From the March 31 Weekend Wrap:

“The table below shows that the Canadian dollar was the second best performer during most recent COT report. Additionally, it was the second best performer on a year to date basis with the exception of the dollar index. Despite this, the short to long ratio in the Canadian dollar is 2 1/2 times greater than the Swiss franc, over 100% greater than the euro, 50% greater than the British pound, 100% more than the Japanese yen. The lopsided number of shorts in one of the best performing currencies indicates there is more upside in the Canadian dollar.”

Since writing the March 31 Weekend Wrap, the Canadian dollar has continued to move higher, and managed money has increased its net short position, which is considerably higher than the bear markets of May and early June 2012 and late November 2011. The highest short to long ratio during the bear market of late November 2011 occurred with the COT report dated January 31, 2012 when the short to long ratio made a high of 2.87:1. However, the market had already advanced approximately 5 cents from the low when managed money got extremely net short. In other words, leveraged funds were increasing their net short position as the market was rallying. To put this in context, the low in the Canadian dollar cash index occurred at 94.97 on November 21, 2011. The short to long ratio was 1.71:1 per the COT report of November 22, 2011. Leveraged funds continued to hold their net short position until March 27, 2012 when they flipped and became net long by a ratio of 1.05:1. However, the bull market had only 4 weeks left before it plunged again and made a low of 95.53 during the week of June 4, 2012. The pattern of leveraged funds  increasing short positions repeated itself as the market continued to rally. For example, when the cash Canadian dollar made its low on June 4, 2012, the COT report dated June 5, 2012 showed a short to long ratio of 1.38:1 held by leveraged funds. By July 17, 2012, the short to long ratio had risen to 2.94:1, however, the Canadian dollar cash index had rallied nearly 4 cents from its low of 95.53.

The pattern of increasing net short positions by leveraged funds continues for the third time in the current market. For example, on March 1 when the June Canadian dollar made a low of 96.46, the most recent COT report tabulated on March 5 (2 trading days after March 1) showed that leveraged funds were short by a ratio of 1.67:1, which was up from the previous week of 1.28:1. From March 1 through April 9, the June Canadian dollar rallied nearly 2 cents and the short to long ratio is over 4 x the ratio on March 5. What makes the current situation in the Canadian dollar unique is that the short to long ratio is at an unprecedented stratospheric level, which means there is enormous potential buying power by shorts who will  need to cover these positions as the market moves higher.

The strength of the Canadian dollar is being underestimated by many professional currency traders. For example, the June Canadian dollar closed above its 50 day moving average on April 4. As of April 12, it not only is trading above the 50 day moving average, but the daily low is above the 50 day moving average. Compare this to the euro, which has not closed above its 50 day moving average despite having a dramatically lower short to long ratio of 3.18:1 versus the Canadian dollar of 7.09:1. The June British pound closed over its 50 day moving average for the first time on April 5, and the June Swiss franc closed over the 50 day moving average on April 9. Remarkably, the short to long ratio in the Canadian dollar is over 4 x greater than the Swiss franc, 75% greater than the British pound, 120% greater than the euro and 290% greater than the yen, which was the worst performing currency in the most recent COT reporting period and the worse performer year to date. We continue to believe there is more upside for the Canadian dollar. However, we see the strength in the Canadian dollar, Euro, British pound, Swiss franc as essentially short-term rallies in longer-term bear markets.

Australian dollar:

For the week, the June Australian dollar advanced 1.22 cents. The COT reported that leveraged funds liquidated 14,647 contracts of their long positions and also liquidated 12,296 contracts of their short positions. As of the latest report, leveraged funds are long the Australian dollar by a ratio of 3.25:1, which is up substantially from the previous week of 2.75:1 and the ratio of 2 weeks ago of 2.71:1.

Swiss franc:

For the week, the June Swiss franc gained 36 points. The COT report showed that leveraged funds liquidated 2,038 contracts of their long positions and also liquidated 6,437 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.68:1, which is down from the previous week of 1.99:1 and the ratio of 2 weeks ago of 2.08:1.

British pound:

For the week, the June British pound was unchanged. The COT report showed that leveraged funds liquidated 1,127 contracts of their long positions and added 1,257 contracts to their short positions. As of the latest report, leveraged funds are short the British pound by a ratio of 4.01:1, which is up from the previous week of 3.81:1 and the ratio of 2 weeks ago of 3.65:1. The June British pound is on a short-term buy signal, but an intermediate term sell signal. We expect the pound to trade higher, not because we are bullish the pound, rather we are short-term bearish on the dollar.

Euro:

For the week, the June euro gained 66 points. The COT report showed that leveraged funds liquidated 10,880 contracts of their long positions and also liquidated 15,662 contracts of their short positions. As of the latest report, leveraged funds are short the euro by a ratio of 3.18:1, which is significantly higher than the previous week of 2.62:1 and the ratio of 2 weeks ago of 2.55:1. The euro remains on a short and intermediate term sell signal

Japanese yen:

For the week, the June Japanese yen lost 124 points. The COT report showed that leveraged funds added 2,649 contracts to their long positions and added 492 contracts to their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 2.44:1, which is down slightly from the previous week of 2.59:1 and the ratio of 2 weeks ago of 2.84:1. The yen remains on a short and intermediate term sell signal.

Dollar index:

For the week, the June dollar index lost 20 points. The COT report showed that leveraged funds liquidated 1,334 contracts of their long positions and also liquidated 1,394 contracts of their short positions. As of the latest report, leveraged funds are long the dollar index by a ratio of 1.05:1 which is the same as the previous week of 1.05:1, but slightly below the ratio of 2 weeks ago of 1.15:1.

COT report April 3-April 9     Year to Date
June euro                       +2.08%     -0.80%
June Swiss franc            +1.90%     -1.86%
June British pound        +1.51%      -5.53%
June Australian dollar +0.60%     +1.87%
June Canadian dollar    -0.03%      -1.67%
June dollar index           -0.79%    +2.88%
June Japanese yen         -5.97%    -12.46%

S&P 500 E mini:

For the week, the June S&P 500 E mini gained 35.90 points. The COT report showed that leveraged funds added 31,592 contracts to their long positions and liquidated 28,672 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.61:1, which is down from the previous week of 1.77:1 and the ratio of 2 weeks ago of 1.73:1.

In numerous reports we have discussed our reasons for being concerned about a continued advance in the S&P 500 E mini. One reason is that the number of stocks trading above their 50 day moving average on the New York Stock Exchange has been steadily moving down ever since January 2. Although there have been attempts to retest the January 2 high, all have failed. The last time the number of stocks trading above their 50 day moving average closed above their 50 day moving average occurred on February 19 when 1,854 stocks met this criteria. From February 19 through April 12, the S&P 500 cash index has increased 3.78%,DJIA +5.91% Russell 2000+1.18%, NASDAQ 100+2.65%, and the New York Composite Index +2.04%. However, in this time frame the number of stocks trading above their 50 day moving average went from a high of 1,854 to 1,550 on April 12. We posit that the inability of stocks to trade above their 50 day moving average is a sign of internal weakness in the broad market.

However, there is another reason to be concerned about the short-term direction of the market. This is interest rates. On April 12, the yield on the 10 year treasury note closed at 1.72%. On March 8, the 10 year treasury note yield topped out at 2.08%, and by April 5 had made a low at 1.67%. From March 8 through April 12, the 10 year treasury note yield has fallen 16.29% while the S&P 500 has gained 2.43% and the DJIA has gained 3.25%. If the economy is truly recovering, interest rates should be on a slow grinding path higher. This is especially the case when the S&P 500 is not only advancing, but is making new all time highs in the process. The 1.67% low in the 10 year treasury yield on April 5, was the lowest since mid December 2012. In short, the S&P 500 has rallied close to 180 points since mid December, yet the yield on the 10 year treasury note remains at the same level as it was when the S&P 500 was trading at 1410.00. We consider the action in the treasury note to be bearish on the economy, and this is supported by the bearish action in the petroleum complex and in base metals, copper in particular.

American Association of Individual Investors
               Recent week      2 weeks ago     3 weeks ago
Bullish   19.3%                  35.5%               38.4%
Bearish  54.5%                 28.2%               28.7%  
Neutral  26.2%                 36.3%               33.0%