Weekend Wrap for April 21, 2013
The COT report is tabulated from Wednesday April 10 through Tuesday April 16.
Soybeans: The 3 members of the soybean complex are showing inverted market structure (backwardation). We used the July-August spread to compare performance in the same crop year.
For the week, May soybeans gained 15.25 cents, July +3.25, August -10.75. The COT report showed that managed money added 6,570 contracts to their long positions and liquidated 4,433 contracts of their short positions. Commercial interests liquidated 9,977 contracts of their long positions and added 1,653 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 3.01:1, which is up from the previous week of 2.57:1, but down somewhat from the ratio of 2 weeks ago of 3.46:1.
On April 19, the July-August soybean spread closed at a new high of 54 cents premium to July, which broke the previous high of 47.25 cents on September 4, 2012 when July soybeans closed at $15.94. Additionally, the spread closed at the highest level going back to February 13, 2012. This is bullish.
Seasonal factors begin to benefit soybeans because they have a tendency to strengthen from late March into mid-June. Despite the bullish set up in soybeans, the market remains on a short and intermediate term sell signal. Stand aside.
Soybean meal:
For the week, May soybean meal gained $12.20, July +5.10, August -3.20. The COT report showed that managed money added 3,610 contracts to their long positions and liquidated 4,816 contracts of their short positions. Commercial interests liquidated 838 contracts of their long positions and added 2,447 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.06:1, which is up from the previous week of 1.64:1, but down somewhat from the ratio of 2 weeks ago of 2.27:1.
On April 19, the July-August soybean meal spread closed at $21.50 premium to July which took out the old high made on March 11, 2013 of $19.90. An interesting point is that July soybean meal closed at $402.50 on April 19 and the close on March 11, 2013 was $431.10. In other words, even though the market is trading nearly $30 lower, the spread has widened out to a new high for the move. This is bullish.
Like soybeans, soybean meal begins to strengthen from late March into mid-June. Soybean meal continues to trade on a short and intermediate term sell signal. Stand aside.
Soybean oil:
For the week, May soybean oil lost 7 points, July -24, August -22. The COT report showed that managed money added 730 contracts to their long positions and liquidated 994 contracts of their short positions. Commercial interests added 2,684 contracts to their long positions and liquidated 1,694 contracts of their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.91:1, which is down somewhat from the previous week of 1.96:1 but up from the ratio of 2 weeks ago of 1.75:1.
On April 19, the July-August soybean oil spread closed at 10 points premium to July, and on the 18th, the spread closed at 14 points premium to July, which is the highest for the spread since January 17, 2013. The reason this is important is because all 3 members of the soybean complex are trading in an inverted mode (backwardation) and this is highly unusual. Also of note, managed money is short soybean oil by a ratio of 1.91:1 even though soybean oil is down only 2.84% year to date. Compare this with corn, which has a managed money long to short ratio 1.85:1, but is down 9.21% year to date, or a loss that is 3x more than bean oil ytd.
On a seasonal basis, soybean oil tends to peak in the month of May. Soybean oil remains on a short and intermediate term sell signal. Stand aside.
Corn:
For the week, May corn lost 6.50 cents, July -8.25. The COT report showed that managed money added 272 contracts to their long positions and also added 1,801 contracts to their short positions. Commercial interests liquidated 14,045 contracts of their long positions and also liquidated 22,389 contracts of their short positions. As of the latest report, managed money is long corn by a ratio of 1.85:1, which is about the same as the previous week of 1.88:1, but down significantly from the ratio of 2 weeks ago of 2.43:1.
Wheat:
For the week, May Chicago wheat lost 5.75 cents, July -8.00. The COT report showed that managed money liquidated 1,919 contracts of their long positions and added 2,569 contracts to their short positions. Commercial interests added 8,745 contracts to their long positions and liquidated 928 of their short positions. As of the latest report, managed money is short wheat by a ratio of 1.41:1, which is up slightly from the previous week of 1.35:1, and down slightly from the ratio of 2 weeks ago of 1.47:1.
COT Report April 10-April 16 Year to Date
July corn +2.11% -9.21%
July meal +0.43% -1.18%
July beans +0.29% +9.05%
July wheat -0.88% – 10.36%
July bean oil -2.21% -2.84%
Crude oil:
For the week, June crude oil lost $3.34. The COT report showed that managed money added 864 contracts to their long positions and also added 11,883 contracts to their short positions. Commercial interests added 1,343 contracts to their long positions and liquidated 2,461 of their short positions. As of the latest report, managed money is long crude oil by a ratio of 4.31:1, which is down substantially from the previous week’s ratio of 5.68:1, and the ratio of 2 weeks ago of 6.23:1.
Although, the long to short ratio of managed money has declined to a new low for the move, it remains above some recent historical ratios. In early March, the long to short ratio was 3.50:1 when crude oil made its low of $90.23, and 3.44:1 on March 12, 2013. Taking a look back to late November-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. In short, the long to short ratio should decline to recent historical levels, before crude oil is likely to put in a bottom, or temporary bottom.
Heating oil:
For the week, June heating oil lost 9.06 cents. The COT report showed that managed money liquidated 2,309 contracts of their long positions and added 3,003 contracts to their short positions. Commercial interests liquidated 11,683 contracts of their long positions and also liquidated 16,392 of their short positions. As of the latest report, managed money is short by a ratio of 1.03:1, which is a reversal from the previous week when they were long by a ratio of 1.15:1, and of 2 weeks ago when managed money was long by a ratio of 1.13:1.
Gasoline:
For the week, June gasoline declined 4.87 cents, July -6.44. The COT report showed that managed money liquidated 9,564 contracts of their long positions and added 621 contracts to their short positions. Commercial interests added 9,326 contracts to their long positions and also added 1,450 contracts to their short positions. May ethanol gained 6.8 cents for the week. As of the latest report, managed money is long by a ratio of 5.61:1, which is down substantially from the previous week of 6.80:1 and the ratio of 2 weeks ago of 9.85:1.
Last week, in the April 14 Weekend Wrap, we examined the long to short ratios in previous periods when gasoline traded at approximately the same level as it did during the past two weeks. We are updating this because the long to short ratio has fallen to a new major new low of 5.61:1 in the recent COT report.
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
April 16, 2013 $2,7741 5.61:1
Additionally, we examined the long to short ratios when gasoline prices traded lower than December 2012.
June 26, 2012 $2.4136 5.46:1
July 3, 2012 $2.5597 5.85:1
July 17, 2012 $2.6173 5.60:1
October 23, 2012 $2.7285 12.09:1
October 30 ” $2.7433 9.77:1
November 6 ” $2.8254 9.75:1
We compiled total longs + shorts of managed money, along with total open interest and the long to short ratio. It is readily apparent that participation by managed money is at a low ebb, and the long to short ratio as of April 16 confirms their lack of enthusiasm for the long side of gasoline.
Date of COT report Total longs + shorts/ managed money Total open interest Long to Short Ratio
June 26, 2012 75,812 281,729 5.46:1
July 3, 2012 73,339 253,521 5.85:1
July 17, 2012 68,624 259,169 5.60:1
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
April 16, 2013 76,681 314,790 5.61:1
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. 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.” In short, gasoline appears to be trading in a similar pattern, but the decline started much earlier in 2013 that it did in 2012.
The current extraordinarily low number of managed money longs is also verifiable by open interest action. The next table shows total open interest and the closing price on previous peaks beginning with February 25 and includes March 11 and April 1. The open interest decline from peak to trough indicates that gasoline has been undergoing liquidation as prices decline. This is bullish open interest action relative to the price decline. For the table below we are using the June contract. The important point to be made regarding gasoline is that cumulative open interest action did not show an increase. This would have been bearish. On April 18, June gasoline made its low for the move at $2.6979.
Date Closing Price Total Open Interest
February 25, 2013 $3.1638 333,484
March 11, 2013 $3.1010 317,630
April 1, 2013 $3.0821 315,414
April 18, 2013 $2.7483 305,003
Another favorable development for gasoline is that the spread between June and July gasoline widened out to 2.58 cents premium to July from 76 points (3/4 cent) on April 10. Keep in mind this occurred when June gasoline closed at $2.8750 on April 10 and $2.7614 on April 19. In short, the spread was widening as gasoline prices were declining. This is bullish. Also, the close of the spread on April 19 was the highest since April 2 when the spread closed at 2.65 cents when June gasoline closed at $3.0299.
June gasoline’s 50 day moving average of $3.03 remains above its 200 day average of 2.87, therefore it is trading with a positive longer-term outlook. Gasoline remains on a short and intermediate term sell signal, therefore we cannot recommend it for a trade on the long side. However, the market has many necessary characteristics for making a bottom. Gasoline has to show independent strength in the face of flat to declining crude oil prices. It is massively oversold relative to its 50 day moving average of $3.07 on the June gasoline chart and a rally to the $2.97 area would relieve some of the oversold condition. There is support for the June contract at $2.68, the low on November 5, 2012 and $2.70, the low on October 24, 2012. The support level on the gasoline continuation chart is $2.72, the low made on January 15, 2013. We expect gasoline to test the lows, and it will be important that these hold. Gasoline remains on a short and intermediate term sell signal. Stand aside. Do not short this market.
Natural gas:
For the week, May natural gas gained 18.6 cents. The COT report showed that managed money added 652 contracts to their long positions and added a massive 17,926 contracts to their short positions. Commercial interests added 18,238 contracts to their long positions and added 22,003 contracts to their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.26:1, which is down from the previous week of 1.34:1 and the ratio of 2 weeks ago of 1.30:1.
The massive daily open interest increases in natural gas during the recent COT reporting period apparently have been due to commercial interests, not managed money. Considering that natural gas advanced 13.1 cents during the COT reporting period of April 10-April 16, it is surprising to see the long to short ratio decline to 1.26:1, which is the lowest since March 26 when the ratio was 1.24:1. During the reporting period of March 20-March 26, June natural gas traded from a high of $4.082 on March 21 to a low of 3.927 made on March 25. In short, managed money is as bullish as they were when prices were trading lower. On April 12 (which is within the current COT period), June natural gas closed at $4.261, its highest price in over 20 months On April 16, which was the last day for tabulating the current COT report, June natural gas closed at $4.188, or 7.3 cents below the April 12 closing high (which is within the current COT period). The market closed at elevated levels, but managed money did not get on board. The very minor increase of open interest by managed money longs accompanied by the massive open interest increase by managed money shorts indicate skepticism of the market’s ability to move higher. Despite the outstanding performance during the current COT reporting period, managed money was unwilling to make new commitments to the bullish side of natural gas. This tells us that natural gas is likely to move higher than anyone believes. However, a pullback is overdue.
COT Report April 10-April 16 Year to Date
June natural gas +3.31% +26.43%
May ethanol -3.80% +11.87%
June heating oil -5.10% -7.57%
June gasoline -5.28% -3.55%
June WTI -5.64% -5.65%
June Brent -5.87% -7.83%
Copper:
May copper lost 20.15 cents. The COT report showed that managed money added 1,338 contracts to their long positions and liquidated 4,100 contracts of their short positions. Commercial interests added 11,264 contracts to their long positions and also added 11,519 contracts to their short positions. As of the latest report, managed money is short copper by a ratio of 2.05:1, which is down from the previous week of 2.33:1, and down substantially from the ratio of 2 weeks ago of 2.83:1.
Gold:
For the week, June gold lost $105.80. The COT report showed that managed money added 9,264 contracts to their long positions and liquidated 9,411 contracts of their short positions. Commercial interests added 7,743 contracts to their long positions and also added 4,551 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 2.27:1, which is up a sizable amount from the previous week of 1.79:1 and the ratio of 2 weeks ago of 1.67:1.
Platinum:
For the week, July platinum lost $72.00. The COT report showed that managed money liquidated 974 contracts of their long positions and also liquidated 376 contracts of their short positions. Commercial interests added 924 contracts to their long positions and liquidated 1,163 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 3.23:1, which is about the same as the previous week of 3.20:1, but down substantially from the ratio of 2 weeks ago of 4.69:1.
Palladium:
For the week, June palladium lost $32.05. The COT report showed that managed money liquidated 2,372 contracts of their long positions and added 24 contracts to their short positions. Commercial interests added 1,180 contracts to their long positions and liquidated 1,296 contracts of their short positions. As of the latest report, managed money is long palladium by a ratio of 12.40:1, which is down from the previous week of 13.94:1, and down substantially from the ratio of 2 weeks ago of 24.17:1.
Silver:
For the week, May silver lost $3.371. The COT report showed that managed money added 1,953 contracts to their long positions and liquidated 8,105 contracts of their short positions. Commercial interests liquidated 2,146 contracts of their long positions and added 475 contracts to their short positions. As of the latest report, managed money is long by a ratio of 1.53:1, which is a reversal from the previous week when they were short by a ratio of 1.02:1 and the ratio of 2 weeks ago when managed money was short by 1.10:1.
COT Report April 10-April 16 Year to Date
June copper -4.00% -13.97%
July platinum -6.30% -7.56%
June palladium -6.60% -3.36%
June gold -13.76% -16.58%
May silver -16.18% -23.59%
For the current COT reporting period, the short to long ratios of leveraged funds in the June Canadian dollar, June British pound and June euro declined. The Swiss franc went from a net short position to a net long position. The long to short ratio in the Australian dollar declined and the net long position in the dollar index increased. The net short position in the Japanese yen increased.
Canadian dollar:
For the week, the June Canadian dollar lost 1.20 cents. The COT report showed that leveraged funds added 3,315 contracts to their long positions and also added 6,002 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 6.06:1, which is down from the previous week of 7.09:1 and the ratio of 2 weeks ago when leveraged funds were short by a ratio of 5.75:1.
Australian dollar:
For the week, the June Australian dollar lost 2.18 cents. The COT report showed that leveraged funds liquidated 17,564 contracts of their long positions and added 3,247 contracts to their short positions. As of the latest report, leveraged funds are long by a ratio of 2.57:1, which is down substantially from the previous week of 3.25:1 and below the ratio of 2 weeks ago of 2.75:1.
Swiss franc:
For the week, the June Swiss franc lost 44 points. The COT report showed that leveraged funds added 8,324 contracts to their long positions and also added 1,157 contracts to their short positions. As of the latest report, leveraged funds are now long by a ratio of 1.13:1, which is a dramatic reversal from the previous week when they were short by a ratio of 1.68:1 and the ratio of 2 weeks ago when leveraged funds were short by a ratio of 1.99:1.
British pound:
For the week, the June British pound lost 1.13 cents. The COT report showed that leveraged funds added 6,002 contracts to their long positions and liquidated 4,694 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 3.17:1, which is down a sizable amount from the previous week when they were short by a ratio of 4.01:1 and the ratio of 2 weeks ago of 3.81:1.
Euro:
For the week, the June euro lost 19 points. The COT report showed that leveraged funds added 14,513 contracts to their long positions and liquidated 8,961 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.71:1, which is down dramatically from the previous week of 3.18:1 and the ratio of 2 weeks ago when leveraged funds were short by a ratio of 2.62:1.
The current ratio is the lowest since the COT tabulation date of March 12, 2013 when the short to long ratio was 1.55:1. During the time frame that reflected this ratio, the June euro traded in a range from 1.2964-1.3143. The trading range that is reflective of the current ratio is from 1.3027-1.3208. From March 27, when the euro made its low of 1.2758 through April 18 when the June euro closed at 1.3053, open interest has declined by 7,356 contracts. In short, the market has become much less oversold from a price and open interest standpoint. We think the market is going to run into trouble at the 1.3200 level, and we will be monitoring it carefully in order to advise clients when and if to implement bearish positions.
Japanese yen:
For the week, the June yen lost 69 points. The COT report showed that leveraged funds liquidated 6,904 contracts of their long positions and added 1,755 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.96:1, which is up from the previous week of 2.44:1 and the ratio of 2 weeks ago of 2.59:1.
Dollar index:
For the week, the June dollar index gained 44 points. The COT report shows that leveraged funds liquidated 9,855 contracts of their long positions and also liquidated 10,492 contracts of their short positions. As of the latest report, leveraged funds are long the dollar index by a ratio of 1.08:1 which is about the same as the previous week of 1.05:1 and the ratio of 2 weeks ago of 1.05:1.
COT Report April 10-April 16 Year to Date
June yen +1.89% -13.06%
June Swiss franc + 1.09% – 2.26%
June euro +0.73% -1.18%
June British pound +0.22% -6.22%
June Canadian $ -0.59% -2.87%
June dollar index -0.72% + 3.61%
June Australian $ -1.11% -0.25%
S&P 500 E mini:
For the week, the June E mini lost 34.30 points. The COT report showed that leveraged funds added 10,750 contracts to their long positions and also added 8,377 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.59:1, which is about the same as the previous week of 1.61:1 and the ratio of 2 weeks ago of 1.77:1.
Although the S&P 500 E mini had one of its worst weeks in several months, it has yet to generate a short or intermediate term sell signal. In our view, it is apparent that the market is slowly weakening, and the underpinnings are beginning to falter. Also, there are more analysts and opinion makers who are calling for correction, which means that many money managers have begun to take a more defensive stance. The 10 year note yield continues to show weakness and closed on April 19 at 1.703, which is below its 200 day moving average of 1.747. Additionally, it is trading at levels last seen in late December 2012. We fully expect to see the 10 year yield test its 52-week low of 1.390.
The Greenhaven Continuous Commodity Index, which is the only publicly traded commodity index is at levels last seen in May of 2012 (26.88), and a move to 26.50 would be the lowest since August 2010. The Greenhaven index is composed of 17 commodities which are equally weighted, meaning that no commodity or group of commodities can dominate the index. Cash nickel prices are at their lowest level since July 2009 and copper prices are at their lowest level since October 2011. It appears that a cycle of deflation is gripping the markets, and this is the last thing the US Federal Reserve wants to see. Deflation is bad for the stock market and we expect to see significantly more downside. The financial press and their market seers say the correction will be mild, not much more than 5 to 6%. In our view, this is a rosy scenario. Inflation will not begin to rise until banks begin to lend money, and once this occurs, inflation should begin to take hold. In our opinion, this will finally lead to the bursting of the bond bubble. On any rally, we advise clients to buy put protection.
American Association of Individual Investors survey
Recent week 2 weeks ago 3 weeks ago
Bullish 26.9% 19.3% 35.5%
Bearish 48.2% 54.5% 28.2%
Neutral 24.9% 26.2% 36.3%
Leave A Comment
You must be logged in to post a comment.