On April 10, the USDA will release its world supply demand report.

Soybeans:

For the week, May soybeans lost 43 cents, July -41.75. The COT report showed that managed money liquidated 11,441 contracts of their long positions and added 12,217 contracts to their short positions. Commercial interests liquidated 8,009 contracts of their long positions and also liquidated 25,720 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio of 3.46:1, which is down substantially from the previous week of 5.94:1 and the ratio of 2 weeks ago of 5.05:1.

Soybean meal:

For the week, May soybeans lost $12.80, July -10.00. The COT report showed that managed money liquidated 9,455 contracts of their long positions and added 5,814 contracts to their short positions. Commercial interests added 2,788 contracts to their long positions and liquidated 17,534 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.27:1, which is down substantially from the previous week of 3.49:1 and the ratio of 2 weeks ago of 3.91:1.

Soybean oil:

For the week, May soybean oil lost 1.28 cents, July -1.24. The COT report showed that managed money liquidated 1,896 contracts of their long positions and also liquidated 501 contracts of their short positions. Commercial interests added 5,519 contracts to their long positions and liquidated 4,235 contracts of their short positions. As of the latest report, managed money is short by a ratio of 1.75:1, which is up from the previous week of 1.69:1, but down from the ratio of 2 weeks ago of 2.16:1.

Corn:

For the week, May corn lost 66.25 cents, July -58.25. The COT report showed that managed money liquidated a massive 57,194 contracts of their long positions and added 19,024 contracts to their short positions. Commercial interests added 25,772 contracts to their long positions and liquidated 44,297 contracts of their short positions. As of the latest report, managed money is long corn by a ratio of 2.43:1 which is down substantially from the previous week of 3.62:1 and the ratio of 2 weeks ago of 2.79:1.

Wheat:

For the week, May wheat advanced 11.25 cents, July +13.25. The COT report showed that managed money liquidated 8,532 contracts of their long positions and added 4,333 contracts to their short positions. Commercial interests liquidated 14,336 contracts of their long positions and also liquidated 20,556 contracts of their short positions. As of the latest report, managed money is short by a ratio of 1.47:1, which is up significantly from the previous week of 1.29:1 and about the same as the ratio of 2 weeks ago of 1.45:1.

COT Tabulation Period Mar 27-Apr 2     Year to Date
May corn          -12.29%                                      -10.17%
May wheat        -8.30%                                       -11.27%
May meal          -4.31%                                        -4.86%
May beans         -3.71%                                        -2.68%
May bean oil    -2.42%                                         -2.69%

Crude oil: On April 5, May crude oil generated a short and intermediate term sell signal.

For the week, May WTI crude oil lost $4.53 and Brent crude oil lost $5.26. The COT report showed that managed money added 1,708 contracts to their long WTI positions and liquidated 3,214 contracts of their short positions. Commercial interests added 1,895 contracts to their long positions and liquidated 5,797 contracts of their short positions. As of the latest report, managed money is long WTI by a ratio of 6.23:1, which is up significantly from the previous week of 5.66:1 and the ratio of 2 weeks ago of 3.99:1.

In the report of April 4, we said that a short-term sell signal would not be generated on April 5. However, after reviewing our numbers, WTI did in fact generate the short-term sell signal along with an intermediate term sell signal. The crude oil long to short ratio of 6.23:1 from the latest COT report is a fractionally below the ratio of 6.38:1 made on February 19. The trading range encompassed by the COT reporting period during February 13-February 19 was $96.24-$99.11, and May WTI closed at $97.54 on February 19. On April 2, the tabulation date of the latest COT report, May crude oil closed at $97.19.

However, as we mentioned in one of our latest reports, the open interest action on April 3 and 4 tells us that prices have farther to fall. To recap: On April 3 when May WTI fell $2.74, open interest declined only 5,762 contracts, which relative to volume was 50% below average. It would have been expected to see a sizable decline because there had been a large build of open interest, which accelerated beginning on March 22. This appears to have peaked on April 2. From March 22 through April 3, open interest had increased 76,027 contracts while May WTI advanced $2.00. On April 4, when May WTI fell another $1.19, open interest increased by 33,497 contracts. This is bearish for 2 reasons: 1) Market participants were willing enter new short positions at the low end of the recent trading range, which drove prices lower. 2) Longs that had taken positions during the March 22-April 2 time frame, or before were not liquidating en masse. The result: an open interest increase totaling 109,524 contracts from March 22 through April 4. During this period, May WTI advanced $1.02. We are not using data from April 5 because the final stats for open interest will not be available until the morning of April 8. The large build of open interest when price is advancing meagerly signifies considerable selling pressure. We know that managed money was heavily long on April 2 because the COT report corroborates it. Based upon the lack of liquidation (daily open interest declines) thus far, we believe that large numbers of managed money longs have dug in and have refused to liquidate. The preliminary open interest stats for April 5 show that open interest increased by 2,988 contracts. We suspect many speculative longs are waiting for a market rebound before they sell to reduce the size of their losses.

We expect WTI to find support at the $91.15-91.43, which represents the midpoint between the high and the low for the past 26 weeks, and the 50 week moving average on the WTI continuation chart. However, if the market closes below those levels, the next major area support is $89.65, which is the low going back to December 21, 2012.

Heating oil: 

For the week, May heating oil lost 13.72 cents. The COT report showed that managed money added 3,034 contracts to their long positions and liquidated 1,416 contracts of their short positions. Commercial interests added 1,353 contracts to their long positions and also added 9,168 contracts to their short positions. As of the latest report, managed money is long heating oil by a ratio of 1.13:1, which is up substantially from the previous week when managed money was short by a ratio of 1.02:1, but below the ratio of 2 weeks ago when managed money was long by a ratio of 1.34:1.

Gasoline: On April 5, gasoline generated an intermediate term sell signal.

For the week, May gasoline lost 24.70 cents. The COT report showed that managed money liquidated 2,296 contracts of their long positions and also liquidated 2,144 contracts of their short positions. Commercial interests liquidated 9,563 contracts of their long positions and also liquidated 9,777 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 9.85:1, which is down somewhat from the previous week of 10.87:1 and down substantially from the ratio of 2 weeks ago of 12.28:1. 3 weeks ago, managed money was long gasoline by a ratio of 9.32:1.

Although the current long to short ratio is the lowest in 3 weeks, prices are lower than they were three weeks ago in the March 6 to March 12 time frame (COT 9.32:1) when May gasoline traded in a range from $3.0836 to 3.1754. During the current COT report, May gasoline traded in a range from $3.0199 to 3.1227. May gasoline closed at 3.0408 on April 2, which was the lowest close since March 22 (3.0512). However, the recent COT report did not capture the bulk of the decline, which occurred between April 3- April 5 of 17.72 cents.

In the April 3 report, we stated: “It was surprising that open interest declined only 2,916 contracts considering the massive decline, and the very high net long position of managed money. Relative to volume, the open interest decline was approximately 45% less than average. This tells us there is more liquidation ahead.”

The preliminary stats (we only use the final stats for the daily reports) show that open interest declined 2,585 contracts on light volume of 145,362. If this is the approximate final open interest number, it would mean that during a decline of nearly 18 cents, open interest declined only 6,282 contracts. This is a small number, and relative to 3 day volume is approximately 50% less than average. We expect gasoline to rebound, but any advance will be capped by longs who are looking to sell to reduce the size of their losses.

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. If gasoline breaks below its 50 week moving average of $2.87 (which we think is likely), then the next area support will be the 160 week moving average of $2.68.

Natural gas:

For the week, May natural gas gained 10.1 cents. The COT report showed that managed money added 6,837 contracts to their long positions and liquidated 5,108 contracts of their short positions. Commercial interests added 3,336 contracts to their long positions and also added 18,379 contracts to their short positions. In the previous week’s COT report, commercials added 25,029 contracts to their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.30:1, which is up somewhat from the previous week of 1.24:1 and up substantially from the ratio of 2 weeks ago of 1.18:1.

On April 5, May natural gas closed at $4.125, which was the highest close since the week of July 25, 2011 when May natural gas closed at 4.145. Natural gas has moved almost straight up since the beginning of the move in February. On March 1, OIA announced that natural gas generated a short-term buy signal and an intermediate term buy signal on March 8. Despite the aggressive selling, which has kept rallies in check, the market has had very short and shallow setbacks while grinding steadily higher. The preliminary stats for trading on April 5 show that open interest increased by a massive 39,295 contracts on volume of 792,024 contracts. This is not only the largest open interest increase since the beginning of the rally, as a percentage of volume, it represent nearly a 100% increase above average. Despite the improving fundamentals, we have advised a cautious approach with respect to money management. Although, some clients were stopped out at the $3.885 level per our recommendation, we believe there will be an opportunity in the not-too-distant future to get long at lower levels. As noted in previous reports, tops or temporary tops in markets are often made with massive increases in open interest accompanied by heavy volume. For clients who have wanted to stay long, we have advised writing calls against these positions as a way of mitigating downside risk. Natural gas remains on a short and intermediate term buy signal.

Ethanol:

For the week, May ethanol lost 1 cent.

COT Tabulation Period Mar 27-Apr 2     Year to Date
May heating oil   +2.63%                                   -3.36%  
Brent crude         +0.97%                                    -3.19%
May WTI             +0.55%                                    -0.13%
May natural gas  -0.90%                                  +19.87%
May gasoline       – 2.44%                                    -0.82%
May ethanol        -6.28 %                                    +8.68%

Copper:

For the week, May copper lost 5.80 cents. The COT report showed that managed money liquidated 1,382 contracts of their long positions and added 7,582 contracts to their short positions. Commercial interests added 1,584 contracts to their long positions and liquidated 2,786 contracts of their short positions. As of the latest report, managed money is short copper by a ratio of 2.83:1, which is up substantially from the previous week of 2.32:1 and the ratio of 2 weeks ago of 2.17:1. The current ratio is the highest in at least several months.

Gold:

For the week, June gold lost $19.40. The COT report showed managed money liquidated 262 contracts of their long positions and added 11,477 contracts to their short positions. Commercial interests liquidated 4,994 contracts of their long positions and also liquidated 17,507 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 1.67:1, which is down from the previous week of 2.02:1, and down substantially from the ratio of 2 weeks ago of 2.14:1.

Platinum:

For the week, July platinum lost $39.10. The COT report showed that managed money added 970 contracts to their long positions and also added 395 contracts to their short positions. Commercial interests liquidated 2,243 contracts of their long positions and also liquidated 628 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 4.69:1, which is down somewhat from the previous week of 4.82:1, and down substantially from the ratio of 2 weeks ago of 5.69:1.

Palladium:

For the week, June palladium lost $44.35. The COT report showed that managed money added 1,785 contracts to their long positions and liquidated 151 contracts of their short positions. Commercial interests added 53 contracts to their long positions and also added 645 contracts to their short positions. As of the latest report, managed money is long palladium by a ratio of 24.17:1, which is up substantially from the previous week of 19.85:1 and the ratio of 2 weeks ago of 20.09:1.

Silver:

For the week, May silver lost $1.103. The COT report showed that managed money added 360 contracts to their long positions and also added 3,932 contracts to their short positions. Commercial interests added 1,786 contracts to their long positions and liquidated 3,027 contracts of their short positions. As of the latest report, managed money is short silver by a ratio of 1.10:1, which is a reversal from the previous week when managed money was long by a ratio of 1.05:1 and the ratio of 2 weeks ago when they were long by a ratio of 1.19:1.

The move to a net short position in silver this week by managed money is a rarity when examining other periods when silver traded near the current lows.The trading range that reflected the move to a net short position by managed money was from a high of $28.81 on March 28 to a low of 27.15 on April 2. The low for the entire move of $26.575 occurred on April 4, which will be reflected in next week’s report. In short, there is much higher degree of bearishness in the current silver market than during the past two years when silver traded at their lows. Although silver is on a short and intermediate term sell signal, the market is overdue for a good-sized rally. Perhaps the action on April 5 is a sign that silver is going to chase out shorts who are late to the party. The lows of July 12, 2012, December 29, 2011 and September 26, 2011, should cause anyone to temper their bearishness in the current market.

Low on July 12, 2012 of $26.45
COT report July 10, 2012: long to short ratio = 1.36:1
COT report July 17, 2012: long to short ratio = 1.28:1

Low on December 29, 2011 of $26.39
COT report December 27, 2011: long to short ratio = 1.39:1
COT report January 3, 2012:       long to short ratio = 1.75:1

Low on September 26, 2011 of $26.59
COT report on September 27, 2011: long to short ratio = 4.89:1
COT report on September 20, 2011: long to short ratio = 5.57:1
COT report on October 4, 2011:         long to short ratio = 2.69:1      

 

COT tabulation Period Mar 27-Apr 2     Year to Date
June Palladium   +0.70%                                   +3.56%
July platinum      +0.27%                                    -0.54% 
June gold              -1.65%                                     -6.01%
May copper          -2.42%                                     -8.75%
May silver            -5.24%                                     10.09%

Canadian dollar:

For the week, the June Canadian dollar lost 10 points. The COT reported that leveraged funds liquidated 370 contracts of their long positions and added 3,209 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 5.75:1, which is up from the previous week of 5.43:1 and the ratio of 2 weeks ago when leveraged funds were short by 2.00:1.

The table below shows that the Canadian dollar was the second best performer during most recent COT report. Despite outperforming the Swiss franc, British pound, and Japanese yen year to date, the short to long ratio in the Canadian dollar is approximately  175% greater than the Swiss franc, over 275% greater than the euro, 50% greater than the British pound, 100% greater than the Japanese yen. The lopsided number of shorts in a currency that is outperforming indicates there is more upside in the Canadian dollar. The Canadian dollar remains on a short and intermediate term sell signal`

Australian dollar:

For the week, the June Australian dollar lost 22 points. The COT report showed that leveraged funds liquidated 6,677 contracts of their long positions and also liquidated 3,135 contracts of their short positions. As of the latest report, leveraged funds are long by a ratio of 2.75:1, which is up slightly from the previous week of 2.71:1, but up substantially from the ratio of 2 weeks ago of 2.35:1.

Swiss franc:

For the week, the June Swiss franc gained 1.81 cents. The COT report showed that leveraged funds added 981 contracts to their long positions and also added 1,084 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.99:1, which is down somewhat from the previous week of 2.08:1, but up from the ratio of 2 weeks ago of 1.65:1.

British pound: On April 5, the June British pound generated a short-term buy signal.

For the week, the June British pound gained 1.67 cents. The COT report showed that leveraged funds liquidated 4,744 contracts of their long positions and also liquidated 12,592 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 3.81:1, which is up slightly from the previous week of 3.65:1 and the ratio of 2 weeks ago when managed money was short by 3.36:1.

On March 12, the June British pound put in a bottom at 1.4823 and the COT tabulation on that date showed the short to long ratio was 4.05:1. The most recent ratio is only slightly lower at 3.81:1. However, the British pound has rallied over 4 cents from the low on March 12 through the high of 1.5253 on April 2. On April 5, the June British pound closed at 1.5332, which is the highest close since February 19 (1.5415). Open interest from March 20 through April 4 declined 8,590 contracts while the June pound rose 2.2 cents. In short, the open interest action has not been bullish during the prior 2 weeks, however, price action has been outstanding. Another positive is that on April 5, the June British pound closed above its 50 day moving average of 1.5316 for the first time since January 14, 2012. Thus far, money managers digging in and refusing to cover their short positions. Remarkably, the short to long ratio in the British pound is approximately 50% greater than the Japanese yen, even though year to date price performance for the yen is underperforming by a factor of 2 x. As is usually the case once a buy signal is generated,  the pound should have a pullback for 1-2 and possibly 3 days. Despite generating a short-term buy signal, we advise against implementing new long positions until we begin to see bullish congruent price and open interest action. At the same time, we strongly advise against shorting the pound.

Euro:

For the week, the June euro gained 1.96 cents. The COT report showed that leveraged funds added 5,633 contracts to their long positions and also added 16,569 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.62:1, which is up somewhat from the previous week of 2.55:1, but up substantially from the ratio of 2 weeks ago of 2.02:1.

Japanese yen:

For the week, the June yen lost 391 points. The COT report showed that leveraged funds added 139 contracts of their long positions and liquidated 9,415 contracts of their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 2.59:1, which is down from the previous week of 2.84:1 and the ratio of 2 weeks ago of 2.82:1.

Dollar index:

For the week, the June dollar index lost 57 points. The COT report showed that leveraged funds added 1,906 contracts to their long positions and also added 6,206 contracts to their short positions. As of the latest report, leveraged funds were long by a ratio of 1.05:1, which is down somewhat from the previous week of 1.15:1 and the ratio of 2 weeks ago of 1.11:1.

COT Tabulation Period Mar 27-Apr 2     Year to Date
June Japanese yen          +1.22%                        -11.39%
June Canadian dollar     +0.17%                         -2.05%
June dollar index             0.09%                         +3.29%
June Swiss franc              -0.11%                          -2.19%
June euro                         -0.32%                          -1.53%
June British pound         -0.33%                          -5.56%
June Australian dollar –   0.36%                         +0.68%

S&P 500 E mini:

For the week, the June S&P 500 E mini lost 16.70 points. The COT report showed that leveraged funds added 7,465 contracts to their long positions and also added 30,318 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.77:1, which is up slightly from the previous week of 1.73:1 and the ratio of 2 weeks ago of 1.63:1.

Over the course of a couple of weeks, we have discussed how the number of stocks trading above their 50 day moving average has been declining, which has undermined the strength of the major indices. This week, we examine how some of the major global indices are performing, and it only confirms our short-term negative views of  US equity indices.

1) Brazilian Bovespa: The 50 day moving average has crossed below the 200 day average and year to date is down 9.68%.

2) Mexican Bolsa: This market topped out on January 29, 2013 and year to date is down the 1.06%.

3) Australian Ordinaries Index: The Australian index topped out on March 12 and is trading beneath its 50 day moving average. Year to date the index has advanced 5.03%.

4) Indian Sensex 30: This index closed below its 200 day moving average and topped out on January 27, 2013. Year to date, the Sensex 30 is down 5.01%.

5) Hang Seng Index (Hong Kong): The Hang Seng was one of the strongest performing indices, but topped out on February 4, 2013 and is now trading at late December 2012- early January 2013 lows. Year to date, the index is down 4.10%

6) Shanghai Composite Index: The Shanghai Composite Index topped out on February 6, and year to date is down 1.93%.

7) Korean Kospi Index: The Kospi topped out on January 3 and there was a failed rally retest the January 3 high on March 6. Year to date, this index is down 3.50%.

8) FTSE 100: The FTSE topped out on March 14 and is up 5.97% year to date.

9) DAX 30: The DAX topped out on March 15 and year to date is up fractionally +0.61%.

10) CAC 40: The French CAC 40 topped out on March 14 and is trading below its 50 day moving average. Performance year to date +0.62%

11) Canadian TSX Index: The TSX has not closed above its 50 day moving average since March 20. On April 5, the TSX touched its 200 day moving average and traded at its lowest price since December 10, 2012. Performance year to date -0.82%.

Average performance of the above 11 indices year to date: -1.32%.

Although US indices are trading in a more robust fashion, it is apparent they had been weakening and the prime examples are the NASDAQ 100 and the Russell 2000. The Russell 2000 topped out on March 14, and closed below its 50 day moving average in two out of the past three sessions. The NASDAQ 100 is the weakest of the major indices year to date having gained just 4.16%. Essentially, it was trading in a sideways pattern from March 6 through April 2. On April 3, the NASDAQ 100 began to decline in earnest. The S&P 500 cash index has gained 8.91% year to date and has not touched its 50 day moving average of 1531.11. The best performing index is the Dow Jones Industrial Average, which year to date has gained 11.15%. Undoubtedly, this is due to high-profile stocks that pay larger than usual dividends. The New York Composite Index, which is composed of approximately 2000 stocks has gained 6.59% year to date, and is one of the worst performing major indices. On April 5, the index dipped significantly below its 50 day moving average for the first time since late December 2012.

American Association of Individual Investors survey
         Recent week       2 weeks ago      3 weeks ago
Bulls      35.5%             38.4%                38.9%
Bears     28.2%            28.7%                 33.3% 
Neutral  36.3%            33.0%                27.7%