Weekend Wrap for August 11, 2013

The crop production and supply demand report will be released on August 12.

The COT period for this week’s report is July 31-August 6.

Soybeans:

For the week, August soybeans gained 9.75 cents, September +5.75, November +0.75. The COT report showed that managed money liquidated 21,299 contracts of their long positions and added 9,993 contracts to their short positions. Commercial interests added 15,943 contracts to their long positions and liquidated 14,876 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio of 2.02:1, which is down sharply from the previous week of 2.78:1 and the ratio of 2 weeks ago of 3.31:1.

Soybean meal:

For the week, August soybean meal gained $8.40, September +5.40, December +1.90. The COT report showed that managed money liquidated 5,663 contracts of their long positions and added 2,422 contracts to their short positions. Commercial interests liquidated 3,388 contracts of their long positions and also liquidated 12,885 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 1.58:1, which is down from the previous week of 1.84:1 and the ratio of 2 weeks ago of 2.67:1.

Soybean oil:

For the week, August soybean oil lost 98 points, September -99 December -94. The COT report showed that managed money added 1,028 contracts to their long positions and also added 11,869 contracts to their short positions. Commercial interests liquidated 7,294 contracts of their long positions and also liquidated 16,597 contracts of their short positions. As of the latest report, managed money is short soybean oil by a ratio of 2.04:1, which is up from the previous week of 1.84:1 and the ratio of 2 weeks ago of 1.90:1.

Corn:

For the week, September corn lost 10.25 cents, December -10.50. The COT report showed that managed money added 15,894 contracts to their long positions and also added 9,732 contracts to their short positions. Commercial interests liquidated 4,540 of their long positions and also liquidated 15,982 contracts of their short positions. As of the latest report, managed money is short corn by a ratio of 1.17:1, which is down from the previous week of 1.21:1 but up from the ratio of 2 weeks ago of 1.10:1.

Wheat:

For the week, September Chicago wheat lost 27.00 cents, December -25.75. The COT report showed that managed money added 1,275 contracts to their long positions and also added 8,904 contracts to their short positions. Commercial interests added 5,176 contracts to their long positions and also added 5,078 contracts to their short positions. As of the latest report, managed money is short wheat by a ratio of 1.50:1, which is up from the previous week of 1.43:1 and slightly below the ratio of 2 weeks ago of 1.53:1.

Kansas City Wheat:

For the week, September Kansas City wheat lost 9.50 cents, December -15.25. The COT report showed that managed money added 2,721 contracts to their long positions and liquidated 2,946 contracts of their short positions. As of the latest report, managed money is long Kansas City wheat by a ratio of 1.06:1, which is a complete reversal from the previous week when managed money was short by a ratio of 1.15:1 and the ratio of 2 weeks ago when they were short 1.15:1.

On July 5, September Kansas City wheat made a low of $6.85 and since that time has not violated it, which is in direct contrast to the performance of Chicago wheat. For example, from July 5 through August 9, September Kansas City wheat gained 13.25 cents or 1.94% while the December contract lost 2.75 or -0.39%. September Chicago wheat lost 26.50 cents in this time frame, or – 4.02% while the December contract lost 23.25 or 3.47%.

The spread between the September Kansas City wheat and the December 2013 contract reached the highest level on August 8 at 4.75 cents premium December. This is the highest close since November 28, 2012 when the spread closed at 4.50 cents premium December. On that date, the September KC wheat contract closed at $9.45. Not only do we see a price divergence between Chicago and Kansas City wheat, but the spread action in KC wheat is decidedly bullish.

We think wheat is going to be the outstanding performer in the grain complex. The demand side of the market has been robust and contrary to its usual course of business, Brazil has buying significant amounts of US wheat, when most of the time they buy wheat from neighboring Argentina, which is suffering production shortfalls. One fly in the ointment for a very bullish wheat scenario is the imminent large surplus of corn, which will act to constrain wheat prices. Both Chicago and Kansas City wheat remain on short and intermediate term sell signals.

Cotton:

For the week, December cotton gained 3.95 cents. The COT report showed that managed money added 1,970 contracts to their long positions and liquidated 532 contracts of their short positions. Commercial interests added 442 contracts to their long positions and added 5,443 contracts to their short positions. As of the latest report, managed money is long cotton by a ratio of 6.07:1, which is up from the previous week of 5.64:1 and the ratio of 2 weeks ago of 5.64:1.

Live cattle:

For the week, October live cattle gained 2.40 cents. The COT report showed that managed money liquidated 1,742 contracts of their long positions and added 5,063 contracts to their short positions. Commercial interests added 2,414 contracts to their long positions and also added 402 contracts to their short positions. As of the latest report, managed money is long live cattle by a ratio of 1.44:1, which is down from the previous week of 1.64:1 and the ratio of 2 weeks ago of 1.77:1.

Crude oil:

For the week, September crude oil lost 97 cents. The COT report showed that managed money liquidated 6159 contracts of their long positions and added 8543 contracts to their short positions. Commercial interests added 17,702 contracts to their long positions and also added 16,205 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 8.19:1, which is down substantially from the previous week of 10.61:1 and the ratio of 2 weeks ago of 11.16:1.

The trading activity in crude oil has been like a yo-yo: up significantly one day, down the next. From August 5 through August 8, crude oil declined every day and open interest increased every day. We consider this to be the canary in the coal mine, and if the crude oil rally, which began on June 24 is about to come to an end, the advance on Friday of $2.57 should be as far as it goes. The key area to look for is $102.00, which represented the low for most of July. The first clue that September crude is about to break below $102.00 will be a reversal down to 103.00 on Monday or Tuesday. Although, crude oil remains on a short and intermediate term sell signal, for clients so inclined, consider writing out of the money calls.

Heating oil:

For the week, September heating oil lost 7.79 cents. The COT report showed that managed money added 1,058 contracts to their long positions and liquidated 2,442 contracts of their short positions. Commercial interests added 6,864 contracts to their long positions and also added 6,020 contracts to their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.71:1, which is up from the previous week of 2.40:1 and the ratio of 2 weeks ago of 2.16:1. The current ratio is the largest net long position of managed money in at least 4 to 5 months.

Gasoline:

For the week, September gasoline lost 8.65 cents. The COT report showed that managed money liquidated 5,132 contracts of their long positions and also liquidated 3,641 contracts of their short positions. Commercial interests added 2,484 contracts to their long positions and liquidated 1,991 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 7.80:1, which is up dramatically from the previous week of 6.13:1 and the ratio of 2 weeks ago of 5.72:1. The current ratio is the highest that we have seen in several months.

Natural gas:

For the week, September natural gas lost 11.7 cents. The COT report showed that managed money liquidated 4,111 contracts of their long positions and added 10,723 contracts to their short positions. Commercial interests liquidated 3,433 contracts of their long positions and also liquidated 6,428 contracts of their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.08:1 which is up from the previous week of 1.02:1 and a dramatic reversal from 2 weeks ago when managed money was long natural gas by a ratio of 1.06:1.

COT tabulation period:                  Year to Date
July 31-August 6
September ethanol       +3.00%            +1.85%
September WTI            +2.37%            +13.21%
September Brent          +1.20%              +1.81%
September heating oil +0.15%              -0.05%
September gasoline       -2.11%              +6.21%
September natural gas -3.83%             -10.45%

 Copper: On August 9, September copper generated a short-term buy signal.

For the week, September copper gained 13.90 cents. The COT report showed that managed money added 1,100 contracts to their long positions and liquidated 11,162 contracts of their short positions. Commercial interests liquidated 1,759 contracts of their long positions and added 5,583 contracts to their short positions. As of the latest report, managed money is short copper by a ratio of 1.55:1, which is down significantly from the previous week when they were short by a ratio of 2.05:1, but slightly above the ratio of 2 weeks ago of 1.44:1.

The rally in copper began on July 31, and through August 9 has rallied 26.45 cents. From July 30 through August 8, open interest increased a mere 29 contracts during which time copper advanced 22.85 cents. On August 8, copper advanced 9.75 cents on heavy volume of 125,310 contracts, however open interest increased only 1,833 contracts, which relative to volume is approximately 40% less than average. The volume on August 8 was the highest since June 26 when 126,681 contracts were traded and copper closed at $3.0405. In short, on a big volume day with copper prices advancing significantly, there were not enough  market participants willing to initiate new positions at a heavy pace. This shows that market participants have a great deal of skepticism about a further advance. The preliminary stats for trading on Friday show a loss of 1911 contracts of open interest. Based upon the current short interest of managed money and the dramatic increase in prices without a total open interest decline, or increase, the market, in our opinion, has further to go. However, since copper just generated a short-term buy signal, we expect a pullback lasting 1-3 days. Conceivably, copper could generate an intermediate term buy signal on August 12.

The bears in copper may have another problem. Inventory at warehouses in Shanghai, New York and London are at more than 6 month lows. This clearly indicates copper is moving to the markets that need inventory. With fundamentals reasonably bullish at least temporarily, the market will likely do its job by removing the majority of speculative short sellers. Copper will likely encounter resistance at $3.39, which is its 150 day moving average. Keep in mind that a severe correction in the stock market would negatively impact copper prices.

Palladium:

For the week, September palladium gained $11.30. The COT report showed that managed money added 1,263 contracts to their long positions and liquidated 5 contracts of their short positions. Commercial interests added 58 contracts to their long positions and also added 268 contracts to their short positions. As of the latest report, managed money is long palladium by a ratio of 25.33:1, which is up from the previous week of 24.18:1, but down significantly from the ratio of 2 weeks ago of 34.51:1.

Platinum: On August 9, October Platinum generated a short term buy signal and remains on an intermediate term sell signal.

For the week, October platinum gained $49.10. The COT report showed that managed money liquidated 461 contracts of their long positions and also liquidated 1,378 contracts of their short positions. Commercial interests liquidated 95 contracts of their long positions and also liquidated 461 of their short positions. As of the latest report, managed money is long platinum by a ratio of 3.70:1, which is up from the previous week of 3.27:1 and the ratio of 2 weeks ago of 2.73:1.

Gold: On August 9, December gold generated a short-term buy signal, but remains on an intermediate term sell signal.

For the week, December gold gained $1.70. The COT report showed that managed money liquidated 3,510 contracts of their long positions and added 13,775 contracts to their short positions. Commercial interests liquidated 1,953 contracts of their long positions and also liquidated 1,911 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 1.49:1, which is down significantly from the previous week of 1.92:1 and the ratio of 2 weeks ago of 1.98:1.

 Silver: On August 9, September silver generated a short-term buy signal, but remains on an intermediate term sell signal.

For the week, September silver gained 49.5 cents. The COT report showed that managed money liquidated 977 contracts of their long positions and added 1,328 contracts to their short positions. Commercial interests liquidated 3,093 contracts of their long positions and also liquidated 4,259 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.18:1, which is down from the previous week of 1.29:1 and the ratio of 2 weeks ago of 1.27:1.

Canadian dollar:

For the week, the September Canadian dollar gained 1.07 cents. The COT report showed that leveraged funds added 786 contracts to their long positions and liquidated 1,159 of their short positions. As of the latest report, leveraged funds are short the Canadian dollar by a ratio of 1.76:1, which is down from the previous week of 1.91:1 and the ratio of 2 weeks ago of 2.25:1.

Australian dollar:

For the week, the September Australian dollar gained 3.09 cents. The COT report showed that leveraged funds liquidated 2,266 contracts of their long positions and also liquidated 1,151 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by a ratio of 2.09:1 is up slightly from the previous week of 2.01:1 and the ratio of 2 weeks ago of 1.88:1.

Swiss franc:

For the week, the September Swiss franc gained 72 points. The COT report showed that leveraged funds liquidated 962 contracts of their long positions and also liquidated 2,314 contracts of their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 1.90:1, which is up from the previous week of 1.52:1 and up significantly from the ratio of 2 weeks ago of 1.08:1.

British pound:

For the week, the September British pound gained 2.29 cents. The COT report showed that leveraged funds added 2,113 contracts to their long positions and liquidated 4,117 contracts of their short positions. As of the latest report, leveraged funds are short the British pound by a ratio of 2.90:1, which is down from the previous week of 3.41:1 and the ratio of 2 weeks ago of 3.56:1.

Euro:

For the week, the September euro gained 54 points. The COT report showed that leveraged funds added 6,928 contracts to their long positions and liquidated 7,198 contracts of their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.15:1, which is a dramatic reversal from the previous week when leveraged funds were short by a ratio of 1.10:1 and the ratio of 2 weeks ago when they were short by 1.43:1.

Japanese yen:

For the week, the September yen gained 268 points. The COT report showed that leveraged funds added 1,249 contracts to their long positions and liquidated 992 contracts of their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 3.50:1, which is down slightly from the previous week of 3.73:1, but above the ratio of 2 weeks ago of 3.32:1.

Dollar index:

For the week, the September dollar index lost 80 points. The COT report showed that leveraged funds added 5,170 contracts to their long positions and also added 4,459 contracts to their short positions. As of the latest report, leveraged funds are short the dollar index by a ratio of 1.61:1, which is down from the previous week of 1.86:1, but above the ratio of 2 weeks ago of 1.41:1.

COT tabulation period:                  Year to Date
July 31-August 6
September British pound +0.74%          -4.44%
September Swiss franc     +0.34%           -1.32%
September yen                  +0.32%         -10.24%
September euro                 +0.31%          +0.82%
September dollar index     -0.31%           +1.28%
September Canadian $     -0.54%            -2.70%
September Australian $   -0.80%            -9.87%   

Top performing currency crosses for the week of August 5.

08/02/2013 – 08/09/2013
Excel Spreadsheet

Bottom 10 performing currency crosses for the week of August 5

S&P 500 E mini:

For the week, the September S&P 500 E mini lost 17.80 points. The COT report showed that leveraged funds liquidated 43,354 contracts of their long positions and also liquidated 9,141 contracts of their short positions. As of the latest report, leveraged funds are short the E mini by a ratio of 1.68:1, which is up from the previous week of 1.56:1 and the ratio of 2 weeks ago of 1.65:1.

We want to point out a divergence between two highly watched indices. From July 11 through August 9, the Dow Jones Industrial Average has declined 35.40 points or -0.23% while the S&P 500 cap weighted index has advanced 16.00 points or +0.98% and the S&P 500 equal weighted index gained 47.65 points, or 1.83%

The Shanghai Composite Index continues to underperform and is currently trading below the 50 day moving average, which is below the 200 day moving average. The Hang Seng is not doing much better and is running up against its 200 day moving average, which has so far acted as resistance. The 50 day moving average in the Hang Seng is below the 200 day moving average. In short, if there is any economic rebound in China it certainly is not showing up in the indices. However, there are certain sectors within China that are doing quite well. We like two Chinese technology ETF’s: CQQQ and QQCQ. Both are significantly overbought and the volume traded is thin, but it appears Chinese technology companies are taking off.