Soybeans:
For the week, January soybeans gained 20 cents, March +29.50, May +27 cents. The COT report showed that managed money liquidated 3,872 contracts of their long positions and added 5,379 contracts to their short positions. Commercial interests added 3,204 contracts to their long positions, but liquidated 7,655 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio of 4.53:1, which is down significantly from the previous week of 5.64:1, and the ratio of 2 weeks ago of 7.48:1. The current long to short ratio is the lowest in several months, and likely indicates capitulation on the part of managed money. In the Weekend Wrap of November 18, we stated: “Based upon the relative high long to short ratio in soybeans versus soybean meal, corn and wheat, we conclude that more managed money selling is on its way for soybeans. The ratio is now down to a level that indicates huge numbers of managed money longs are out of the market. Stand aside.
Soybean meal:
For the week, December soybean meal advanced $13.80, January +11.50, March +13.20. The COT report showed that managed money liquidated 1,479 contracts of their long positions and added 2,924 contracts to their short positions. Commercial interests added 788 contracts to their long positions, but liquidated 7,447 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.69:1 (which is the lowest long to short ratio in several months), and is down from the previous week of 3.34:1, and the ratio of 2 weeks ago of 3.15:1. Stand aside.
Soybean oil:
For the week, December soybean oil gained 37 points, January +42, March +49. The COT report showed that managed money added 4,955 contracts to their long positions, and liquidated 2,255 contracts of their short positions. Commercial interests liquidated 10,293 contracts of their long positions and also liquidated 5,336 contracts of their short positions. As of the latest report, managed money is short by a ratio 2.06:1 which is down from the previous week of 2.41:1 and the ratio of 2 weeks ago of 2.10:1.
The most recent USDA export sales report showed that the sales projections for the crop year have already been fulfilled. Although it is highly unlikely that sales will continue at the explosive pace of the past 2 weeks, increasing demand will begin to affect the price of soybeans as processors crushed beans to produce more soybean oil and soybean meal. Managed money shorts remain at high levels and soybean oil will be entering its strong seasonal period around mid-December. Stand aside.
Corn:
For the week, December corn advanced 2.50 cents, March +3.00, May +5.25. The COT report showed that managed money liquidated 8,770 contracts of their long positions and also liquidated 6,515 contracts of their short positions. Commercial interests liquidated 24,994 contracts of their long positions, and added 12,203 contracts to their short positions. As of the latest report, managed money is long corn by a ratio of 12.10:1, which is a jump from the previous week of 9.82:1 and more than double the ratio of 2 weeks ago of 5.80:1.
The corn market has shown an amazing amount of resilience in the face of incredibly weak exports, and negative outside markets. The cash market is firm, and there is much concern about the water levels on the Mississippi River, and whether product will be able to move to market. Corn’s 50 day moving average on the continuation chart is $7.45 and the 200 day is $6.97, while the 100 week moving average is 6.84. The last time corn closed under its 200 day moving average was in June. There have been significant planting delays in Argentina due to wet weather. If this continues, Argentina’s crop could be significantly impacted. There is talk that acres not planted for corn, will be switched to soybeans, which will further pressure soybeans. The corn market should find support in the 7.39-7.45 area. If global stocks continue to decline, it is only a matter of time before additional export business finds its way to the United States. Once this occurs, corn will be in a true bull market. We will closely monitor growing conditions in Argentina. Stand aside.
Wheat:
For the week, December wheat gained 3 cents, March +2.00, May +4.00. The COT report showed that managed money added 4,559 contracts to their long positions, and liquidated 5,993 contracts of their short positions. Commercial interests liquidated 12,291 contracts of their long positions and also liquidated 167 contracts of their short positions. As of the latest report, managed money is long wheat by a ratio of 1.63:1, which is up from the previous week of 1.43:1, but down slightly from the ratio of 2 weeks ago of 1.72:1. Stand aside.
Crude oil:
For the week, January crude oil advanced 63 cents. The COT report showed that managed money added 3,971 contracts to their long positions and liquidated 3,695 contracts of their short positions. Commercial interests added 6,092 contracts to their long positions and also added 9,192 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 2.19:1, which is up slightly from the previous week of 2.05:1 and higher than the ratio of 2 weeks ago of 1.87:1.
In numerous posts, we have pointed out the poor price and open interest action in crude oil. Despite this, we think there is a likelihood that crude oil has made a temporary bottom. If you look at a crude oil chart for the past month, it is apparent that the market has found support in the low $84 area. We examined longer-term moving averages in order to provide some perspective on crude oil prices. The 50 week moving average is $94.93, while the 150 week moving average is 89.84, the 200 week moving average is 83.66. When analyzing longer-term moving averages, especially in a commodity like crude oil, we believe it is best to err on the side of caution. The longer-term moving averages are telling us where the value is and this tempers our bearishness. Combine this with the base building during the past month, and the picture looks neutral to slightly higher.
We are not recommending bullish positions because crude oil remains on a short and intermediate term sell signal. Since topping out at $101.29 on September 14 through November 30, January crude oil has declined $10.41, or 10.33%. In the same time frame, January heating oil declined by 14 cents, or 4.43%. Just as an aside, gasoline declined by 17 cents or 5.75%. In short, the products of crude oil have been stronger on a relative strength basis than crude since after topping out on September 14.
On November 30, January crude closed at $88.91, which is a scant 30 cents away from its 50 day moving average of $89.21. If January crude closes over this, it would be the first time since September 18 that this has occurred. On the crude oil continuation chart, Friday’s close is above the 50 day moving average of $88.61. It is always important to pay attention to what the Brent market is doing, and the price action in Brent crude is very positive. For example, on November 30, January Brent crude closed at $111.23, which is above its 50 and 200 day moving averages of $109.59 and $109.29 respectively. Also, note that the 50 day moving average is slightly above the 200 day moving average.
In short, we think crude is headed higher even though open interest and price action is telling a different story. Also, managed money is long crude oil by the lowest numbers in many months. Another factor to consider is the latest COT report under the heading “Other Reportables.” “Other Reportables” comprise entities that are required to report their positions to the CFTC, but do fall under the categories of “Swap Dealers,” “Producer/Merchants/Processors/Users,”or “Money Managers. This group added 42,415 contracts to their short positions. This is a huge increase considering that the COT report tabulated on November 20 showed total shorts holding 76,490 contracts while this week’s report showed them with 118,905 contracts. Although this category of traders is still net long by 39,038 contracts, the massive addition of new shorts is potentially ominous. Stand aside.
Heating oil:
For the week, January heating oil declined by 2.53 cents. The COT report showed that managed money added 1,247 contracts to their long positions and also added 2,021 contracts to their short positions. Commercial interests added 4,612 contracts to their long positions and also added 6,027 contracts to their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.48:1, which is down from the previous week of 2.75:1, and the ratio of 2 weeks ago of 3.27:1, and down significantly from the ratio of 3 weeks ago of 4.09:1.
We are extremely friendly to heating oil but the market has a couple of obstacles to overcome. On November 30, January heating oil closed at $3.0607, which is still below its 50 day moving average of 3.0710. Additionally, it must close over 3.0800 and then over
3.1000 in order to generate a short-term buy signal, which would reverse the short-term sell signal generated on October 23. The 50 week moving average for January heating oil is $3.0400, and the 100 week moving average is $3.000. In other words, heating oil is priced somewhat above its longer-term moving averages. Additionally, the heating oil long to short ratio among managed money is at the very low end of the range, meaning that there is potential buying on the sidelines.
The most intriguing aspect of recent heating oil trading is that price and open interest has been acting in a consistent bullish congruent fashion for 8 consecutive days. Based upon the preliminary numbers for November 30, it looks like heating oil will add another day of positive open interest and price action. We are entering the period of seasonal strength in heating oil, but the market has to prove to us that it has the strength to move significantly higher from here. One of our reservations is the relative weak performance of heating oil versus gasoline from October 19 through November 30. For example, from October 19 through November 30, gasoline has outperformed heating oil by gaining 3.10 cents, or 1.15%, while heating oil lost 13 cents or 4.22%. However, on a year-to-date basis heating oil is outperforming gasoline with heating oil gaining 3.62% while gasoline gained 2.796%. Stand aside.
Natural gas:
For the week, January natural gas lost 47.3 cents. The COT report showed that managed money added 13,727 contracts to their long positions and also added 7,318 contracts to their short positions. Commercial interests liquidated 1,897 contracts of their long positions and added 3,376 contracts to their short positions. As of the latest report, managed money is long by a ratio of 1.08:1, which is slightly higher than the previous week of 1.06:1, and up substantially from the ratio of 2 weeks ago, when managed money was short by a ratio of 1.01:1. Stand aside.
Gold:
For the week, February gold lost $41.10. The COT report showed that managed money added 12,608 contracts to their long positions and liquidated 3,760 contracts of their short positions. Commercial interests added 3,170 contracts to their long positions and also added 11,700 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 20.94:1 which is a jump from the previous week of 12.92:1 and about double the ratio of 2 weeks ago of 10.58:1.
The remarkable aspect of the extremely high long to short ratio in gold is that during the reporting period of November 21 through November 27, gold advanced by only $13.70 or 0.79%. Silver, on the other hand, advanced 87 cents, or 2.62%, but silver’s long to short ratio is considerably lower than gold. Although we have not recommended long positions in gold because gold is on a intermediate buy signal only, if it penetrates through the 1703-1705 area, then clients should be out of the market. The fiscal cliff fiasco will hang over all markets, and it is difficult to ascertain how much damage it will do to the precious metals. Stand aside.
Silver:
For the week, March silver lost 92.7 cents. The COT report showed that managed money added 3,830 contracts to their long positions and liquidated 440 contracts of their short positions. Commercial interests added 2,061 contracts to their long positions and also added 4,334 contracts to their short positions. As of the latest report, managed money is long silver by a ratio of 12.06:1, which is a jump from the previous week of 9.61:1 and more than double the ratio of 2 weeks ago of 5.79:1. Note that the long to short ratio in silver is considerably less than the ratio in gold, even though silver has dramatically outperformed gold.
If silver is to move higher from here, the low of $32.90 made on November 28 on extremely heavy volume of 163,330 contracts must hold. There is the possibility that silver could dip a couple of cents below this, but we suspect there are clumps of heavy sell stops right below $32.90. The most troubling aspect of the decline of gold and silver on November 28 was that there was not an explanation of how it occurred, especially since other commodity markets were not trading sharply lower. Silver remains on a short and intermediate term buy signal, and the low of 32.90 is the exit point for anyone long call options or futures.
Australian dollar:
For the week, the Australian dollar lost 37 points. The COT report showed that leveraged funds added 17,856 contracts to their long positions and also added 7,062 contracts to their short positions. As of the latest report, leveraged funds are long by a ratio of 1.79:1, which, is higher than the previous week of 1.70:1, and nearly the same as 2 weeks ago of 1.78:1. Stand aside.
Euro:
For the week, the December euro gained 12 points. The COT report showed that leveraged funds liquidated 4,321 contracts of their long positions and also liquidated 24,081 contracts of their short positions. As of the latest report, leveraged funds are short the euro by a ratio of 4.25:1, which is slightly lower than the previous week of 4.49:1, but higher than the ratio of 2 weeks ago of 3.82:1. Stand aside.
S&P 500 E mini: We recommend the implementation of long put positions.
For the week, the December S&P 500 E mini gained 9.10 points. The COT report showed that leveraged funds added 6,327 contracts to their long positions and also added 7,230 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.46:1 which is about the same as the previous week of 1.48:1, but up from the ratio of 2 weeks ago of 1.28:1.
Performance S&P 500 E mini for November 1-November 30 (2000-2012) December contract
2012 +0.91%
2011 -0.28%
2010 -0.03%
2009 +5.96%
Best November: 2001 +7.45%
Worst November: 2000 -8.26%
Average gain in November 2000-2011: +0.66%
Performance for December 1-December 31 (2000-2011) March contract
2011 +0.99%
2010 +6.65%
2009 +1.89%
Best December: 2010 +6.65%
Worst December: 2002 -6.06%
Average gain in December 2000-2011: +1.00%
If the E mini matches its performance of the 12 year average of 1.00%, it stands to gain approximately 14 points by the end of December. Even if the return is doubled to 2.00%, or approximately 28 points, there have been only 3 years when this has occurred. First, when the E mini gained 5.11% in 2003 and in 2004 when it gained 3.16%, plus the gain of 6.65% in 2010. On November 30, the S&P 500 E mini closed at 1414.50, and made its high for the move at 1468 on September 14. In order for the E mini to advance to the 1468 during the month of December, it would have to gain approximately 3.9% from Friday’s close. While this is not unprecedented, there have been only 2 years in which performance was greater than 3.9%. Considering the circumstances that the United States is facing with regard to its fiscal woes, it appears unlikely that the E mini could perform at the level of 2003 and 2010 in December.
American Association of Individual Investors (survey)
Last Wk 2 Wks ago 3 Wks ago
Bulls 40.9% 35.8% 28.8%
Bears 34.4% 40.8% 48.8%
Neutral 24.7% 23.4% 22.4%
It is important to note that the percentage of bulls is the highest it has been since the week of August 20. In our view, this is a sign that investors have gotten overly optimistic about the market’s prospects. In addition, the December S&P 500 E mini has been trading up against its 50 day moving average of 1417, but has not been able to close above it. The last time this occurred was on October 22. After examining the performance for the month of December during the past 12 years, combined with the significant increase in the number of bulls, and that the E mini has been relieved its overbought condition, we conclude the best course of action is to implement long puts, or write out of the money calls. Looking at the historical data for December, the risk of implementing long put positions does not seem to be very high. As we have stated before, investors have no incentive to hold profitable equity positions into 2013 with the near certainty that capital gains taxes will be increasing. The S&P 500 E mini remains on a short and and immediate term sell signal, which means that the E mini should be traded from the short side.
