On December 11, the USDA will release its Supply Demand report.
Soybeans:
For the week, January soybeans gained 33.50 cents, March +39.50, May +43.50. The COT report showed that managed money liquidated 3,936 contracts of their long positions and added 600 contracts to their short positions. Commercial interests liquidated 2,327 contracts of their long positions and also liquidated 4,187 contracts of their short positions. As of the latest report, managed money is long by a ratio of 4.32:1, which is down from the previous week of 4.53:1 and the ratio of 2 weeks ago of 5.64:1. The current long to short ratio is the lowest in several months.
Since bottoming on November 16, the bull spread has collapsed for the front month 2013 contracts versus back months. For example, on November 16 when January soybeans made its low of $13.72 1/4, the January-May bull spread closed at 31.75 cents premium to January. On December 7, the spread closed at 19 cents after soybeans rallied over $1.00 dollar. This was the lowest close for the spread since March 12, 2012 when the January-May bull spread closed at 17 cents premium to January. In other words, even though soybeans rallied significantly, the January contract lost ground to the May contract. This is very negative. On September 4, when soybeans made their all-time high, the January-May spread closed at $1.43 premium to January.
The January-March spread has collapsed as well. On November 16, this spread closed at 15.25 cents premium to January. On December 7, the spread closed at 0.25 cent, premium to January. To put the collapse of the spread in perspective, when soybeans topped out on September 4, the January-March bull spread closed at 54.25 cents premium January. Stand aside until after the December 11 USDA report.
Soybean meal:
For the week, January soybean meal gained $8.00, March +10.40 May +12.30. The COT report showed that managed money added 3,485 contracts to their long positions and also added 222 contracts to their short positions. Commercial interests liquidated 190 contracts of their long positions, but added 4,214 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.85:1, which is up slightly from the previous week of 2.69:1, but lower than the ratio of 2 weeks ago of 3.34:1.
Although soybean meal spreads have fallen sharply, they are performing much better than soybeans. On September 4, the January-May bull spread closed at $59.90 premium to January. On December 7, this spread closed at $16.60 premium to January. This was the lowest close for the January-May spread since June 5, 2012 when it closed at $15.30 premium to January.
The January-March spread closed at $22.10 on September 4 premium to January. On December 7, the spread closed at $5.00 premium to January. Until the spreads begins to act in a bullish fashion (front month(s) gaining on back months), soybean meal and soybeans will likely trade in a sideways to lower pattern, punctuated by occasional rallies. Stand aside until after the December 11 USDA report.
Soybean oil:
For the week, January soybean oil gained 1.39, March +1.39, May +1.43. The COT report showed that managed money added 3,907 contracts to their long positions and liquidated 734 contracts of their short positions. Commercial interests liquidated 7,967 contracts of their long positions and also liquidated 2,891 contracts of their short positions. As of the latest report, managed money is short by a ratio of 1.85:1, which is down from the previous week of 2.06:1, and down substantially from the ratio of 2 weeks ago of 2.41:1. Stand aside.
Corn:
For the week, March corn lost 15.50 cents, May -12.75, July -8.75. The COT report showed that managed money added 30,002 contracts to their long positions and also added 2,106 contracts to their short positions. Commercial interests liquidated 37,027 contracts of their long positions and also liquidated 8,603 contracts of their short positions. As of the latest report, managed money is long corn by a ratio of 12.27:1, which is up slightly from the previous week of 12.10:1, but up significantly from the ratio of 2 weeks ago of 9.82:1.
Corn spreads also are acting in a bearish fashion. For example, the March-May spread closed at 2 cents premium to May on December 7, which was the lowest close since July 5, 2012. When corn topped out on August 10, the spread closed at 4.75 premium to March. The USDA will release its supply and demand report on December 11. There is a likelihood that export projections will be reduced. The USDA has already stated that the final acreage number will not be released until the January report. Many in the trade expect a cut, perhaps a significant one to total acreage. Stand aside.
Wheat:
For the week, March wheat lost 2.50 cents, May -1.75, July +3.25. The COT report showed that managed money liquidated 9,905 contracts of their long positions, and also liquidated 859 contracts of their short positions. Commercial interests liquidated 3,052 contracts of their long positions and also liquidated 9,580 contracts of their short positions. As of the latest report, managed money is long wheat by a ratio of 1.50:1, which is down slightly from the previous week of 1.63:1, but up slightly from the ratio of 2 weeks ago of 1.43:1.
On November 14, wheat generated a short-term sell signal, and 2 days later it generated in intermediate term sell signal. Since then the market has chopped, and it is been difficult to make money whether long or short. We think this can continue until exports begin to pick up. There is a likelihood that export projections will be cut in the December 11 USDA report. March wheat should find support at $8.25. Stand aside.
Crude oil:
For the week, January crude oil lost $2.98. The COT report showed that managed money added 6,117 contracts to their long positions, but liquidated 7,864 contracts of their short positions. Commercial interests added 5,435 contracts to their long positions and also added 11,762 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 2.50:1, which is up slightly from the previous week of 2.19:1 and the ratio of 2 weeks ago of 2.05:1.
Crude oil looks weak, but should find support if only temporarily in the $84 area, which is near its 200 week moving average of $83.89. On September 2o, crude oil generated a short-term sell signal and generated an intermediate term sell signal on October 8. Crude is presently trading at longer-term moving averages, therefore it is difficult to get overly bearish at this juncture, especially since managed money is as bearish as they’ve been in quite a while. Stand aside.
Heating oil:
For the week, January heating oil lost 14.54 cents area. The COT report showed that managed money liquidated 709 contracts of their long positions, but added 1,094 contracts to their short positions. Commercial interests added 3,218 contracts to their long positions, but liquidated 2,199 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.27:1, which is down slightly from the previous week of 2.48:1, and the ratio of 2 weeks ago of 2.75:1. Stand aside.
Natural gas:
For the week, natural gas gained 1 cent. The COT report showed that managed money liquidated a massive 23,527 contracts of their long positions, but added a massive 39,040 contracts to their short positions. Commercial interests liquidated 6,155 contracts of their long positions and also liquidated 11,276 contracts of their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.21:1, which is a dramatic turnaround from the previous week when managed money was long by a ratio of 1.08:1 and the ratio of 2 weeks ago of 1.06:1.
As we have said on a number of occasions, natural gas is in a trading range and has to be approached from this stand point. There is a tremendous amount of product being produced and this will put a lid on prices. On November 30, January natural gas generated a short-term sell signal, but continues to be on an intermediate term buy signal. This means clients should stand aside. We think that natural gas will find support at $3.38 and 3.26 basis January.
Gold:
For the week, February gold lost $7.20. The COT report showed that managed money liquidated a massive 25,643 contracts of their long positions, but added 7,919 contracts to their short positions. Commercial interests added 862 contracts to their long positions, but liquidated 21,546 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 8.63:1, which is down dramatically from the previous week of 20.94:1, and the ratio of 2 weeks ago of 12.92:1. Three weeks ago the ratio was 10.58:1. Gold is on an intermediate tern buy signal, but a short term sell signal. Stand aside.
Silver:
For the week, March silver lost 14.8 cents. The COT report showed that managed money liquidated 423 contracts of their long positions, and also liquidated 330 contracts of their short positions. Commercial interests liquidated 1,049 contracts of their long positions and also liquidated 2,900 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 13.26:1 which is up somewhat from the previous week of 12.06:1, and up substantially from the ratio of 2 weeks ago of 9.61:1. Three weeks ago, the ratio stood at 5.79:1.
Performance: Gold-Silver-Platinum YTD 3rd Quarter 2012 Oct 1 – Dec 7 2012
March Silver +18.07% +24.95% -4.41%
January Platinum +13.31% +14.50% – 3.61%
February Gold +7.88% +10.37% -4.16%
It is apparent that gold is the weak component of the precious metals complex. Silver is the top performer by wide margin, and this is the trade we prefer on the long side. On December 12, the U. S. Federal Reserve will announce the results of the meeting of the Federal Open Market Committee. Generally, the minutes are released at 1:15 CDT. Conceivably, this could be a catalyst for another move higher. As noted in prior reports, the problem we have with silver is the possibility of a sharp decline in equities. Additionally, on the continuation chart, the 50 week moving average ($31.17) is trading below the 100 week moving average (33.35). Gold seems vulnerable to more downside, which dampens our enthusiasm.
From a seasonal point of view, silver is beginning to enter its strong period from mid December to late February. On December 7, March silver closed at 33.131, which is 8 cents above its 50 day moving average, therefore it is not overbought. As readers of our reports know, the euro is on a short and intermediate term buy signal. If the euro continues to strengthen against the dollar, the slide in the dollar could become a major catalyst for a move higher. It is no secret that the Federal Reserve has been attempting to drive the dollar down as a way of increasing US trade. According to the Silver Institute, total demand in 2011 was 876.6 million ounces, and out of this, 486.5 million ounces were used in industrial applications.
Copper:
For the week, March copper lost 1.30 cents. The COT report showed that managed money added 4,110 contracts to their long positions, but liquidated 10,924 contracts of their short positions. Commercial interests liquidated 3,351 contracts of their long positions, but added 3,945 contracts to their short positions. As of the latest report, managed money is long copper by a ratio of 1.68:1, which is a dramatic turnaround from the previous week when managed money was short by a ratio of 1.05:1, and the ratio of 2 weeks ago when they were short 1.09:1.
It appears that copper may have has turned the corner, and its performance during the past couple of weeks has been notably positive. However, performance for the current quarter has been -2.62%. On the other hand, year to date performance for copper has been +5.91%, which is less than gold’s performance year to date of 7.88%. The 50 week moving average on the continuation chart is $3.66 and the 200 week moving average is 3.41. Going back to December of 2011, March copper found support at the 3.30 area. The contract low for March 2013 copper is 3.29, which occurred on June 5, 2012.
On December 4, when gold declined by $25.30 and silver lost 95.1 cents, March copper declined 0.30, or about unchanged at 3.6555. On that day, the low in copper was only 3.6335, or approximately 2 cents below the previous day’s close. On November 30, copper closed 4.45 cents higher when gold fell $16.30, and silver collapsed $1.152. On a seasonal basis, copper should begin to show seasonal strength.
However, there are number of caveats to be considered. First, copper stocks are higher today than they were 6 months ago when copper prices were considerably lower. Second, managed money has piled into the market going from net short to net long after copper had already rallied 28 cents. Third, copper is on an intermediate term buy signal, but has not yet generated a short-term buy signal, which means that clients should stand aside. Also, it is important to note that during the past 30 days, copper, nickel, tin, lead, zinc aluminum and palladium have rallied from the lows made in early November. In short, the rally in copper may not be indicative of any internal strength, but just a dead cat taking a bounce with the other metals. Stand aside.
Euro:
For the week, the December euro lost 72 points. The COT report showed that leveraged funds added 10,856 contracts to their long positions, but liquidated 13,633 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.24:1, which is down dramatically from the previous week of 4.25:1, and the ratio of 2 weeks ago of 4.49:1.
The euro is on a short and intermediate term buy signal, which means it should be traded from the long side. As we stated when the euro generated a short-term buy signal on December 3, (the euro was already on an intermediate term buy signal), a sharp decline usually ensues for a day or two. Additionally, we advised clients to wait until the pullback before implementing new bullish positions. On December 7, we suggested if new bullish positions were going to be entered, the December 7 low of 1.2877 should be used as an exit point. If this low was violated, it is possible that the euro may have generated a false buy signal. Although a reversal of a signal within a several days is rare, it does occur.
S&P 500 E mini:
For the week, the December S&P 500 E mini gained 1.60. The COT report showed that leveraged funds added 28,598 contracts to their long positions, but liquidated 42,023 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.34:1, which is down from the previous week of 1.46:1, and the ratio of 2 weeks ago of 1.48:1.
American Association of Individual Investors Survey
Last wk 2 wks ago 3 wks ago
Bulls 42.2% 40.9% 35.8%
Bears 34.6% 34.4% 40.8%
Neutral 23.2% 24.7% 23.4%
In Weekend Wrap of December 2, we pointed out that the percentage of bulls was the highest since the week of August 20 when the survey showed that 42% were bullish. See Weekend Wrap August 26, 2012. During the month of August 2012, the E mini went from a low of 1343.00 on August 2 to a high of 1417.25 on August 21. The sentiment seems to be following the action from November 16 when the E mini made a low of 1340.25 to the recent high of 1424.00 made on December 3.
Thus far, the S&P 500 has maintained a relatively firm stance in the face of the pending fiscal cliff issue and the confrontation that is likely on the debt ceiling. Many global indices look healthy, and the DAX is close to the highs it made in May 2012. However, charts for the global indices also reveal that prices are near previous double and triple tops. In our view, this is a sign of caution.
Additionally, the Global Dow Index, which tracks 150 of the largest companies in the world is 87 points below the high of 2042.59 made during the week of March 19. Also, the index is 307 points below the high of 2262.21 made during the week of May 2, 2011. It should be noted that companies in the United States comprise 42.27% of the index. As an offset to the domination of U. S companies, the index is equally weighted, and therefore larger companies do not have a disproportionate effect on the index. Maintain long put positions.
