Soybeans:
For the week, March soybeans gained 11.75 cents, May + 9.25, July +7.75. The COT report showed that managed money added 5,228 contracts to their long positions and liquidated 4,695 contracts of their short positions. Commercial interests liquidated 889 contracts of their long positions and added 10,631 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 4.53:1, which is up substantially from the previous week of 3.70:1 and the ratio of 2 weeks ago of 3.49:1.
Soybean meal:
For the week, March soybean meal gained $2.00, May + 3.10, July +2.10. The COT report showed that managed money added 4,179 contracts to their long positions and liquidated 5,311 contracts of their short positions. Commercial interests liquidated 479 contracts of their long positions and added 7,253 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.88:1, which is up significantly from the previous week of 2.18:1, but down somewhat from the ratio of 2 weeks ago of 3.18:1.
Soybean oil:
For the week, March soybean oil gained 42 points, May +41, July +40. The COT report showed that managed money added 9,285 contracts to their long positions and liquidated a hefty 12,147 contracts of their short positions. Commercial interests liquidated 8,836 contracts of their long positions and added 6,368 contracts to their short positions. As of the latest report, managed money is short by a ratio of 1.25:1, which is down dramatically from the previous week of 1.83:1 and the ratio of 2 weeks ago of 1.90:1.
Corn:
For the week, March corn lost 6.75 cents, May -7.75, July -8.75. The COT report showed that managed money added 2,369 contracts to their long positions and liquidated 12,188 contracts of their short positions. Commercial interests liquidated 3,097 contracts of their long positions and added 2,628 contracts to their short positions. As of the latest report, managed money is long corn by a ratio of 3.30:1 which is up from the previous week of 2.82:1 and the ratio of 2 weeks ago of 2.83:1.
Wheat:
For the week, March wheat lost 14.75 cents, May -15.00, July -16.00. The COT report showed that managed money liquidated 2,572 contracts of their long positions and added 1,404 contracts of their short positions. Commercial interests added 763 contracts to their long positions and liquidated 1,323 contracts of their short positions. As of the latest report, managed money is short wheat by a ratio of 1.37:1 which is up slightly from the previous week of 1.30:1 and the ratio of 2 weeks ago of 1.26:1.
Performance: January 21-January 25 Year to Date
March soybeans +0.82% +2.23%
March bean meal +0.48% -0.72%
March bean oil + 0.39% +4.83%
March corn -0.93% +3.22%
March wheat -1.86% -0.19%
Crude oil:
For the week, March crude oil lost 15 cents. The COT report showed that managed money added 18,382 contracts to their long positions and liquidated 6,340 contracts of their short positions. Commercial interests liquidated 10,637 contracts of their long positions and also liquidated 15,641 contracts of their short positions. As of the latest report, managed money is long crude oil by a ratio of 7.44:1 which is up dramatically from the previous week of 5.67:1, and the ratio of 2 weeks ago of 4.93:1.
Natural gas:
For the week, March natural gas lost 12.2 cents. The COT report showed that managed money added 3,709 contracts to their long positions and liquidated 18,250 contracts of their short positions. Commercial interests liquidated 1,682 contracts of their long positions and added 878 contracts to their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.27:1, which is down from the previous week of 1.38:1 and the ratio of 2 weeks ago of 1.38:1.
Performance: January 21-January 25 Year to Date
March crude oil +0.23% +4.18%
March natural gas -2.89% +2.42%
March gasoline +2.65% +4.60%
March heating oil +0.33% +1.06%
Copper:
For the week, March copper lost 2.70 cents. The COT report showed that managed money liquidated 374 contracts of their long positions and also liquidated 644 contracts of their short positions. Commercial interests added 403 contracts to their long positions and liquidated 328 contracts of their short positions. As of the latest report, managed money is long copper by a ratio of 1.87:1 which is up slightly from the previous week of 1.82:1, but down from the ratio of 2 weeks ago of 2.21:1.
Gold:
For the week, February gold lost $30.40. The COT report showed that managed money added 3,321 contracts to their long positions and liquidated 3,472 contracts of their short positions. Commercial interests added 2,433 contracts to their long positions and also added 7,884 contracts to their short positions. As of the latest report, managed money is long by a ratio of 5.10:1, which is up substantially from the previous week of 4.33:1 and the ratio of 2 weeks ago of 3.89:1.
Platinum:
For the week, April platinum gained $21.80. The COT report showed that managed money added 3,928 contracts to their long positions and also added 261 contracts to their short positions. Commercial interests liquidated 912 contracts of their long positions and added 856 contracts to their short positions. As of the latest report, managed money is long platinum by a ratio of 17.76:1, which is down slightly from the previous week of 18.11:1, but dramatically higher from the ratio of 2 weeks ago of 6.20:1.
Silver:
For the week, March silver lost 72.6 cents. The COT report showed that managed money added 4,034 contracts to their long positions and added 31 contracts to their short positions. Commercial interests liquidated 1,364 contracts of their long positions and added 789 contracts to their short positions. As of the latest report, managed money is long silver by a ratio of 5.82:1 which is up from the previous week of 5.12:1 and up substantially from the ratio of 2 weeks ago of 4.81:1.
Performance: January 21-January 25 Year to Date
April platinum +1.61% +9.99%
March copper -0.64% +0.08%
February gold -1.56% -0.96%
March silver -2.13% +2.67%
The likelihood of continued rises in interest rates could negatively affect the precious metals. However, we think more damage will occur to smaller mining companies. Mining is a capital-intensive business, and as the cost of money begins to rise, the will increase to extract ore. The gold and silver miners, with very few exceptions are at major lows and we recommend staying away from these. However, two companies stand out and both of these are palladium and platinum producers. The first is Stillwater Mining (SWC), an American company that is traded on the New York and Toronto stock exchanges and second, Norilsk (NILSY), which is a Russian company and one of the largest platinum and palladium producers in the world. The table below shows outperformance of these 2 companies compared to the gold miner ETF GDX and the silver miner ETF SIL. Stillwater Mining is somewhat overbought relative to its 50 day moving average of $12.32, and NILSY is much more overbought relative to its 50 day moving average of 17.79. These two candidates would be an excellent, but more conservative way to trade the bulll markets in platinum and palladium.
Fourth Quarter 2012 Year to Date
NILSY 19.80% +6.84%
SWC +8.40% +5.24%
GDX -13.60% -9.64%
SIL -9.04% -8.26%
Canadian dollar:
For the week, the March Canadian dollar lost 1.52 cents. The COT report showed that leveraged funds liquidated 4,131 contracts of their long positions and added 3,935 contracts to their short positions. As of the latest, report leveraged funds are now long the Canadian dollar by a ratio of 7.76:1, which is a dramatic decline from the previous week of 17.45:1 and the ratio of 2 weeks ago of 11.25:1.
We have reprinted the paragraph below from the January 20 Weekend Wrap on the Canadian dollar. Our unique approach of blending relative strength with long to short ratios often provides an early warning of an impending move. The move in the Canadian dollar from January 18 through January 25 was the largest downside move (2.24%) since May 15 through May 25, 2012 when the March Canadian dollar declined 2.43%.
January 20 Weekend Wrap:
One of the great mysteries of the currency market to OIA: Why does the Canadian dollar have such a high percentage of leveraged fund longs? As the table below shows, the Canadian dollar has performed abysmally in the most recent week and year to date. Additionally, during the 4th quarter 2012, the March Canadian dollar declined by 0.71% versus the euro which gained 2.51%, Australian dollar +0.94% and the British pound, which gained 0.68%. The long to short ratio is nearly as large as platinum’s, but platinum is in a major bull market. On January 18, the Canadian dollar made a new low for the move at 1.0040, which is the lowest price for the Canadian dollar since December 31 when it reached 1.0037. Additionally, the March Canadian dollar touched the 150 day moving average of 1.004 for the first time since November 16, 2012. According to latest COT report, there are total of 31 entities that hold 62,434 contracts long and 9 that hold 3578 contracts short. This means there could be a huge amount of selling pressure as the Canadian dollar moves lower, which we think is imminent. The Canadian dollar is on the verge of generating a short and intermediate term sell signal.
Australian dollar:
For the week, the March Australian dollar lost 90 points. The COT report showed that leveraged funds added 6,930 contracts to their long positions and also added 453 contracts to their short positions. As of the latest report, leveraged funds are long the Australian dollar by a ratio of 3.26:1, which is up slightly from the previous week of 3.13:1 and about the same as the ratio of 2 weeks ago of 3.25:1.
British pound:
For the week, the March British pound lost 64 points. The COT report showed that leveraged funds liquidated 11,913 contracts of their long positions and added 5,775 contracts to their short positions. As of the latest report, leveraged funds are long by a ratio of 1.97:1, which is down dramatically from the previous week of 2.71:1 and the ratio of 2 weeks ago of 2.94:1.
Euro:
For the week, the March euro gained 1.44 cents. The COT report showed that leveraged funds added 942 contracts to their long positions and liquidated 9,490 contracts of their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.27:1, which is up from the previous week of 1.06:1, and up dramatically from the ratio of 2 weeks ago when leveraged funds were short by a ratio of 1.16:1.
The current long to short ratio is the highest since the euro generated a short-term buy signal on December 3, which confirmed the intermediate term buy signal. Additionally, it is the highest during all of 2012. The previous time the euro traded at its current level was in late February 2012. The COT report compiled on February 28 was the exact date the euro made its high for 2012 at 1.3486 and leveraged funds were short by a ratio was 2.34:1. We went back to the previous major high which occurred on October 27, 2011 when the euro topped out at 1.4247. The COT report compiled on October 25, 2011 showed that leveraged funds were short by a ratio of 1.80:1. The COT report compiled on November 1, 2011 showed that leveraged funds were short by a ratio of 1.63:1, and the report compiled on November 8 showed that leveraged funds remained short at 1.28:1. The next COT reports showed that leveraged funds began to build a short position as the euro moved lower. In short, the current long to short ratio is at major highs during the past 15 months at a minimum. To us, this indicates that funds are beginning to get seriously bullish on the euro.
Swiss franc:
For the week, the March Swiss franc gained 1.00 cent. The COT report showed that leveraged funds liquidated 3,865 contracts of their long positions and added 2,449 contracts to their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 2.33:1, which is down dramatically from the previous week of 4.81:1 and about the same as the ratio of 2 weeks ago of 2.40:1.
Performance: January 21-January 25 Year to Date
March euro +1.07% +2.03%
March Swiss franc +0.93% -1.34%
March British pound -0.40% -2.74%
March Australian dollar -0.86% +0.48%
March Canadian dollar -1.51% -1.26%
S&P 500 E mini:
For the week, the March S&P 500 E mini gained 16.80 points. The COT report showed that leveraged funds added 56,690 contracts to their long positions and also added 65,209 contracts to their short positions. As of the latest repor,t leveraged funds are short by a ratio of 1.86:1, which is slightly lower than the previous week of 1.96:1 and about the same as the ratio of 2 weeks ago of 1.82:1.
The American Association of Individual Investors survey shows the highest number of bulls in over several months. When this is combined with an extraordinarily overbought market, we can only conclude, it is only a matter of time before the broad market corrects. As we have stated before, investors should look for stocks in favored sectors that outperformed in the 4th quarter 2012, but have corrected close to their 50 day moving averages during January. Unfortunately, there are few companies that fit this criteria.
In the blog “The Big Picture”written by Barry Ritholtz, he points out that the cover of the New York Times Saturday edition has a front page headline that says: “As Worries Ebb Small Investors Propel Market.” Often, front page proclamations by major publications can signal a top, or temporary top.
American Association of Individual Investors survey
Current 2 wks ago 3 wks ago
Bullish 52.3% 43.9% 46.5%
Bearish 24.3% 27.3% 26.9%
Neutral 23.4% 28.7% 26.6%
Interest Rates:
It appears the interest rate environment is changing, and there have been some notable events that support this. First, the 50 day moving average yield on the 10 year treasury note crossed above the 200 day moving average yield during the past week. The 50 day moving average yield on the 5 year treasury note is 0.708 and the 200 day moving average yield is 0.708, therefore the 50 day will move above the 200 day early next week. The five-year yield made its most recent low on December 5 at 0.598%, which is above the major low made on July 23, 2012 of 0.546%. The current yield is 0.871%, which represents an 11 basis point increase from January 2 through January 25. Compare this to a 12 basis point increase on the 10 year note from January 2 to January 25. In short, the yield on the five-year is increasing by a greater percentage than the 10 year. The table below tells the story.
Performance December 5, 2012-January 25, 2013 Year to Date
5-year Treasury Note yield +40.93% +16.83%
10 year Treasury Note yield +23.15% +10.88%
30 year Treasury Bond yield +13.31% + 6.13%
In other words, the yield curve is changing with the five-year note getting stronger versus the 10 year note or 30 year bond. This may be a harbinger of greater increases in the immediate future. Additionally, if the 10 year note reaches 1.975% (Friday close: 1.947%), this would be the highest yield since late April 2012. With the stock market booming, if investors pull money out of US treasuries, higher yields could accelerate. The danger is that yields move sharply higher in a short period of time. If equities continue to move higher, the temptation for investors will be to put their money into the stock market, especially with many stocks having terrific yields.
One way to take advantage of trend of higher interest rates is to purchase the Proshares short 20 year bond ETF, (TBF), or short the long iShares Barclay 20 year bond fund (TLT). So far during 2013, TLT (-2.60%) and TBF (+2.42%) have been tracking each other closely. However, this was not the case during the 4th quarter of 2012 when TLT lost 2.45%, but TBF gained only 1.00%. For calendar year 2012, TBF lost 5.74% while TLT lost 0.058%. By shorting TLT, speculators can take advantage of the tracking errors inherent in ETF’s, but, TLT is volatile. Alternatively, clients could consider shorting the iShares Barclays 10-20 year bond ETF, which is far less volatile than TLT. For example, year to date TLH is down 1.51% versus TLT, which is down 2.42%.
Options can be employed to reduce risk. For example, writing puts on TBF slightly out of the money would mitigate much of the tracking error when this is combined with on an outright long position in the ETF. Regardless of the trade strategy, one important fact should should be be kept in mind. On July 24, 2012, the yield on the 10 year treasury note reached a low of 1.394. During the course of our work, we have seen many estimates that interest rates during the summer of 2012 were the lowest in at least couple of hundred years. Time Magazine said in its June 4, 2012 edition: “We have been hearing that interest rates are “historically low” for some time now. But how historic are we talking? Even Thomas Jefferson would have been surprised to see the most respected debt issuer in the world just paying 1.47% on 10 year notes — the lowest in the history of the United States.”
