E-mail comments and questions to: garry@openinterestanalyst.com

Note: On June 12, the USDA will release its monthly supply demand report. Unless speculators have significant profits, do not enter new positions prior to the report.

In The Commitment of Traders Report this week, please take notice that commercial interests were substantially liquidating their short positions in soybeans, soybean meal, corn, and wheat.

Soybeans:

For the week, July soybeans gained 82.00 cents. The July-November bull spread widened by 5.50 cents. The Commitment of Traders Report, which is tabulated on Tuesday and released Friday showed that in the managed money category, speculators liquidated liquidated 20,378 contracts of their long positions and also liquidated 44 contracts of their short positions. Commercial interests added 6,019 contracts to their long positions and liquidated 14,129 contracts of their short positions. Managed money speculators were long by a ratio of 12.14 to 1, which is down from the previous week of 13.37 to 1. Since the market topped out on April 30 through June 7, total open interest in soybeans has declined by 33,225 contracts which is healthy open interest action in relation to the price decline.

Although soybeans had a very strong rally during the past week, a short-term buy signal has not been generated. The market remains on an intermediate term buy signal.

Soybean meal: 

For the week, July soybean meal gained $35.30. The July-December bull spread widened by $1.50. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 10,792 contracts of their long positions and added 1,642 contracts to their short positions. Commercial interests added 981 contracts to their long positions and liquidated 14,588 contracts of their short positions.

As of the latest COT report, managed money is long soybean meal by a ratio of 17.3 to 1, which is significantly lower than the previous week’s ratio of 32.9 to 1. To put the current ratio in perspective, it is interesting to examine the COT report of May 15. This report reflects the low of $398.40 made on May 14, 2012, which was down $38.10 from the high made on April 30. The report showed that as of May 15, managed money speculators were long by a ratio of 31.66 to 1. The latest report, tabulated on June 5 reflects the low of $387.80 made on June 1, which was only $10.60 below low made on May 14, yet the long to short ratio collapsed to 17.3 to 1. Since topping out on April 30 through June 7, total open interest has declined by 12,631 contracts. These two data points indicate that the market has a reasonable balance between longs and shorts and although it may be overbought in relation to the 50 day moving average of $408.77, soybean meal is not heavily loaded with speculative longs compared to previous readings

On Friday, June 8, July soybean meal reversed from a short-term sell signal   made on May 23, to a short-term buy signal. In the post of June 6, I stated that if the low of the day was above the key pivot point of $421.40, a short-term buy signal would be generated. It was remarkable that soybean meal was able to stay above the $421.40 pivot point from the beginning of Friday’s session (which begins Thursday afternoon) through the evening and overnight into Friday even though equity futures were sharply lower and the dollar was sharply higher.

Speculators should be mindful of two important historical highs made 25 years apart in soybean meal. The first historical high was set on June 5, 1973 when July soybean meal reached a high of $451.00. The second high was made on July 14, 2008 when the July contract reached $456.80. Obviously, this was not a tradable high due to the fact the July contract was about to go off the board. These two historical highs are important because it indicates the level at which soybean meal prices may stall temporarily. It is interesting to note that soybean meal is the only major exchange traded commodity that has not made a significant new high in 39 years. In my view, it is only a matter of time before the old highs are taken out and a major new high is made at a level that is now unthinkable.

Now that both short and intermediate term signals have generated buy signals, readers should consult with their investment advisor or broker to determine the timing and entry price for bullish positions. Do not enter new positions prior to the report.

Corn:

For the week, July corn gained 46.50 cents. The July-December bull spread widened by 12.50 cents. The Commitment of Traders Report, which is tabulated on Tuesday and released Friday showed that in the managed money category, speculators added 4,456 contracts to their long positions and also added 25,489 contracts to their short positions. Commercial interests liquidated 5,190 contracts of their long positions, and also liquidated 21,169 contracts of their short positions. As of the latest report, managed money speculators are long by a ratio of 1.38 to 1, which is down from the previous week’s report of 1.67 to 1. Although the market may rally due to short term demand factors and the weather, the longer-term outlook is bearish. The one caveat: If dryness continues for an extended period of time all bearish bets are off. Corn has been on a short and intermediate term sell signal for over couple of months and the status has not changed. Stand aside.

Wheat:

For the week, July wheat gained 18.00 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 137 contracts of their long positions, and added 17,106 contracts to their short positions. Commercial interests added 5,246 contracts to their long positions and liquidated 22,106 contracts of their short positions. As of the latest report, managed money speculators are short by a ratio of 1.04 to 1, which is a change from the previous week’s report, which showed that managed money was long by a ratio of 1.22 to 1. Although, wheat generated an intermediate term sell signal on June 4, readers should not implement bearish positions. On Friday, July wheat closed at $6.30 1/4, which is in the value area based upon the 50 day moving average of $6.32 3/4, the 150 day moving average of $6.30 1/2, and the 200 day moving average of $6.39. Stand aside. 

Crude oil:

For the week, July crude oil closed 87 cents higher. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 708 contracts of their long positions and added 5,620 contracts to their short positions. Commercial interests liquidated 1,766 contracts of their long positions and also liquidated 9,545 contracts of their short positions.

As of the latest report, managed money speculators are long by a ratio of 2.79 to 1, which is down from the previous week’s report of 3.06 to 1. In last week’s Weekend Wrap, I mentioned that the long to short ratio to watch for was 2.48 to 1, which was the low point made on October 4, 2011 when crude oil dipped to the $75.00 area after declining by $15.00. Since topping out at $106.77 on May 1, 2012 through June 7, open interest has declined by 140,622 contracts. Stand aside.

Gasoline:

For the week, July gasoline gained 2.84 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 6,391 contracts of their long positions and added 201 contracts to their short positions. Commercial interests liquidated 4,409 contracts of their long positions and also liquidated 9,793 contracts of their short positions.

As of the latest report, managed money speculators are long by a ratio of 12.78 to 1. As I pointed out in the June 3 Weekend Wrap, the ratio of longs to shorts in the managed money category should be in the neighborhood of 7.50 to 1 when the market is at the lows. The amazing aspect of of the price decline in gasoline is the fact that open interest has barely budged during the past five weeks. For example, on May 1 total open interest was 302,610 contracts and on June 7 total open interest was 298,233 contracts, or a loss of 4,377 contracts. This is remarkable considering during this time frame gasoline lost 37.93 cents, or approximately $15,960 per contract. From this, one can conclude that large numbers of speculators have significant losses, but are refusing to liquidate. The market closed at $2.6852, which is very close to 104 week moving average of 2.67, which I consider to be a value area. As is the case with many commodities, moves higher or lower will be determined by the direction of the dollar and events out of Europe and China.

Copper:

For the week, July copper lost 2.85 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 2,180 contracts of their long positions and added 4,238 contracts to their short positions. Commercial interests added 2,247 contracts to their long positions and liquidated 3,772 contracts of their short positions. As of the latest report, managed money speculators are short by a ratio of 1.46 to 1 which is an increase from the previous week of 1.22 to 1. Stand aside.

Gold:

For the week, August gold lost $30.70. The Commitment of Traders Report showed that in the managed money category, speculators added 10,828 contracts to their long positions and liquidated 5,236 contracts of their short positions. Commercial interests liquidated 14,004 contracts of their long positions and also liquidated 86 contracts of their short positions.

As of the latest reporting date, managed money speculators are long by a ratio of 3.49 to 1, which is up from the ratio of the previous week of 2.76 to 1. The current ratio of longs to shorts is still at a very low level and is back to the level of the report of May 15 when the ratio was 3.44 to 1 and gold had made a low of $1543.50 on May 15. For anyone long the market, stops can be placed at the June 8 low of 1556.40, or the June 1 low of 1545.50, or the May 30 low of 1532.10.

As I indicated in the June 7 post (written Friday morning), I believe the gold market experienced a classic shake out and now is poised to move higher. On a seasonal basis, the period just ahead is very favorable for gold. Another positive is that the gold volatility index, ticker symbol GVZ closed at 22.03, which is 2 1/2 points above its 50 day moving average of 19.53, and is only slightly above the 150 day moving average of 21.39. This means the volatility component of gold futures options are priced at the low end of the range. As volatility increases the volatility component of the option will become more expensive which will increase the option price.

Please consult your investment advisor or broker before acquiring gold in any form.

Silver:,

For the week, July silver lost 4.1 cents. The Commitment of Traders Report showed that in the  managed money category, speculators added 403 contracts to their long positions and liquidated 942 contracts of their short positions. Commercial interests liquidated 1,463 contracts of their long positions and also liquidated 307 contracts of their short positions. As of the latest report, managed money speculators were long silver by a ratio of 1.37 to 1, which compares to 1.25: 1 on May 29, 1.30: 1 on May 22, and 1.46: 1 on May 15. 

The long to short ratios represent some of the lowest readings going back to January 2011.  For example, on December 29, 2011 silver reached a low of $26.15 and the January 3, 2012 COT report showed that managed money speculators were long by a ratio of 1.75 to 1, which is higher than the ratios of May 15, May 22, May 29 and June 4. The importance of low long to short ratios indicates that the major selling is gone, which allows for a bottoming process to occur. I looked at the silver weekly continuation chart going back to January 2011 and immediately saw that demand entered the picture once silver traded in the $26.00 area. Below, I am listing the weekly lows back to January 2011 and the long to short ratios of the COT report that reflected those lows. Since the low of $26.73 made in silver during the week of May 14, each subsequent weekly low has been higher.

Major Weekly Lows January 3, 2011-June 8, 2012
Week                          Low              Long To Short Ratio for managed money (COT Report)
January 24, 2011       $26.30          4.66: 1
September 26, 2011  $26.15           4.89: 1
December 27, 2011   $26.15            1.75: 1
May 14, 2012             $26.73          1.46: 1            
May 21, 2012             $27.08          1.30: 1 
May 29, 2012            $27.17            1.25: 1
June 4, 2012              $27.91           1.37: 1

The table above clearly shows that speculative interest on the long side of silver is at a major low. However, open interest has been creeping upward by 5,900 contracts as silver prices increased between May 14  and June 8. From May 14 through June 8, July silver prices have increased 1.10% while August gold increased by 2.21%. However, on a year-to-date basis July silver has increased by 1.85% versus August gold at 1.26%. Keep in mind that silver has a seasonal tendency to bottom in the summer,(as does gold) and therefore, it is likely that the lows are in for the year. The market remains on a short and intermediate term sell signal.

Euro:

For the week, the June Euro gained 94 points. The Commitment of Traders Report showed that in the leveraged funds category speculators liquidated 670 contracts of their long positions and added 7141 contracts to their short positions. As of the latest report, managed money speculators are short by a ratio of 3.14 to 1, which is somewhat higher than the previous reporting week of 3.02 to 1. As I have pointed out in previous posts, the danger lies with speculators who are short this market because any positive news out of Europe could send the Euro skyward.

S&P 500 E mini:

For the week, the S&P 500 E mini gained 54.80 points. The Commitment of Traders Report showed that in the leveraged funds category, speculators added 4,814 contracts to their long positions and liquidated 26,377 contracts of their short positions. As of the latest report, leveraged funds speculators are short by a ratio of 1.94 to 1, which is slightly lower than the previous week’s ratio of 2 to 1. Maintain put protection until further notice.

Apple Computer:

On April 29, 2012 in the Weekend Wrap, I gave my reasons for thinking that Apple had topped out temporarily. When I wrote the piece on Apple over the weekend, the stock had closed at $603.00 that Friday. Since that time, Apple has never been near $603.00 and made its low of $522.18 on May 18. On Friday, it has rebounded from the low to close at $580.32.  Apple is approaching a critical pivot point that may send the stock to test the old highs. For Apple to reverse the short term sell signal, the stock has to close over my pivot point of $585.67 and the low the day must be above the pivot point. Currently, Apple is on an intermediate term buy signal. Once Apple reverses to a short-term buy signal, bullish positions can be implemented. I will keep you posted.

Global Markets:

Last week, the following markets’ 50 day moving averages crossed below the 200 day moving averages: Bombay Sensex 30, French CAC 40, Brazilian Bovespa.

The Chinese Shanghai Composite Index acted miserably by declining after the government instituted its first interest rate cut in nearly 4 years. On June 7, when the cut was announced, the Shanghai composite index fell 16.42 points from the previous day, and on Friday fell another 11.68 points to close at 2281.45 which was the lowest closing price since April 11, 2012 when the index closed at 2280.04