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The risk in all markets is extremely high at this juncture. The VIX is at highs last seen in mid December 2011, and the 10 year Treasury yield of 1.50%, indicates a flight to safety and is confirming a high degree of fear in the market place.The global economies are slowing down, and based upon the action of major global indices, it appears that we may be entering a new bear market. Speculators and investors alike have to be very conservative with position size and the amount of money at risk. Regardless of the merit of any position, whether it be in securities or commodities, speculators and investors have to be extremely cautious with the primary goal of preserving capital.
Soybeans:
For the week, July soybeans closed lower by 37.75 cents and November closed down 31.25 cents. The Commitment of Traders Report, which is tabulated on Tuesday and released Friday showed in the managed money category, speculators liquidated 3,876 contracts of their long positions and added 4,442 contracts to their short positions. Managed money speculators are long soybeans by a ratio of 13.37 to 1. Commercial interests added 4,253 contracts to their long positions and liquidated 4,427 contracts of their short positions. On May 23, soybeans generated a short-term sell signal. For an intermediate term sell signal to be generated, soybeans must close under the pivot point of $13.071/2 and the high of the day must be below this as well. July soybeans closed at $13.44 1/4 on Friday.
Soybean meal:
For the week, July soybean meal lost $14.80 and the December contract lost $9.80. The Commitment of Traders Report showed in the managed money category, speculators liquidated 4,858 contracts of their long positions and added 72 contracts to their short positions. Managed money speculators are long soybean meal by a ratio of 32.9 to 1. Commercial interests added 740 contracts to their long positions and liquidated 1,588 contracts of their short positions. On May 23, soybean meal generated a short-term sell signal. The market would have to decline by approximately $40.00 before an intermediate term sell signal would be generated. For the holiday shortened week, soybean meal was the big loser and was down 3.62% compared to soybean oil, which was down 3.05%, and soybeans down 2.73%.
Corn:
For the week, July corn lost 27 cents and the December contract lost 11.50 cents. The Commitment of Traders Report showed in the managed money category, speculators liquidated 23,785 contracts of their long positions and added 20,234 contracts to their short positions. Managed money speculators are long corn by a ratio of 1.67 to 1. Commercial interests added 10,106 contracts of their long positions and liquidated 29,826 contracts of their short positions, the opposite transactions of the managed money crowd. The market may find a temporary bottom and then rally, but the longer-term prospects for corn look lower. I will keep readers apprised of any opportunities to implement bearish positions. Stand aside.
Wheat:
For the week, July wheat closed 67.75 cents lower and the December contract closed 58.75 cents lower. The Commitment of Traders Report showed in the managed money category, speculators added 2,926 contracts to their long positions and liquidated 7,199 contracts of their short positions. Managed money speculators are long by a ratio of 1.20 to 1. Commercial interests added 5,176 contracts to their long positions and also added 7,402 contracts to their short positions.
During a period of two weeks, wheat experienced the most volatile price action seen since last year. From a low of $6.04 on May 16, the market soared to $7.22 on May 21, and then crashed to a low of $6.11 on June 1. Both longs and shorts got creamed if they happen to be on the wrong side of the market at the wrong time. Although wheat did not generate an intermediate term sell signal as of June 1, I have no doubt this will occur during Monday’s session. Stand aside.
Performance for Grains and oilseeds May 1-May 31
Wheat -1.83%
Corn -12.64%
Soybeans -11.07%
Soybean Meal -9.55%
Crude oil:
For the week, July crude oil lost $7.63 to close at $83.23, which is only several dollars from its contract low of $76.45. The Commitment of Traders Report showed in the managed money category, speculators added 3,970 contracts to their long positions and liquidated 557 contracts of their short positions. Commercial interests liquidated 5,936 contracts of their long positions and also liquidated 5,367 contracts of their short positions.
Managed money speculators are long crude oil by a ratio of 3.06 to 1, which is a slightly higher ratio than the previous week of 2.97 to 1. As of May 29, managed money, plus small speculators are net short by a total of 178,885 contracts. Although I won’t have Friday’s open interest numbers until Monday, open interest for May 30 and 31 declined by a total of 2,286 contracts. During those two days, July crude oil declined by a total of $4.23. The slight decline in open interest indicates that large and small speculators are not liquidating, despite crude oil closing at the lowest price since October 7, 2011.
The Commitment of Traders Report tabulated on October 11, 2011 showed that in the managed money category, speculators were long by a ratio of 3.33 to 1, but it is important to keep in mind that crude had bottomed on October 4, 2011 at $74.95 and rallied nearly $10.00 to reach a high of $84.00 on October 7 and close at $82.98. The report would have included all new speculators that entered the market during the four day rally of $10.00. A more accurate picture is revealed in the October 4, 2011 COT report. This report reflects the bottom of the move that started on September 16, 2011 at approximately $90.00. The bottom occurred on October 4, 2011 at $74.95, a move of approximately $15.00. The October 4 report showed that managed money speculators were long by a ratio of 2.48 to 1. This approximate ratio is one speculators should be monitoring to determine where a bottom may occur.
Undoubtedly, the overwhelming majority of speculators are showing significant losses, and will be forced to liquidate their positions. Although crude is massively oversold and is due for a rally, the heavy long position held by speculators will act to cap the rally as speculators exit long positions.
Gasoline:
For the week, July gasoline lost 17.49 cents, August lost 18.85, September 19.57 and October lost 19.92 cents. The Commitment of Traders Report showed in the money managed category, speculators liquidated 2,002 contracts of their long positions and also liquidated 597 contracts of their short positions. Commercial interests dominated the liquidation during the latest reporting week, by closing out 10,742 contracts of their long positions and also closing out 11,404 contracts of their short positions.
As of the latest COT report, managed money speculators are long by a ratio of 14.5 to 1, which is a higher ratio of longs than the previous reporting week of 13.4 to 1. As a matter of fact, like crude oil, the net long position of large and small speculators is huge considering the massive decline in gasoline prices. Currently the total net long position is 72,143 contracts and the July contract closed at $2.657, which is the lowest price since December 19, 2011 when gasoline closed at $2.6045. The Commitment of Traders Report that was tabulated on December 20, 2011 showed that in the managed money category, speculators were long by a ratio of 7.50 to 1, which puts in perspective the degree of bullishness, which currently exists among managed money speculators. This suggests that the ratio of longs to shorts should be cut in half at a minimum, which means more potential selling.
Since topping out in late March and early April 2012, gasoline has lost approximately 65 cents, which translates into a dollar loss of $27,300 per contract. The large number of speculators holding long positions in gasoline will be forced to liquidate as prices move lower, or will take advantage of periodic rallies to liquidate positions. This should keep a lid on gasoline prices, at least in the short term. However, the market should be able to rally to its 200 day moving average, a move of approximately 25 cents. This is certainly possible considering the bullish implications of the action in the spread of nearby contracts versus the back months. For example, the spread between July-December gasoline 2012 contracts made a low of 25.27 cents premium to July on May 1 and had widened to 30.57 cents on June 1. From May 1 to June 1, July gasoline lost 40.75 cents. In other words, as July gasoline was moving sharply lower, the backwardation (inversion) increased in the July contract over December. This is bullish spread action.
Copper:
For the week, copper lost 13.45 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 662 contracts of their long positions and added 3,287 contracts to their short positions. Managed money speculators are short by a ratio of 1.22 to 1. Commercial interests added 839 contracts to their long positions and liquidated 468 contracts of their short positions. Very shortly, copper’s 50 day moving average ($3.66) will cross under the 150 ($3.64) and 200 ($ 3.64) day moving averages. The market is extremely weak, but a strong countertrend rally should be expected, especially since managed money is now short. Stand aside.
Gold:
For the week, August gold gained $50.90. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 70 contracts of their long positions and added 2,049 contracts to their short positions. Commercial interests liquidated 3,938 contracts of their long positions and also liquidated 11,698 contracts of their short positions.
As of the latest report tabulated on Tuesday and released Friday, managed money was long by a ratio of 2.76 to 1. This is the lowest ratio of longs to shorts that I have been able to find at important lows going back to December 22, 2009. The table below shows the long to short ratio of managed money speculators in gold at a major lows. The data confirms that the washout in gold futures is unprecedented and is confirmation that in all likelihood, we have seen the lows in gold. The information below was compiled from the Commitment Of Traders Report.
Ratio of managed money longs to managed money shorts
Date of Low Price Low Price Long/Short Ratio COT Tabulation Date
May 30, 2012 $1532.10 2.76 to 1 May 29
May 16, 2012 $1526.70 3.4 to 1 May 15
December 29, 2011 $1523.90 7 to 1 January 3
September 26, 2011 $1535.00 9.99 to 1 September 27
July 1, 2011 $1478.30 20.8 to 1 July 5
May 17 2011 $1471.10 22.9 to 1 May 17
May 5, 2011 $1462.50 18.3 to 1 May 10
January 28, 2011 $1309.10 6.68 to 1 February 1
July 28, 2010 $1155.60 11.72 to 1 July 27
February 5, 2010 $1044.50 12.39 to 1 February 9
The low made on February 5 has never been violated.
December 22, 2009 $1075.50 43 to 1 December 22
Although the rally on Friday was impressive to say the least, the market has some important resistance to overcome before a confirmed intermediate buy signal occurs. First, the market is going to have to close above key 50, 150, 200 day moving averages on the continuation chart which are: 1625, 1672, 1690 respectively. However, before gold closes above the 150 and 200 day moving averages, the market has to close above my key pivot points of 1631.00, 1644.70 and 1656.40. For the market to generate an intermediate term buy signal, the daily low must be above 1656.40.
Silver:
For the week, July silver gain 12.6 cents. The Commitment of Traders Report showed that in the managed money category speculators liquidated 206 contracts of their long positions and added 271 contracts to their short positions. Commercial interests liquidated 815 contracts of their long positions and added 796 contracts of their short positions. Stand aside.
Euro:
For the week, the June Euro lost 1.05 cents. The Commitment of Traders Report showed in the leveraged funds category speculators added 6,446 contracts to their long positions and also added 11,473 contracts to their short positions. As of the latest report, which is tabulated on Tuesday and released Friday, leveraged funds speculators are short by a ratio of 3.02 to 1.
S&P 500 E Mini:
For the week, the S&P 500 E mini lost 41.10 points. The Commitment of Traders Report showed that in the leveraged funds category, speculators added 9,059 contracts to their long positions, and also added 22,124 contracts to their short positions. As of Tuesday May 29, leveraged fund speculators are short by a ratio of 2 to 1
The 50 day moving average of the percent of stocks above their 50 day moving average has crossed under the 200 day moving average for the S&P 500. For example, the 50 day moving average percentage of stocks above their 50 day moving average is 45.50%, and the 200 day moving average percentage of stocks above their 50 day moving average is 57.45%. The S&P 500 cash index closed under its 200 day moving average for the first time since late December.
The global indices performed as bad or worse than the S&P 500 cash index. The German DAX index closed under its 200 day moving average for the first time since early January 2012. During the next 10 trading sessions, a number of major indices will have bearish moving average crossovers where the 50 day moving average crosses below the 200 day moving average. Thesee indices are the British FTSE 100, French CAC 40, Brazilian Bovespa, Bombay Sensex 30, Australia all Ordinaries Composite. The Canadian TSX Composite has already made the bearish cross.
The market that is defying gravity, when the major world indices are falling is the Shanghai Composite Index. Since making a bottom of 2242.34 on March 29, the index has rallied to close on Friday at 2373.44, or a move of approximately 6%. Since March 29, the S&P 500 cash index has fallen 9.07%. In other words, the Shanghai Composite Index has been the strongest global performer, despite all the talk of a dramatically slowing Chinese economy. The market made its major low of the year at 2132.63 on January 6, 2012 and then rallied to a high of 2478.38 on February 27. For the current rally to have legs, the market is going to have to close significantly above its 200 day moving average of 2392.15.
The performance of the June S&P 500 E mini for the month of May was among the worst going back to 1982. Below is the table that tells the story from best to worst.
1982 -5.74%
2012-6.07%
1984-6.72%
2010-8.04%
