Weekend Wrap for March 17, 2013

Soybeans:

For the week, May soybeans lost 45 cents, July -36.50. The COT report showed that managed money added 7,821 contracts to their long positions and liquidated 1,653 contracts of their short positions. Commercial interests added 3,430 contracts to their long positions and also added 12,893 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 7.38:1 which is up from the previous week of 6.47:1 and the ratio of 2 weeks ago of 6.70:1.

It is likely that soybeans will generate a short-term sell signal on March 18.

Soybean meal:

For the week, May soybean meal lost $16.40, July -15.50. The COT report showed that managed money added 7,459 contracts to their long positions and also added 606 contracts to their short positions. Commercial interests added 13 contracts to their long positions and also added 6,350 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio of 4.68:1, which is up slightly from the previous week of 4.42:1 and up substantially from the ratio of 2 weeks ago of 3.68:1.

Soybean oil:

For the week, May soybean oil lost 43 points, July -40. The COT report showed that managed money added 5,058 contracts to their long positions and also added 841 contracts to their short positions. Commercial interests added 538 contracts to their long positions and also added 1,618 contracts to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 2.25:1, which is down from the previous week of 2.53:1 and slightly higher than the ratio of 2 weeks ago of 2.03:1.

Corn:

For the week, May corn gained 13.50 cents, July +19.75. The COT report showed that managed money added 4,647 contracts to their long positions and liquidated 19,473 contracts of their short positions. Commercial interests liquidated 2,290 contracts of their long positions and added 16,471 contracts to their short positions. As of the latest report, managed money is long corn by a ratio of 2.06:1, which is up from the previous week of 1.73:1 and the ratio of 2 weeks ago of 1.61:1.

Corn prices have been moving steadily upward, but this has not impressed the speculative community. The long to short ratio is at the very low end of its range, however, it appears that corn may be on the verge of generating a short-term buy signal. Thus far in 2013, the lows in May corn are as follows: $6.78 1/2 (January 7), 6.80 3/4 (February 25), 6.82 (March 7). From March 7 through March 14, open interest has increased 45,537 contracts while May corn has advanced 28 cents, or 4.07%. This is bullish open interest action relative to the price advance. Also of note, May wheat advanced 41 cents, or 6% during March 7 through March 14. The May-July corn spread closed at 16.75 cents on March 15, which is down from the 23 cent high made on March 8. In past reports, we warned clients not to short corn, but stand aside until a buy signal is generated. Please see the report below on ethanol.

Wheat:

For the week, May Chicago wheat gained 26 cents, July +22.50. Minneapolis wheat gained 3.50 cents, July +6.00, and Kansas City wheat gained 17.25 cents, July 15.75. The COT report showed that managed money added 5,032 contracts to their long positions and liquidated 79 contracts of their short positions. As of the latest report, managed money is short wheat by a ratio of 1.56:1, which is down slightly from the previous week of 1.66:1 and the ratio of 2 weeks ago of 1.67:1.

For the first time since November 30, 2012, the May-July wheat spread closed at 1.75 cents premium to May. In our view, this indicates much stronger demand for feed wheat than is currently being factored into the market. Remember, the USDA did not raise its feed wheat number in the recent WASDE report. Although wheat has not generated a buy signal, if current domestic demand continues, this could change rapidly.
                                                                                                                        COT Mar 6-Mar 12              Year to Date 

Crude oil:

For the week, May crude oil gained $1.50. The COT report showed that managed money added 4,121 contracts to their long positions and also added 2,122 contracts to their short positions. Commercial interests liquidated 11,324 contracts of their long positions and also liquidated 14,587 contracts of their short positions. As of the latest report, managed money is long crude oil by a ratio of 3.44:1, which is down slightly from the previous week of 3.50:1 and the ratio of 2 weeks ago of 4.16:1. 

Heating oil:

For the week, May heating oil lost 3.59 cents. The COT report showed that managed money liquidated 4,543 contracts of their long positions and added 5,432 contracts to their short positions. Commercial interests added 16,931 contracts to their long positions and also added 9,172 contracts to their short positions. As of the latest report, managed money is long heating oil by a ratio of 1.27:1, which is down substantially from the previous week of 1.71:1 and the ratio of 2 weeks ago of 3.21:1.

Gasoline:

For the week, May gasoline lost 3.32 cents. The COT report showed that managed money liquidated 5,834 contracts of their long positions and also liquidated 240 contracts of their short positions. Commercial interests added 7,194 contracts to their long positions and also added 2,001 contracts to their short positions. As of the latest report, managed money is long gasoline by a ratio of 9.32:1 which is down from the previous week of 9.70:1, but higher than the ratio of 2 weeks ago of 8.66:1.

Ethanol

For the week, April ethanol gained 11.7 cents and reached a new contract high of $2.645. April ethanol is now selling at a 5.6 cent premium to May. The next high to watch for is $2.68 made on August 21, 2012, 2.76 on July 19, 2012 and 2.95, which was made on July 26, 2011.The highs made on July 19, 2012 and July 26, 2011 were the highs for the year.

From Agrimoney March 13: 
 “US ethanol producers bewildered analysts by cutting their output of the biofuel even as demand – and margins – rose, forcing blenders to turn to inventories to satisfy their appetites. Production of ethanol, for which US plants use corn as the main feedstock, fell last week by 1.0% to 797,000 barrels a day, the US Energy Information Administration said.”
 
 “While Chicago corn futures have revived in the last week, they have gained less than 1% so far this month, on a May contract basis, compared with rise of nearly 6% in ethanol futures, implying signally better conditions for producers of the biofuel.”

 “Ethanol prices have been supported by strong demand, up 2% on the week, from blenders who mix the biofuel into gasoline.
That is remarkably strong, given the fact that refiners are running at only about 80% of crude oil capacity, in what is typically a weaker period for US consumption, compared with the summer driving season. Blenders have instead been forced to turn to ethanol inventories, which tumbled by more than 660,000 barrels, or 3.4%, to 18.7m barrels, during a period during which stocks would typically be building ahead of the period of higher demand.”

 “The demand for ethanol reflects in part the soaring price of so-called Rins (renewable identification numbers) – paper credits blenders can use as alternatives for physical biofuel to meet mandated blending rates, and which are generated with every gallon produced.The price of Rins has soared from historic rates of some $0.05 a gallon to a record high above $1.00 a gallon on Monday, on demand attributed to a shortfall in blending rates of physical ethanol behind mandated levels, forcing blenders to turn to the paper credits.”

Natural gas:

For the week, May natural gas gained 23.6 cents. The COT report showed that managed money added 20,888 contracts to their long positions and liquidated 13,755 contracts of their short positions. Commercial interests added 10,868 contracts to their long positions and also added 24,325 contracts to their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.01:1, which is down from the previous week of 1.15:1 and down substantially from the ratio of 2 weeks ago when managed money was short by a ratio of 1.32:1.

From the time that April natural gas generated a short-term buy signal on March 1, through March 15, Natural gas has advanced 10.79% or 38 cents. Additionally, contango has narrowed from 10.8 cents on March 1 to 8.6 cents on March 15. The market is massively overstretched on a price and open interest basis. We have suggested taking partial profits on positions that were implemented in early March, and look to enter new positions on a pullback. If the May contract rises to $4.10, this would be the highest price for May natural gas since December 2011.

 COT Tab Mar 6-Mar 12           Year to Date

Ethanol           +4.19%                     +20.05%
Natural gas    +2.92%                     +14.80%            
Crude oil       + 2.07%                        +1.95%
Gasoline         +0.32%                      +12.38%
Heating oil    – 0.06%                         -1.93%
Brent crude     -1.69%                       +0.80%

Copper:

For the week, May copper lost 1.15 cents. The COT report showed that managed money liquidated 41 contracts of their long positions and added 340 contracts to their short positions. Commercial interests added 998 contracts to their long positions and also added 478 contracts to their short positions. As of the latest report, managed money is short copper by a ratio of 1.68:1, which is about the same as the previous week of 1.67:1, but up substantially from the ratio of 2 weeks ago of 1.28:1.

Gold:

For the week, April gold gained $15.70. The COT report shows that managed money added 4,614 contracts to their long positions and also added 1,460 contracts to their short positions. Commercial interests added 1,263 contracts to their long positions and liquidated 3,257 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 1.65:1, which is about the same as the previous week of 1.61:1, but down somewhat from the ratio of 2 weeks ago of 1.82:1.

Platinum:

For the week, April platinum lost $11.50. The COT report showed that managed money liquidated 1,247 contracts of their long positions and added 1,230 contracts to their short positions. Commercial interests liquidated 344 contracts of their long positions and also liquidated 976 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 9.62:1, which is down dramatically from the previous week’s ratio of 16.29:1 and the ratio of 2 weeks ago of 21.13:1.

Palladium:

For the week, June Palladium lost $7.10. The COT report showed that managed money added 2,048 contracts to their long positions and liquidated 464 contracts of their short positions. Commercial interests liquidated 547 contracts of their long positions, but added 1,628 contracts to their short positions. As of the latest report, managed money is long Palladium by a stratospheric 25.59:1, which is up dramatically from the previous week of 16.09:1 and the ratio of 2 weeks ago of 17.13:1.

Silver:

For the week, May silver lost 9.7 cents. The COT report showed that managed money liquidated 487 contracts of their long positions, but added 677 contracts to their short positions. Commercial interests liquidated 463 contracts of their long positions and also liquidated 927 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.35:1, which is down somewhat from the previous week of 1.44:1, and down dramatically from the ratio of 2 weeks ago of 1.94:1. For the past 2 COT reports, the long to short ratio in silver has been lower than gold, which is somewhat unusual.

 COT Tab Mar 6-Mar 12     Year to Date

 June palladium   +5.08%      +10.19%
 May silver            +1.66%         -5.17%
April Gold            + 1.09%         5.09%  
 May copper          +1.02%        -3.97%
 April platinum     +0.47%       +3.26%

Canadian dollar:

For the week, the June Canadian dollar gained 90 points. The COT report showed that leveraged funds liquidated 4,464 of their long positions  and added 5,399 contracts to their short positions. As of the latest report, leveraged funds are short the Canadian dollar by a ratio of 1.95:1, which is up substantially from the previous week of 1.67:1 and up dramatically from the ratio of 2 weeks ago of 1.28:1.

On March 1, the June Canadian dollar made a low at 96.46 and on March 6, retested it and made a secondary low of 96.50. From March 6 through March 14, open interest has increased an astounding 63,886 contracts, or 28% over a period of 8 trading days. Although the table below shows that the move higher in the Canadian dollar was fairly muted between March 6 and March 12, it rose sharply on March 14 and 15. Open interest on March 14 rose 10,422 contracts on volume of 157,034, which in relation to volume is approximately 170% above average. This means that new longs were heavily entering the market and driving prices higher. Although exchange numbers are preliminary for March 15, open interest increased by an astounding 17,789 contracts on volume of 125,541. Even if the open interest number is cut in half, the increase would be massively above average. Based upon the huge increase in open interest, it is apparent that shorts are not liquidating, and are adding to their short positions. In our view, this tells us the Canadian dollar will continue to move higher. However, it is a long way from generating a short or intermediate term buy signal.   

Australian dollar: On March 15, the June Australian dollar generated a short-term buy signal.

The June Australian dollar gained 1.73 cents the COT report showed that leveraged funds added 15,760 contracts to their long positions and liquidated 553 contracts of their short positions. As of the latest report, leveraged funds are long the Australian dollar by a ratio of 1.79:1, which is up from the previous week of 1.45:1, but nearly the same as the ratio of 2 weeks ago of 1.78:1.

 Since making its low of 1.003, on March 4 through March 14, open interest in the Australian dollar has increased by a massive 41,088 contracts. This represents an increase in open interest of approximately 25% in just 9 trading days. During this time, the June Australian dollar has advanced 1.91%. On March 14, the Australian dollar advanced 74 points on volume of 195,954 contracts, which is the highest volume since December 13 when it reached 251,485 contracts and the Australian dollar closed at $1.0374. On  March 14, open interest increased by 11,102 contracts, which in relation to volume is approximately is approximately 130% above average.

On March 15, the rally continued and the June Australian dollar made a new high for the move at 1.0344, which is the highest price since February 5 when it made a high of 1.0377. Despite the sharply higher move during the course of 9 days, the Australian dollar is trading between its 50 day and 200 day moving averages. In short, the Aussie dollar is not overbought. However, with the massive increase of open interest in just 9 days and the generation of a short-term buy signal on March 15, a pullback should occur within a day or two. We may have an early indication of this because according to the preliminary numbers released by the exchange, volume shrank to 107,126 contracts and open interest increased only 660 contracts. Although the open interest numbers are not reliable in the preliminary report, the volume figures are. Volume dramatically tapered off from the very heavy volume seen on March 14 as the market made new highs.

Swiss franc:

For the week, the June Swiss franc gained 1.26 cents. The COT report showed that leveraged funds liquidated 1,938 contracts of their long positions and added 1,018 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.13:1, which is up substantially from the previous week when leveraged funds were long by a ratio of 1.06:1. Two weeks ago, leveraged funds were short by a ratio of 1.08:1.

British pound:

For the week, the June British pound gained 1.48 cents. The COT report showed that leveraged funds liquidated 9,483 contracts of their long positions and added 5,161 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 4.05:1, which is up dramatically from the previous week of 2.72:1 and the ratio of 2 weeks ago of 2.72:1. The current week’s reading is the highest recorded during the bear market which began in January. This likely indicates that a temporary bottom is in place.

 Since bottoming on March 12 at $1.4823 on March 12, open interest in the British pound has increased for the past 3 days. On March 12, open interest increased 33,032 contracts on volume of 216,333 contracts; March 13 open interest increased 37,516 on volume of 234,564 contracts; March 14 open interest increased 15,003 contracts on vo me of 226,176 contracts. In short, total open interest has increased 85,551 while the June British pound has advanced 1.50 cents, or 0.99%. The preliminary numbers from the exchange indicate that open interest increased massively on March 15. What makes the open interest increase even more amazing is that March contract was losing significant amounts of open interest due to its expiration. From March 12 through March 14, open interest in the March contract declined 42,410 contracts.

Euro:

For the week, the June euro gained 51 points. The COT report showed that leveraged funds liquidated 3,095 contracts of their long positions and also liquidated 4,516 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.55:1, which is about the same as the previous week of 1.54:1, but substantially higher than the ratio of 2 weeks ago of 1.03:1.

Japanese yen:

For the week, the June Japanese yen gained 39 points. The COT report showed that leveraged funds added 1,565 contracts to their long positions and added a massive 22,754 contracts to their short positions. As of the latest report, leveraged funds are short by 4.41:1, which is up dramatically from the previous week of 3.89:1 and the ratio of 2 weeks ago of 4.00:1.

Dollar index:

For the week, the June dollar index lost 50 points. The COT report showed that leveraged funds liquidated 2,438 contracts of their long positions and also liquidated 126 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.27:1, which is up from the previous week of 1.21:1 and the ratio of 2 weeks ago of 1.14:1.

COT Mar 6-Mar 12                           Year to Date

June Australian dollar      +0.78%        +0.70%
June Dollar Index            +0.56%         +2.94%
June Canadian Dollar      +0.16%          -2.28%
June Euro Currency         -0.08%          -0.99%
June British pound           -1.35%           -7.16%
Japanese yen                     -2.74%       –  9.30%

S&P 500 E mini:

For the week, the June euro gained 9.10 points the COT report showed that leveraged funds added 19,045 contracts to their long positions and also added 42,924 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.52:1, which is about the same as the previous week of 1.50:1, but down slightly from the ratio of 2 weeks ago of 1.72:1.

American Association of Individual Investors
Recent week           2 weeks ago    3 weeks ago
Bulls        45.4%      31.1%               28.4%
Bears       32.0%      38.5%              36.6%
Neutral   22.6%       30.4%             35.0%