Soybeans:

For the week, May soybeans lost 35.75 cents, July -32.50. The COT report showed that managed money added 198 contracts to their long positions and liquidated 3,776 contracts of their short positions. Commercial interests added 222 contracts to their long positions and also added 5,307 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 5.94:1, which is up substantially from the previous week of 5.05:1, but dramatically below the ratio of 2 weeks ago of 7.38:1.

There was no good news for bulls in the grain complex. Soybean stocks came in at 1 billion bushels, which was 65 million bushels above trade estimates. The number of acres planted was smaller than trade estimates and came in at 77.126 million acres versus trade estimates of 78.394 million acres. On March 18, soybeans generated a short and intermediate term sell signal. We have been advising clients to stand aside

Soybean meal:

For the week, May soybean meal lost $14.70, July -13.50. The COT report showed that managed money liquidated 8,110 contracts of their long positions and also liquidated 116 contracts of their short positions. Commercial interests added 1,030 contracts to their long positions and liquidated 4,960 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 3.49:1, which is down significantly from the previous week of 3.91:1 and the ratio of 2 weeks ago of 4.68:1. We have been advising clients to stand aside.

Soybean oil:

For the week, May soybean oil lost 32 points, July -33. The COT report showed that managed money added 5,748 contracts to their long positions and liquidated 10,874 contracts of their short positions. Commercial interests liquidated 13,107 contracts of their long positions and added 5,157 contracts to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.69:1, which is down dramatically from the previous week of 2.16:1 and the ratio of 2 weeks ago of 2.25:1. We have been advising clients to stand aside.

Corn:

For the week, May corn lost 31 cents, July -32.50. The COT report showed that managed money added a massive 41,258 contracts to their long positions and liquidated 11,068 contracts of their short positions. Commercial interests added 5,134 contracts to their long positions and added a massive 43,966 contracts to their short positions. In last week’s Weekend Wrap, we reported that commercial interests added 72,225 contracts to their short positions. In short, commercial interests added a massive 116,191 contracts while corn was moving higher. As of the latest report, managed money is long corn by a ratio of 3.62:1, which is up substantially from the previous week of 2.79:1 and the ratio of 2 weeks ago of 2.06:1. The last time that the long to short ratio was as high as 3.62:1 occurred on the February 5 COT tabulation date when the ratio was 3.72:1.

The quarterly stocks report was a huge surprise to the corn market and came in 8% higher than expected. Stocks were pegged at 5.4 billion versus estimates of approximately 5 billion. Estimated planting came in near expectations of 97.3 million acres. Although corn was on a short and intermediate term buy signal, we advised clients to write out of the money calls against any long positions in futures and options, and recommended that stops be placed at $7.20 basis the May contract. The massive increase of open interest during the previous several days had been capping advances and we were warning about this before the USDA report on March 28. This is the same kind of action we are presently seeing in natural gas.

Wheat:

For the week, May wheat lost 42 cents, July -38.25. The COT report showed that managed money added 5,715 contracts to their long positions and liquidated 6,189 contracts of their short positions. Commercial interests liquidated 4,726 contracts of their long positions but added 5,964 contracts to their short positions. As of the latest report, managed money is short by a ratio of 1.29:1, which is down from the previous week of 1.45:1 and the ratio of 2 weeks ago of 1.56:1. The current ratio of 1.29:1, is the lowest since the January 29 tabulation date of the COT report when the ratio was 1.30:1.

The USDA reported that quarterly wheat stocks as of March were 1 1.234 billion bushels versus trade estimates of 1.177 billion. Estimated acres for planting came in at 56.44, which was in line with expectations.

Crude oil:

For the week, May WTI crude oil advanced $3.52. May Brent crude advanced $2.55. The COT report showed that managed money added 13,048 contracts to their long positions and liquidated 12,513 contracts of their short positions for WTI. Commercial interests added 24,605 contracts to their long positions and also added 38,499 contracts to their short positions for WTI. As of the latest report, managed money is long crude oil by a ratio of 5.66:1 which is up substantially from the previous week of 3.99:1 and the ratio of 2 weeks ago of 3.34:1. The current week’s ratio is the highest since the February 19 COT tabulation date when the ratio was 6.38:1.

Although crude oil has been rising sharply during the past week, as the table below shows, it hasn’t done much on a year to date basis. Open interest has been increasing on the advance and there have been a couple of high volume days accompanying the advance. However, as we have stated before, our problem with getting bullish on WTI is that Brent crude remains on a short and intermediate term sell signal, gasoline remains on a short-term sell signal, but an intermediate term buy signal. Heating oil remains on a short and intermediate term sell signal. Until Brent and gasoline generate a short-term buy signal, we advise remaining on the sidelines. We think it is more likely that gasoline will generate a short-term buy signal, than heating oil because gasoline is entering its strong seasonal period of consumption. Conceivably, crude could trade up to $98.00, but we think this is near a temporary top. A double top was made on February 1 at $99.03 and 99.11 on February 13. A pullback is likely to at least the 50 day moving average of $95.22 and possibly lower to 94.60. On March 25, May crude oil generated an intermediate term buy signal and a short-term buy signal on March 27. We recommend standing aside until we get buy signal confirmation from Brent and at least one of the products.

Occasionally, clients ask why we do not calculate long to short ratios for commercial interests. The reason is simple. Commercial interests have a variety of reasons why they are entering new longs and shorts or liquidating them, whereas managed money has only one motivation: making money. The current example is crude oil, in which commercials have had a relatively high long to short ratio in crude oil beginning with the February 5 COT report. On February 5, May crude oil closed at $97.54 and the commercial long to short ratio on that date was 1.00:1. On February 26, May crude oil closed at $93.05 and the commercial long to short ratio was 1.10:1. On March 12, May crude oil closed at $92.92 and the commercial long to short ratio was 1.10:1. On March 26, May crude oil closed at $96.34 and the long to short ratio on that date was 1.04:1. The reporting period for the February 5 COT report included the January 30 (Wednesday) high of $99.01.

If speculators had taken their cue from the shift to a net long position by commercials, they would have entered long positions at or slightly below the top of the market. If they continued to hold their long positions based upon the net long position of commercial interests, they would have ridden crude oil down through the low of $89.78 made on March 4. The net long position by commercial traders declined from March 12 (1.10:1) when May crude oil closed at 92.92 to 1.04:1 when May crude oil advanced to $96.34 on March 26. In other words, as crude oil was rallying, commercial traders were reducing their net long exposure. On the other hand, commercial interests were increasing their net long exposure at the top of the market during the reporting period of January 30-February 5 through March 12 during which time, May crude oil lost $4.62.

The lesson: Just because commercial traders increase their net long position does not validate a speculative trade on the long side.

Heating oil:

For the week, May heating oil gained 7.42 cents. The COT report showed that managed money liquidated 5,345 contracts of their long positions and added 4,456 contracts to their short positions. Commercial interests added 514 contracts to their long positions and liquidated 6,630 of their short positions. As of the latest report, managed money is short by a ratio of 1.02:1, which is down dramatically from the previous week when managed money was long by a ratio of 1.34:1 and the ratio of 2 weeks ago when they were long by 1.27:1. Heating oil remains on a short and intermediate term sell signal.

Gasoline:

For the week, May gasoline advanced 5.94 cents. The COT report showed that managed money added 3,504 contracts to their long positions and also added 1,213 contracts of their short positions. Commercial interests added 6,770 contracts to their long positions and also added 6,131 contracts to their short positions. As of the latest report, managed money is long gasoline by a ratio of 10.87:1, which is down from the previous week of 12.28:1 but up from the ratio of 2 weeks ago of 9.32:1. Gasoline remains on a short-term sell signal, but an intermediate term buy signal

Ethanol:

For the week, May ethanol lost 8.9 cents.

Natural gas:

For the week, May natural gas gained 7.2 cents. The COT report showed that managed money added 28,579 contracts to their long positions and also added 9,935 contracts to their short positions. Commercial interests liquidated 438 contracts of their long positions and added 25,029 contracts to their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.24:1, which is up from the previous week of 1.18:1 and up dramatically from the ratio of 2 weeks ago when managed money was short by a ratio of 1.01:1.

From the March 27 report:

For the past 8 trading sessions beginning on March 18, open interest has increased 103,587 contracts while natural gas has advanced 16.6 cents. The massive open interest increase compared to the relatively small advance, is of concern. There is heavy selling as the market advances, which is capping the prices. We have witnessed the same phenomenon in corn. Speculators have rushed in on the long side, which makes anyone long vulnerable to a significant pullback. For clients that are long futures or options, we have suggested they write out of the money calls.

The preliminary stats for March 28 show that open interest in natural gas increased by a massive 20,050 contracts on volume of 465,721. This number represents an open interest increase of approximately 70% above average. If this number is confirmed by the final report, or even if it is 50% less, we would have more confirmation that a temporary top is in for natural gas. On March 28, May natural gas declined 4.4 cents. In short, we are not seeing liquidation, but more accumulation of positions. However, as this is occurring, natural gas is not moving robustly higher, but is trading sideways. Natural gas remains on a short and intermediate term buy signal.

Performance COT tabulation: Mar 19-Mar 26        Year to Date 
May crude oil          +4.07%                                                  +4.32%
May gasoline           +2.14%                                                   +7.50%
May Brent crude    +2.03%                                                   +1.69%
May heating oil       +1.43%                                                   +0.77%
May natural gas     +0.33%                                                  +16.25%
May ethanol            -2.06%                                                   +9.40% 

Copper:

For the week, May copper lost 6.40 cents. The COT report showed that managed money added 620 contracts to their long positions and also added 4,938 contracts to their short positions. Commercial interests added 2,590 contracts to their long positions and liquidated 190 contracts of their short positions. As of the latest report, managed money is short copper by a ratio of 2.32:1, which is up somewhat from the previous week of 2.17:1 but up dramatically from the ratio of 2 weeks ago of 1.68:1.

Gold:

For the week, June gold lost $12.30. The COT report showed that managed money liquidated 10,622 contracts of their long positions and also liquidated 1,778 contracts of their short positions. Commercial interests added 5,069 contracts to their long positions and also added 630 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 2.02:1 which is down slightly from the previous week of 2.14:1 but up significantly from the ratio of 2 weeks ago of 1.65:1.

Platinum:

For the week, July platinum lost $11.20. The COT report showed managed money added 1,411 contracts to their long positions and also added 1,215 contracts to their short positions. Commercial interests added 2,899 contracts to their long positions and also added 1,164 contracts to their short positions. As of the latest report, managed money is long platinum by a ratio of 4.82:1, which is down from the previous week of 5.69:1 and down dramatically from the ratio of 2 weeks ago of 9.62:1. The current ratio is significantly lower than the ratio of 6.63:1 made on December 31, 2012 when July platinum made a low of $1526.00 and closed at 1545.70. In short, sentiment is very negative for platinum, and this may be the catalyst for a turnaround.

Palladium:

For the week, June palladium advanced $6.70. The COT report showed that managed money liquidated 516 contracts of their long positions and also liquidated 11 contracts of their short positions. Commercial interests liquidated 10 contracts of their long positions and also liquidated 257 contracts of their short positions. As of the latest report, managed money is long palladium by a ratio of 19.85:1, which is down somewhat from the previous week of 20.09:1 but down substantially from the ratio of 2 weeks ago of 25.59:1.

The spread between platinum and palladium is near lows going back to May 2012. On May 30, 2012 the spread closed at $803.80 premium to platinum while on March 28, the spread closed at $806.40 premium to platinum. On October 4, 2012, the spread topped out at $1,053.80 premium to platinum. We will monitor the spread and notify readers when it appears that platinum may be gaining strength versus palladium.

Silver:

For the week, May silver lost 37.5 cents. The COT report showed that managed money liquidated 1,376 contracts of their long positions and added 1,564 contracts to their short positions. Commercial interests liquidated 482 contracts of their long positions and also liquidated 1,263 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.05:1 which is down from the previous week of 1.19:1 and down substantially from the ratio of 2 weeks ago of 1.35:1. Note the long to short ratio in gold is twice what it is for silver.

Canadian dollar:

For the week, the June Canadian dollar gained 62 points. The COT reported that leveraged funds liquidated 36,443 contracts of their long positions and also liquidated 16,004 contracts of their short positions. As of the latest report, leveraged funds are now short by a stratospheric ratio of 5.43:1, which is dramatically higher than the previous week’s ratio when managed money was short by a ratio of 2.00:1 and the ratio of 2 weeks ago of 1.95:1. Below, read more on the Canadian dollar.

Australian dollar:

For the week, the June Australian dollar lost 24 points. The COT report showed that leveraged funds added a massive 40,222 contracts to their long positions and also added 8,815 contracts to their short positions. As of the latest report, leveraged funds are long the Australian dollar by a ratio of 2.71:1, which is up significantly from the previous week of 2.35:1, and the ratio of 2 weeks ago of 1.79:1.

This week, the 50 day moving average crossed below the 200 day average on the Australian dollar continuation chart. On March 27, open interest declined 1,682 contracts, and the preliminary stats for trading on March 28 indicate there was a healthy decline of open interest. The Australian dollar needs to shed more weak longs, before it is in a position to take out the March 26 high of 1.0432. A pullback is likely to the 50 day moving average of 1.0363 and may trade lower to 1.0320. The Australian dollar remains on a short and intermediate term buy signal.

Swiss franc:

For the week, the June Swiss franc lost 90 points. The COT report showed that leveraged funds added 2,795 contracts to their long positions and liquidated 775 contracts of their short positions. According to the latest report, leveraged funds are short by a ratio of 2.08:1 which is up from the previous week of 1.65:1 and the ratio of 2 weeks ago of 1.13: 1.

British pound:

For the week, the June British pound lost 57 points. The COT report showed that leveraged funds liquidated 1,111 contracts of their long positions and added 6293 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 3.65:1, which is up from the previous week of 3.36:1, but down from the ratio of 2 weeks ago of 4.05:1.

Euro:

For the week, the June euro lost 1.68 cents. The COT report showed that leveraged funds liquidated 7,662 contracts of their long positions and also liquidated 531 contracts of their short positions. According to the latest report, leveraged funds are short the euro by a ratio of 2.55:1 which is up significantly from the previous week’s ratio of 2.02:1 and the ratio of 2 weeks ago of 1.55:1.

Japanese yen:

For the week, the June yen gained 40 points. The COT report showed that leveraged funds liquidated 1,292 contracts of their long positions and also liquidated 3,142 contracts of their short positions. As of the latest report, leveraged funds are short the Japanese yen by a ratio of 2.84:1, which is about the same as the previous week of 2.82:1, but down dramatically from the ratio of 2 weeks ago of 4.41:1.

Dollar index:

For the week, the June dollar index lost 65 points. The COT reported that leveraged funds liquidated 2,060 contracts of their long positions and also liquidated 3,519 contracts of their short positions. According to the latest report, leveraged funds are long by a ratio of 1.15:1, which is up somewhat from the previous week of 1.11:1, but up dramatically from the ratio of 2 weeks ago when leveraged funds were short by a ratio of 1.27:1. This week the 50 day moving average crossed above the 200 day moving average on the dollar index continuation chart.

The table below shows that the Canadian dollar was the second best performer during most recent COT report. Additionally, it was the second best performer on the year to date basis with the exception of the dollar index. Despite this, the short to long ratio in the Canadian dollar is 2 1/2 times greater than the Swiss franc, over 100% greater than the euro, 50% greater than the British pound, 100% more than the Japanese yen. The lopsided number of shorts in one of the best performing currencies indicates there is more upside in the Canadian dollar. From March 21, the day after the expiration of the March contract, through March 27, the June Canadian dollar lost 663 of open interest while the Canadian dollar advanced 0.77%. In short, as the market advanced, open interest was declining, which indicates that market participants were not believers in the rally. Despite this, with the stratospheric short to long ratio, we would avoid the short side of the market because short covering could easily send the market sharply higher. The Canadian dollar remains on a short and intermediate term sell signal.

COT tabulation date Mar 20-Mar 26        Year to Date
June Australian dollar +1.24%                           +0.90%
June Canadian dollar   +1.11%                            – 1.94%
June Japanese yen      +0.64%                            -8.00%
June British pound     +0.38%                             -6.59%
June Swiss franc          -0.08%                             -3.84%
June dollar index          -0.14%                            +3.96%
June euro currency      -0.26%                             -2.94%
 

S&P 500 E mini:

For the week, the June S&P 500 E mini gained 10.70 points. The COT report showed that leveraged funds liquidated 3,199 contracts of their long positions and added 43,836 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.73:1, which is up from the previous week of 1.63:1 and the ratio of 2 weeks ago of 1.52:1.

We are questioning the ability of the market to forge significant highs in the current environment. Aside from the very troubling economic scenario in Europe, the tensions in Korea, along with the US becoming involved in the Syrian debacle, the key stat we follow is not showing strength. The 50 day moving average of stocks trading above their 50 day moving average on the NYSE is 1,779. On March 28, the number of stocks trading above their 50 day moving average was 1,609, which was up from 1,582 on March 27. On March 28, the E mini closed 6.00 points higher and made a new high for the move at 1564.50. In short, as the market is trading into new high territory, the number of stocks trading above their 50 day moving average are unable to match, let alone exceed their 50 day moving average. The number of stocks trading above their 50 day moving average on the NYSE peaked on January 22 at 2,115. From January 22 through March 28, the June S&P 500 E mini advanced 91.00 points or 6.18% while the Dow Jones industrial average cash index advanced 928.84 points or 6.80%. If a move of this magnitude is unable to push the number of stocks to at least their 50 day moving average, what does this say about the strength of the broad market. Keep in mind there are approximately 3,400 stocks traded on the New York Stock Exchange.

There is one major caveat with respect to the E mini having a significant pullback during the next 30 days. According to Bloomberg, during the past 100 years, the Dow Jones Industrial Average has advanced by an average of 1.3% during April. During the past 50 years, the DJIA has advanced an average of 2.2%, and the 20 year average advance in April is 2.7%. On Friday, the June E mini closed at 1562.75. If the 100 year average performance of 1.3% is calculated from the March 28 close, the E mini would advance 20.31 points in April. If the 50 year average performance of 2.2% is calculated from the March 28 close, 34.39 points would be added to the E mini in April, and the 20 year average of 2.7% would provide appreciation of 42.20 points in April.

During April 2012, the S&P 500 cash index lost 0.75% after gaining 2.60% in March of 2012, April 2011 +2.93% after losing -0.10% in March 2011, April 2010 +1.35% after gaining 5.88% in March 2010. The key question with respect to a potential price advance during the month of April is whether the S&P 500 cash or the S&P 500 E mini will be able to take out their October 11, 2007 highs of 1576.09 and 1586.75 respectively. At this juncture, it appears quite likely the S&P 500 cash index high of 1576.09 will be taken out (March 28 close 1569.19). However, will history repeat itself, by the indices moving fractionally higher, and then reversing. This occurred when the S&P 500 cash index made a high of 1552.87 on March 24, 2000, which was fractionally taken out by the October 11, 2007 high of 1576.09. We think there is a chance of this recurring. If the market makes a fractional new high and then reverses approximately 30-39 S&P 500 points, we think this would constitute the end, or temporary end of the rally.

American Association of Individual Investors survey
               Recent week        2 weeks ago     3 weeks ago
Bulls       38.4%                       38.9%                  45.4%     
Bears      28.7%                       33.3%                  32.0% 
Neutral  33.0%                       27.7%                  22.6%