Corn:
For the week, May corn closed $.11 higher. The commitment of traders report, which is tabulated on Tuesday and released on Friday, showed that in the managed money category speculators added 15,797 contracts to their long positions, and liquidated 14,837 contracts of their short positions. Commercial interests liquidated 29,447 contracts of their long positions and added 17,691 contracts to their short positions. This week, the spread between corn and wheat reversed, with wheat selling at a 19 1/2 cent premium to corn. What is interesting is that corn fundamentals are far more bullish. Despite this, May wheat advanced 33 1/4 cents for the week. The commitments of traders report for wheat showed that large and small speculators are net short 50,071 contracts. The net short position is providing fuel for the rally, which at some point will fizzle out, and will provide an opportunity to get short. For the rally in wheat to continue the daily low in the May contract has to be above my pivot point of 6.63.
Soybeans:
For the week, may soybeans advanced 46 1/4 cents to close at its very high point of 13.33. This was the highest close for soybeans since September 19, 2011. The commitment of traders report showed that in the managed money category, speculators added 15,384 contracts to their long positions, and liquidated 1,447 contracts of their short positions. Commercial interests liquidated 14,883 contracts of their long positions and added 11,484 contracts to their short positions. On Thursday, I suggested that speculators who have profits on their long positions sell part of the position, and/or move up stops to protect capital and profits. The market is massively over extended and if the dollar continues to rally, which appears likely, and/or the stock market declines, we could see a sharp pullback in soybeans.
As a reminder, in early February I suggested that speculators buy soybeans on pullbacks. In the weekend wrap of February 12, I said that sell stop protection should be placed at 12.15 basis March. Additionally, I warned that speculators should not short soybeans.
Sugar #11:
For the week, May sugar closed 26 points lower. The commitment of traders report showed that there is a real battle going on between big speculators and commercial interests. In the managed money category, speculators added 39,849 contracts to their long positions, and liquidated 4,930 of their short positions. Commercial interests liquidated 12,281 contracts of their long positions and added 50,071 contracts to their short positions. As it stands in the current report, large speculators (managed money) are long by nearly 6 to 1. Small speculators are net short 8,757 contracts.
Crude oil:
For the week, April crude oil closed $3.07 lower. The commitment of traders report showed that in the managed money category speculators added 13,838 contracts to their long position and added 1,248 contracts to their long positions. Commercial interests added 27,496 contracts to their long positions, and added 30,813 contracts of their short positions. The latest report showed that big speculators are long nearly 8 to 1. On Monday, President Obama and Benjamin Netanyahu will be meeting and the results of that could have a significant impact on the price of petroleum products. If speculators and hedgers perceive there is a high probability of an attack on Iran, they may act immediately to buy in order to secure inventory.
Gasoline:
For the week, April gasoline closed 5.26 cents lower. The commitment of traders report showed that in the managed money category, speculators added 1,159 contracts to their long positions and liquidated 396 contracts of their short positions. Commercial interests added 5,340 contracts to their long positions, and added 7,562 contracts to their short positions The latest report revealed that large speculators are long by approximately 33 to 1.
Gold:
For the the week, April gold closed $66.30 lower. The commitment of traders report showed that in the managed money category, speculators added 15,699 contracts to their long positions, and liquidated 1,150 contracts of their short positions. Commercial interests liquidated 553 contracts of their long positions, and added 7,745 contracts to their short positions. Large speculators (managed money) are long by a ratio of approximately 24 to 1.
Silver:
For the week, May silver closed lower by 89.5 cents. The commitment of traders report showed that in the managed money category, speculators added 3,393 contracts and liquidated 444 contracts of their short positions. Commercial interests added 2,405 contracts to their long positions, and added 5,937 contracts to their short positions. Large speculators were long silver by a ratio of 12.3 t0 1.
Euro:
For the week, the March euro closed 2.54 cents lower. The commitment of traders report showed that in the leveraged funds category, 1,780 contracts were added to their long positions, and a whopping 22,581 contracts were liquidated from their short positions. From the low of 1.2627 that was made on January 13, 2012 through March 1, open interest has declined by 31,568 contracts. If you go back and read my posts from the mid-January timeframe, I suggested that speculators cover all short positions because the market was about to embark on a rally, due to the massive short position held by speculators. At this juncture, I think that the rally is over for the most part and that weak shorts have been chased out of the market. On Friday, the market closed at 1.3206, which is below my key pivot point of 1.3255. If the daily high does not exceed the pivot point, a sell signal will be generated.
S&P 500 E mini:
For the week, the March S&P E mini closed higher by 5.55 points. The commitment of traders report showed that in the leveraged funds category, speculators added 13,216 contracts to their long positions and added 17,828 contracts to their short positions.
I want to point an important price divergence that has occurred over the past month in the Russell 2000 index. The Russell Cap Weighted Cash Index topped out on February 3, 2012 and since that date has declined 1.29% through March 2. During the same time the Russell 2000 Equal Weight Index has declined by 2.07%. From February 3 through March 2 the S&P 500 has appreciated 3.33% and its equal weight index has appreciated 2.58%. On Friday, the Russell cash index closed at 802.42. This is the lowest close since January 31, 2012, when the index closed at 792.82. This is a troubling development.
The Dow Jones Transportation Index also topped out on February 3 at 5384.15. From that date through March 2, the transportation index has fallen 2.73%. Undoubtedly, the catalyst for this decline can be attributed to the increasing price of petroleum products. However, it is another divergence, that speculators should keep in mind if they are considering long positions.
Without doubt, probably all of you have heard about the bullish stock market performance in 2012 being linked to the market phenomen attributed to presidential election years. After averaging the January 1 through February 29 performance for eight presidential years, the results are opposite of bullish. The table below tells all.
Presidential Election Year’s Performance
January 1 through February 29 for the March S&P 500
1984 – 6.07%
1988 + 6.63%
1992 – 1.47%
1996 + 4.02%
2000 – 9.21%
2004 + 3.04%
2008 – 7.56%
2012 + 9.46%
8 year average return – .145%
Despite my skepticism about the U.S. economy, fears of a possible meltdown in Europe, and skyrocketing petroleum prices, the market is entering a very strong seasonal pattern. For example, during the time frame covering March 1 through April 30, the S&P 500 has closed higher on April 30 than on March 1, every year since 2006. The data below show the percentage gains and the number of point gains for each year.
June S&P 500 Performance for March 1 through April 30
2006 through 2011
Percentage gain Number of Points
2006 + 1.78 23.1
2007 + 4.69 66.7
2008 + 3.93 52.5
2009 + 18.98 138.8
2010 + 7.70 84.6
2011 + 2.90 38.4
Average percentage gain: 6.66% Average point gain: 67.35
If the return of 2009 is removed due to its anomaly, the average return for the other five years is a gain of 4.20% or 53.06 points. Based upon this, we can project that the S&P 500 could possibly rally to 1417.50 by April 30, 2012. Although I said in previous posts that the market is in a topping process, seasonal patterns can have a powerful impact on markets. I remain cautious, and continue to believe that put protection should be in place due to asymmetric downside risk.
10 Year Treasury Notes:
For the week, June treasury notes closed 6 ticks higher. The commitment of traders report showed that in the leveraged funds category speculators added 16, 105 contracts to their long positions and liquidated 8, 173 contracts to their short positions. As of the day the report leveraged funds are long by a ratio of 2.47 to 1.
