Weekend Wrap for May 12, 2013

The tabulation period for this week’s COT report is April 30 through May 7.

Live Cattle: This week (May 7), June live cattle generated a short-term sell signal, which reversed the short-term buy signal generated on May 2.

Soybeans: This week (May 9), generated a short-term buy signal.

For the week, May soybeans gained 33.25 cents, July +11.75, August +5.25. The COT report showed that managed money liquidated 7,704 contracts of their long positions and added 9,455 contracts to their short positions. Commercial interests added 2,393 contracts to their long positions and liquidated 18,867 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio of 2.81:1, which is down substantially from the previous week of 3.82:1 and the ratio of 2 weeks ago of 3.21:1.

Soybean meal: This week (May 9), July soybean meal generated a short-term buy signal.

For the week, May soybeans gained $26.50, July +30 cents, August -3.40. The COT report showed that managed money liquidated 1,295 contracts of their long positions and added 1,584 contracts to their short positions. Commercial interests liquidated 1,198 contracts of their long positions and also liquidated 1,364 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.15:1, which is down slightly from the previous week of 2.33:1 and about the same as the ratio of 2 weeks ago of 2.17:1.

We wanted to bring attention to the fact that soybeans and soybean meal have a very strong seasonal tendency to top out in June. May and July also are months where seasonal highs are made. This should be front and center when evaluating the optimum time to liquidate long positions.

Soybean oil:

For the week, May soybean oil gained 1 point, July -4, August -1. The COT report showed that managed money added 926 contracts to their long positions and liquidated 2,705 contracts of their short positions. Commercial interests added 1,973 contracts to their long positions and also added 3,756 contracts to their short positions. As of the latest report, managed money is short by a ratio of 1.44:1 which is down slightly from the previous week of 1.51:1 and the ratio of 2 weeks ago of 1.73:1.

Corn:

For the week, May corn lost 11.75 cents, July -0.25, September -24.75. The COT report showed that managed money added 2,513 contracts to their long positions and liquidated 8,313 contracts of their short positions. Commercial interests liquidated 5,417 contracts of their long positions and also liquidated 13,616 contracts of their short positions. As of the latest report, managed money is long corn by a ratio of 1.76:1, which is up from the previous week of 1.64:1 and the ratio of 2 weeks ago of 1.54:1.

Wheat:

For the week, May wheat lost 14.50 cents, July -16.75, September -18.00. The COT report showed that managed money liquidated 5,822 contracts of their long positions and also liquidated 728 contracts of their short positions. Commercial interests added 3,894 contracts to their long positions and liquidated 1,174 of their short positions. As of the latest report, managed money is short wheat by a ratio of 1.17:1, which is up from the previous week of 1.10:1 but down from the ratio of 2 weeks ago of 1.34:1.

COT Report April 30- May 7    Year to Date
July bean oil   -0.16%                            -2.75%
July beans      -1.20%                            +0.27%
July corn        -1.54%                              -8.75%
July meal       -2.70%                              -0.12%
July wheat     -3.01%                             -11.28%  

Coffee: This week (May 8), July coffee generated a short-term buy signal.

For the week, July coffee gained 3.55 cents. The COT report showed that managed money liquidated 1,715 contracts of their long positions and liquidated a massive 11,769 contracts of their short positions. Commercial interests liquidated 4,437 contracts of their long positions and added 3,705 contracts to their short positions. As of the latest report, managed money remain short coffee by a ratio of 1.25:1, which is down from the previous week of 1.51:1 and the ratio of 2 weeks ago of 1.47:1.

We want to see at least another day of downside action before recommending the initiation of bullish positions. The harvest is beginning in Brazil, however coffee is entering its most vulnerable period with the potential for frost damage during the next month or two. The coldest months in Brazil are June and July and August and the last frost occurred on July 17, 2000 With managed money net short, the market remains susceptible to further upside action. However, if there is a cold snap, or worst yet, frost, then we could see the market advance significantly. The effective way to trade this market is to buy call options for the month of September. We may be seeing psychology changing in a number of commodity markets, but with the likelihood of a dollar advance, bullish enthusiasm could wane.

Cotton:

Despite the rally of the past several sessions, July cotton remains on a short-term sell signal, but an intermediate term buy signal. The open interest action has been strong since May 2, which was the beginning of the most recent rally. For example, from May 2 through May 9, open interest has increased by 13,051 contracts on total volume of 120,860 contracts. Relative to volume, the open interest increase is approximately 320% above average, which is off the charts. During this time, July cotton advanced 4.05 cents.

Upon the release of the USDA report, July cotton spiked to 87.85 cents, which was short of the May 9 high of 88.40, and July cotton closed 1.44 cents lower. It will be important to watch for a test of the upper end of the trading range in order to get a firm idea of whether  cotton has the strength to advance above its current range. Although the open interest action was robust, the same cannot be said about volume. Additionally, we have great concern about the seasonal tendency for cotton to decline from mid-May through late summer and early fall. Another concern, is the very high long to short ratio according to the latest COT report. The current reading tabulated on May 7 shows that managed money is long cotton by a ratio of 8.76:1. The table below shows the date of the COT report, the long to short ratio and the closing price on the date of tabulation. It is of concern that the high long to short ratio has not powered the market higher.The 50 day moving average on the continuation chart is 86.15 and the 50 day moving average for the July contract is 87.60.

COT Tabulation Date         Closing Price     Long to Short Ratio
May 7                                            87.15                  8.76:1
April 30                                        87.47                  6.32:1
April 23                                        85.10                  4.60:1
April 16                                        85.42                   4.15:1
April 9                                          86.61                   4.27:1
April 2                                          90.34                   5.81:1
March 26                                     89.33                    5.55:1
March 19                                      91.53                    5.89 1
March 12                                      88.16                   6.66:1                 

From agweb.com:

COTTON: The U.S. cotton projections for 2013/14 include lower production, exports, and ending stocks compared with 2012/13. Projected production is reduced 19 percent to 14.0 million bales, based on regional average abandonment and yields. Abandonment for the Southwest region is projected at 25 percent due to continued drought conditions. Domestic mill use is projected at 3.5 million bales, 100,000 bales above 2012/13.

Exports are projected at 11.5 million bales, down 13 percent from 2012/13, due to the smaller available domestic supply and lower imports by China. Ending stocks are reduced to 3.0 million bales, equal to 20 percent of total use, which is well below the previous 10-year average. The forecast range for the marketing year average price received by producers is 68.0 to 88.0 cents per pound, compared with 72.0 cents estimated for 2012/13.

The initial 2013/14 world cotton projections show world ending stocks of nearly 93 million bales, the third consecutive seasonal record, as China’s policy of stockpiling cotton in its national reserve is assumed to continue. World production is projected nearly 3 percent lower than 2012/13 at 117.8 million bales, as reductions, mainly for the United States, China, Turkey, Greece, and Mexico, are partially offset by increases for Brazil, India, Pakistan, and Australia.

Crude oil: This week, (May 6) June crude oil generated a short and intermediate term buy signal.

For the week, June WTI crude oil gained 43 cents, June Brent crude lost 35 cents. The COT report showed that managed money in the WTI contract liquidated 749 contracts of their long positions and also liquidated 16,024 contracts of their short positions. Commercial interests added 16,897 contracts to their long positions and also added 9,179 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 6.05:1, which is up substantially from the previous week of 4.24:1 and the ratio of 2 weeks ago of 3.57:1. Additionally, the long to short ratio of commercial interests is 1.13:1, and this has been increasing in recent weeks. In the current COT report, the number of commercial long was increased by a significantly greater amount than did the number of short positions.

Heating oil: This week (May 7) June heating oil generated a short-term buy signal.

For the week, June heating oil gained 2.18 cents. The COT report showed that managed money added 3,758 contracts to their long positions and liquidated 2,280 contracts of their short positions. Commercial interests added 2,142 contracts to their long positions and also added 3,452 contracts to their short positions. As of the latest report, managed money is short heating oil by a ratio of 1.30:1, which is down from the previous week of 1.56:1 and the ratio of 2 weeks ago of 1.62:1.

Gasoline:

For the week, June gasoline advanced 3.49 cents. The COT report showed that managed money liquidated 924 contracts of their long positions and added 2,647 contracts to their short positions. Commercial interests added 5,295 contracts to their long positions and also added 6,393 contracts to their short positions. As of the latest report, managed money is long gasoline by an extremely low ratio of 2.90:1, which is down from the previous week’s low of 3.48:1 and the ratio of 2 weeks ago of 4.03:1. The current ratio is the lowest in at least two years.

Ethanol:

For the week, June ethanol gained 4.7 cents. Ethanol closed at $2.612 and made a new contract high during the week of 2.630.

Natural gas:

For the week, June natural gas lost 13.1 cents. The COT report showed that managed money liquidated 11,963 contracts of their long positions and added 5,592 contracts to their short positions. Commercial interests liquidated 24,171 contracts of their long positions and also liquidated 22,301 contracts of their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.32:1 which is down from the previous week of 1.40:1 and exactly the same as the ratio of 2 weeks ago of 1.32:1.

COT Report April 30- May 7     Year to Date
June ethanol        +5.24%                         +18.14%
June heating oil   +3.38%                           -3.64%
June WTI             +2.63%                           +2.57%
June Brent           +2.44%                            -3.86%
June gasoline       +1.53%                            -0.30%
June natural gas  -9.36%                           +11.55%

Copper:

For the week, July copper gained 3.85 cents. The COT report showed that managed money liquidated 768 contracts of their long positions and also liquidated 7,402 contracts of their short positions. Commercial interests liquidated 3,939 contracts of their long positions and also liquidated 1,441 contracts of their short positions. As of the latest report, managed money is short copper by a ratio of 1.62:1, which is down from the previous week of 1.85:1 but up slightly from the ratio of 2 weeks ago of 1.52:1.

Copper has rallied strongly from May 2 through May 9-10. During this time, copper has advanced 26.05 cents, however open interest has declined by 8,158 contracts. On May 8, open interest increased only 1,310 contracts when copper advanced 6.80 cents on volume of 90,427 contracts. In short, the advance in copper during the past several sessions has not turned bears into bulls. On May 9, July copper declined 3 cents while open interest declined 3,132 contracts.

On May 10, copper traded in an uncharacteristic manner by advancing 1.25 cents while gold declined $32.00 as did silver by 25.3 cents, in addition to palladium and platinum trading sharply lower. The S&P 500 E mini advanced 5.00 points therefore it was not a robust rally in the stock indices that caused copper to rise when all the other metals were falling sharply.  

The spread action in copper has been bullish and on Friday, the July 2013-December 2013 spread closed at 2.55 cents premium to December on May 10, which is the highest close since February 14, 2013 when the spread closed at 2.55 cents premium to December and the July contract closed at the $3.7665.

The market has rallied to the precise area where normally we would favor bearish positions. However, with the number of managed money shorts holding 43,731 contracts and managed money longs holding 26,935 contracts, it is certainly possible to see a further advance in order to shake out holders of short positions. We would be far more bearish had we seen massive liquidation on the 26 cent rally. The upside target for July copper is $3.44, but we are not convinced the market has the momentum to move significantly higher from here. A move sharply lower in the stock indices would likely drag copper down with them.

The lows of April and May 2013 were very close to the low made on October 3, 2011 when copper reached $3.000, which was the lowest price since July 2010. The 50 day moving average is $3.37, which is near Friday’s close, and if the market is to move higher, its low for the day must be above the 50 day moving average. If the market is unable to accomplish this, and we see open interest liquidation accompanying further upside attempts, this could set up bearish opportunities. The ability to trade the copper market is hampered by the fact that options on futures are highly illiquid. With a 21 day average true range of 8.40 cents, copper is an extremely volatile and a difficult market to trade from a money management point of view. Another factor to consider is the impact of rising stock prices, and their impact on investor psychology. For example, we are seeing rising WTI crude oil prices despite unusually large domestic stocks.

Palladium:

For the week, June palladium gained $12.40. The COT report showed that managed money liquidated 389 contracts of their long positions and added 225 contracts to their short positions. Commercial interests liquidated 222 contracts of their long positions and added 41 contracts to their short positions. As of the latest report, managed money is long palladium by a ratio of 9.85:1, which is down from the previous week of 11.30:1, but up from the ratio of 2 weeks ago of 8.99:1.

Platinum:

For the week, July platinum lost $15.20. The COT report showed that managed money added 164 contracts to their long positions and also added 427 contracts to their short positions. Commercial interests added 440 contracts to their long positions and liquidated 545 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 3.35:1, which is down somewhat from the previous week of 3.48:1, but up from the ratio of 2 weeks ago of 2.96:1.

Gold:

For the week, June gold lost $27.60. The COT report showed that managed money liquidated 1,110 contracts of their long positions and added 1,948 contracts to their short positions. Commercial interests added 6,582 contracts to their long positions and also added 1,093 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 1.72:1, which is down from the previous week of 1.79:1 and the ratio of 2 weeks ago of 1.79:1.

Silver:

For the week, July silver lost 25.8 cents. The COT report showed that managed money liquidated 854 contracts of their long positions and also liquidated 279 contracts of their short positions. Commercial interests liquidated 818 contracts of their long positions and also liquidated 467 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.37:1, which is down slightly from the previous week of 1.39:1 and the ratio of 2 weeks ago of 1.40:1.

COT Report April 30-May 7     Year to Date
July copper      +3.54%                           -8.69%
July silver         -1.50%                           -21.47%
July platinum   -1.57%                            -3.47%
June gold          -1.65%                           -13.85%
June palladium-2.46%                           +0.63% 

Canadian dollar:

For the week, the June Canadian dollar lost 31 points. The COT report showed that leveraged funds added 1,750 contracts to their long positions and liquidated a massive 14,243 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 4.67:1 which is down significantly from the previous week of 6.14:1 and the ratio of 2 weeks ago of 5.49:1. 

For the past several weeks, we have been pounding the table telling clients the massive short to long ratio in the Canadian dollar was unwarranted compared to the performance of other currencies. The only currency that professional money managers were net long was the Australian dollar. We didn’t think this made any sense based upon performance of the Australian dollar. This became apparent on April 23, when the June Australian dollar generated a short and intermediate term sell signal, and the other currencies including the Canadian dollar did not.

 From the April 14 Weekend Wrap:

“The strength of the Canadian dollar is being underestimated by many professional currency traders. For example, the June Canadian dollar closed above its 50 day moving average on April 4. As of April 12, it not only is trading above the 50 day moving average, but the daily low is above the 50 day moving average. Compare this to the euro, which has not closed above its 50 day moving average despite having a dramatically lower short to long ratio of 3.18:1 versus the Canadian dollar of 7.09:1. The June British pound closed over its 50 day moving average for the first time on April 5, and the June Swiss franc closed over the 50 day moving average on April 9. Remarkably, the short to long ratio in the Canadian dollar is over 4 x greater than the Swiss franc, 75% greater than the British pound, 120% greater than the euro and 290% greater than the yen, which was the worst performing currency in the most recent COT reporting period and the worse performer year to date. We continue to believe there is more upside for the Canadian dollar. However, we see the strength in the Canadian dollar, Euro, British pound, Swiss franc as essentially short-term rallies in longer-term bear markets.”

Australian dollar:

For the week, the June Australian dollar lost 2.98 cents. The COT report showed that leveraged funds liquidated 19,322 contracts of their long positions and added 5,153 contracts to their short positions. As of the latest report, leveraged funds are long by a ratio of 1.38:1 which is down significantly from the previous week of 1.95:1 and the ratio of 2 weeks ago of 2.01:1.

Swiss franc:

For the week, the June Swiss franc lost 2.35 cents. The COT report showed that leveraged funds liquidated 906 contracts of their long positions and also liquidated 1,860 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.39:1 which is down from the previous week of 1.45:1 and is down dramatically from the ratio of 2 weeks ago when leveraged funds were long by a ratio of 1.51:1.

British pound:

For the week, the June British pound lost 2.08 cents. The COT report showed that leveraged funds added 2,091 contracts to their long positions and liquidated 6,226 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.47:1, which is down from the previous week of 2.83:1 and the ratio of 2 weeks ago of 3.03:1. The current ratio is the lowest in at least several weeks.

Euro:

For the week, the June euro lost 1.27 cents. The COT report showed that leveraged funds liquidated 1,351 contracts of their long positions and also liquidated 898 contracts of their short positions. As of the latest report, leveraged funds are short the euro by a ratio of 1.59:1 which is up slightly from the previous week of 1.57:1 and down from the ratio of 2 weeks ago of 1.76:1.

Japanese yen:

For the week, the June euro lost 249 points. The COT report showed that leveraged funds added 3,381 contracts to their long positions and also added 9,464 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.13:1, which is up slightly from the previous week of 2.08:1, but down from the ratio of 2 weeks ago of 2.26:1.

Dollar index:

For the week, the June dollar index gained 1.04 points. The COT report showed that leveraged funds liquidated 6,252 contracts of their long positions and also liquidated 928 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.20:1, which is up significantly from the previous week’s ratio of 1.01:1 and the ratio of 2 weeks ago of 1.08:1. The current ratio is the largest short position of leveraged funds in the past 3 months.

The dollar index rallied strongly during the past week and reached its highest level since April 4. If the June dollar index breaks out to 83.75 (which we expect), it would trade at the highest level since August 2012. On May 9, the June dollar index rallied 92.4 points on remarkably light volume of 35,446 contracts. Open interest increased only 173 contracts. This leads us to believe that shorts are digging in and refusing to cover positions. We receive stats from Friday’s trading on May 13, and it will be note worthy whether Friday’s rally knocked out some shorts.

It is interesting to compare the action on May 9 to April 17, 2013. On April 17, June dollar index rallied 96.8 points on heavy volume of 52,420 contracts, while open interest declined 4,805 contracts. What makes this action notable is that the long to short ratio was 1.08:1 when of the COT report was tabulated on April 16. The current ratio shows that leveraged funds are considerably short by 1.20:1, which means that short covering should be more robust. If open interest for Friday does not show a significant decline, the dollar index could be in for a sharp rally in a compressed timeframe.

COT Report April 24-April 30   Year to Date
June dollar index           +0.74%                  +4.04%
June Canadian dollar    +0.32%                   -1.36%
June British pound        -0.27%                   – 5.44%
June euro                        – 0.71%                    -1.70%
June Swiss franc              -1.13%                    -4.70%
June Japanese yen           -1.48%                  -14.70%
 

S&P 500 E mini:

For the week, the June S&P 500 E mini gained 21.10. The COT report showed that leveraged funds added 14,969 contracts to their long positions and also added 60,223 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.50:1, which is up from the previous week of 1.44:1, but down from the ratio of 2 weeks ago of 1.63:1.