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Soybeans:
For the week, July soybeans lost 72 1/4, cents which was the biggest losing week for soybeans going back to the early part of January 2012 when the market declined from $12.35 on January 9 to $11.50 on January 12. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 11,979 contracts of their long positions and added 694 contracts to their short positions. Managed money speculators are long by a ratio of 2.75 to 1. Commercial interests added 8,005 contracts to their long positions, and liquidated 4,499 contracts of their short positions. This was the first week that soybean meal underperformed soybeans, which is understandable considering that soybean meal has been massively outperforming soybeans ever since the rally began on December 16, 2011.
Performance for Soybeans and Soybean meal December 16, 2011-May 11 2012
Soybeans………….. +26.29%
Soybean Meal…… +45.28%
Corn:
For the week, July corn lost 39 1/4 cents. The Commitment of Traders Report, which is tabulated on Tuesday and released Friday showed that in the managed money category, speculators liquidated 3,226 contracts of their long positions, and also liquidated 10,236 contracts of their short positions. Managed money speculators are long by a ratio of 2.3 to 1. Commercial interests added 6,995 contracts to their long positions, and also added 10,005 contracts to their short positions. On Thursday, the price relationship between corn and wheat changed with wheat selling at a 13 3/4 cent premium to corn. The low of $5.72 1/4 made on Friday was the lowest price for corn on the continuation chart since December 6, 2011 when corn reached a low of $5.71 1/2. May corn goes off the board on May 14, and I will be closely watching whether the low 570 area will hold. I suspect that corn is at the very low end of its trading range for the next month or two.
Grain Complex Performance for July contracts (May 4-May 11, 2012)
Corn………………….-6.33%
Soybean Meal……-5.57%
Soybeans…………..-4.89%
Soybean Oil……… -2.63%
Wheat……………….-2.05%
Crude oil:
For the week June crude oil lost $2.36. The Commitment of Traders Report showed that in the managed money category speculators liquidated 30,178 contracts of their long positions, and added 26,780 contracts to their short positions. As of the latest report, managed money speculators are long crude oil by a ratio of 2.95 to 1. Commercial interests added 1,121 contracts to their long positions, and liquidated 18,266 contracts of their short positions.
Gasoline:
For the week, June gasoline gained $2.50 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 5,732 contracts of their long positions and added 3,114 contracts to their short positions. Commercial interests added 13,473 contracts to their long positions, and also added 2,323 contracts to their short positions. As of the latest reporting date, managed money is long gasoline by a ratio of 13.5 to 1, which is a significant reduction from last week’s ratio when the number of longs to shorts was 30 to 1. Last week, I commented that the ratio indicated the market was top-heavy with speculative longs, and this needed to be reduced before long positions could be contemplated. Another positive is that the inversion of the June contract in relation to the back months increased during the week.
Copper:
For the week, July copper lost 7.30 cents. The Commitment of Traders Report showed that in the managed money category, speculators added 1,946 contracts to their long positions and also added 2,055 contracts to their short positions. Managed money speculators are long by a ratio of 1.7 to 1. Commercial interests added 1,466 contracts to their long positions, and liquidated 397 contracts of their short positions.
Over the weekend, China announced a 50 basis point reduction in the Reserve Ratio Requirement, meaning that approximately $63 billion is now available for loans. Copper may get a short-term bounce from this, but it would take much more easing to turn the market around.
As of May 11, copper is on a short-term sell signal that was generated on April 9, but an intermediate term sell signal has not occurred. I believe this is about to change, and that weakness in copper will become more apparent in the weeks ahead. On April 15, 2012 in the Weekend Wrap, I wrote an analysis on the supply situation at the London Metal Exchange, the Commodity Exchange of New York, and the Shanghai Metal Exchange. I encourage readers to review the post of April 15 so they are up to speed on the current copper situation.
I examined the price and open interest action of copper during the rally that occurred between April 16 through April 30, and the price decline that occurred beginning on May 1 through May 10. During the rally that ended on April 30, July copper gained 19.50 cents. During this time, open interest decreased by 13,552 contracts. On the decline that commenced on May 1, July copper declined by 15.30 cents, and open interest declined by a mere 667 contracts. From April 16 through April 30, price action was positive but the open interest action was bearish. On the other hand, from May 1 through May 10, price action was negative, but the open interest action was bullish. The fact that open interest declined significantly on a 20 cent rally is more troubling to me than the positive open interest action on the decline. The reason is the market has been on a short-term sell signal for over a month, and the rally, was unable to reverse the short term sell signal into a buy signal.
I think there is a good possibility that copper may be on the brink of a major decline. Copper has been in a topping formation at the $3.90-$3.95 level during February through April 2012. Additionally, rallies have become successively weaker, and as of the close on May 11, copper is within 6 cents of the low of $3.569 made on April 16. Additionally, copper closed under its 200 day moving average of 3.72 and the 50 day moving average of 3.78. In order for the market to generate an intermediate term sell signal, the daily high must be below the pivot point of $3.655.
In the past, I have mentioned that copper futures are extremely volatile, and that copper options on futures are not viable because of their illiquidity. A safer way to trade the copper market would be through its ETN, ticker symbol JJC. Luckily, this is one of the few ETN’s, or ETF’s that reasonably tracks the movement of the commodity. For example, during the rally of April 16 to April 30, July copper gained 5.78% and JJC gained 6.02%. On the decline from May 1 to May 10 July copper declined by 5.42% and JJC declined by 5.72%. There are options on JJC and speculators should investigat whether the bid/ask spread on option prices is acceptable on longer dated options. At this juncture speculators should stand aside until an intermediate term sell signal is generated.
Gold:
For the week, June gold lost $61.20. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 6,558 contracts of their long positions, and added a massive 13,126 contracts to their short positions. Commercial interests did the reverse by adding 3,499 contracts to their long positions, and liquidated 12,251 contracts of their short positions. Despite the bearish positioning by managed money in the latest report, speculators remain long by a ratio of 4.9 to 1.
Silver:
For the week, July silver lost $1.54. The Commitment of Traders Report showed that in the managed money category speculators liquidated 323 contracts of their long positions, and added 3,334 contracts to their short positions. Managed money speculators are long silver by a ratio of 1.49 to 1. Commercial interests added 1,724 contracts to their long positions, and liquidated 1,504 contracts of their short positions. Stand aside.
Euro:
For the week, the June Euro lost 1.65 cents. The Commitment of Traders Report showed that in the leveraged funds category speculators added 10,828 contracts to their long positions, and also added 36,484 contracts to their short positions. The report indicates that leveraged funds are short by a ratio of 2.7 to 1.
S&P 500 E mini:
For the week the June S&P 500 E mini lost 12.50 points. The Commitment of Traders Report showed that in the leveraged funds category, speculators liquidated 35,764 contracts of their short positions and added 60,256 contracts to their short positions. As of the date of the report, leveraged funds are short by a ratio of 1.8 to 1. During the week, the S&P 500 E mini traded in a range between the high of 1370.25 and the low of 1339.25. It remains to be seen whether this period of consolidation sets the stage for a short-term rally, or whether the downturn will continue. Due to the myriad of potential problems with the world and US economies, speculators and investors alike should have long put protection in place.
