E-mail questions and comments to: garry@openinterestanalyst.com
For those readers to trade stocks, please check out the April 29 Weekend Wrap on Apple Computer. In that analysis I gave my reasons for thinking that Apple had made a temporary top.
Announcement: Starting Sunday May 20, grain and oilseed futures and options trading will be expanded from the current 17 hours per day to 21 hours per day. Grain and oilseed futures and options will open at 5:00 PM US central time and trade through the evening and morning hours without interruption. The close will be at 2:00 p.m. US central time.
See below for the analysis of natural gas.
Soybeans:
For the week, July soybeans lost 1 cent, August beans lost 12 1/2 cents and November beans lost 33 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 13,796 contracts of their long positions and added 3,055 contracts to their short positions. Commercial interests added 6,021 contracts to their long positions and also added 1,362 contracts to their short positions. As of the latest report, managed money speculators are long by a ratio of 40 to 1.
Soybean meal:
For the week, July soybean meal gained $9.40 per ton, August gained $2.40, October lost $7.60 and December lost $8.90. The Commitment of Traders Report showed that in the managed money category speculators liquidated 6,724 contracts of their long positions and also liquidated 120 contracts of their short positions. Commercial interests added 1,819 contracts to their long positions and liquidated 3,570 contracts of their short positions. As of the latest report, managed money speculators are long by a ratio of 31.7 to 1.
Soybean Performance May 14-May 18 Year-To-Date Performance
July soybean meal +2.30% +31.00%
July soybeans………. -.07% +14.51%
July soybean oil…… -3.68% + 1.24%
Corn:
For the week July corn gained 54 1/2 cents, September gained 35 1/4 cents and December gained 31 3/4 cents. The Commitments of Traders Report showed that in the managed money category speculators liquidated 7,658 contracts of their long positions and added a massive 30,143 contracts to their short positions. Commercial interests did the opposite by adding 14,966 contracts to their long positions, and liquidated 30,728 contracts of their short positions. As of the latest report, managed money speculators are long by a ratio of 1.7 to 1.
On Friday, the USDA released the Cattle on Feed Report, which reported sharply lower placements of cattle on feed. This should have a negative impact on corn prices because fewer animals are consuming grain.
Performance for Corn and Wheat May 14-May 18
Corn +52 1/2 cents +9.01%
Wheat +98 1/4 cents +16.21%
Wheat:
For the week, July wheat gained 98 1/4 cents, September gained 91 1/4 cents and December gained 84 1/2 cents. The Commitments of Traders Report showed that in the managed money category, speculators liquidated 487 contracts of their long positions and added 4,433 contracts to their short positions. As of the latest report managed money speculators are short by a ratio of 1.68 to 1.
The move in wheat this past week was nothing short of spectacular. July wheat closed at $6.95 1/4, which is the highest close since February 1, 2012 when July wheat closed at $6.97 1/4. The fundamental reason for the rally was continued dry conditions in parts of the United States, especially in Kansas, Australia, Ukraine, and China.
Below, I am posting the open interest and volume stats from May 15 when the rally started to May 17. Preliminary volume data is very accurate and therefore I will include it for May 18. However, open interest stats in the preliminary report often is inaccurate. Do not enter short or long positions in wheat. The danger is that many more speculative shorts will have to liquidate. Also, one never knows how long the dryness will last.
The last rally in wheat occurred in the mid-January 2012 period after wheat had made a low of $5.92 3/4 on January 18 and then rallied to a high of $6.83 3/4, a move of 91 cents. Interestingly, the current rally started from exactly the same point. It made a low of $5.92 1/4 on May 14, and then rallied 98 cents in four days. This is a much stronger rally than the one that occurred four months ago when it took wheat 11 days to move 91 cents. A measure of the strength of the current rally is that the front month in wheat (July) closed at the highest point since the December 2011 contract (the front month) closed at $6.96 on September 15, 2011. Stand aside.
Date Net Change Open Interest Chg Volume
May 15 + 10 1/4 cents -1158 92,202
May 16 + 30 1/4 -9,939 126,143
May 17 + 19.00 -5678 161,538
May 18 + 37 1/2 TBD 214,423
Crude oil:
For the week, July crude oil lost $4.65. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 6,393 contracts of their long positions and also liquidated 866 contracts of their short positions. Commercial interests were the heavy liquidators in the reporting week and they liquidated 20,459 contracts of their long positions, and also liquidated 21,660 contracts of their short positions. As of the latest report, which is tabulated on Tuesday and released Friday, managed money speculators are long by a ratio of 2.9 to 1. On May 7, crude oil generated an intermediate term sell signal.
Gasoline:
For the week, June gasoline lost 11.13 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 4,162 contracts of their long positions and also liquidated 301 contracts of their short positions. Commercial interests added 7,045 contracts to their long positions, and also added 4,743 contracts to their short positions. As of the latest report, managed money speculators are long by a ratio of 13.5 to 1. Gasoline generated an intermediate term sell signal on May 15.
Natural gas:
For the week, June natural gas added 23.3 cents and the December contract added 11.1 cents. The commitment Of Traders Report showed that in the managed money category, speculators added 262 contracts to their long positions and liquidated 13,587 contracts of their short positions. Commercial interests liquidated 4,051 contracts of their short positions, and also liquidated 1,279 contracts of their short positions. As of the latest report, managed money speculators are short by a ratio of 1.3 to 1, and nonreportable speculators are short by a ratio of 1.95 to 1.
The natural gas market bottomed on April 20 and has rallied approximately 70 cents through May 18. The April 17 Commitment of Traders Report, which was tabulated just days prior to the bottom showed that in the managed money category, speculators were net short by 104,675 contracts and the ratio of shorts to longs was 1.49 to 1. This contrasts to the most recent report, which indicates that managed money is now net short by 62,431 contracts, or a ratio of shorts to longs of 1.3 to 1. In other words, managed money has reduced their short exposure as the market has moved higher. This is exactly the opposite of nonreportable speculators (those that do not have reportable (large) positions). On April 17, 2012, nonreportable traders were net short by 14,366 contracts, or a short to long ratio of 1.20 to 1. As of the May 15 report, nonreportable speculators are now net short 25,658 contracts or a short to long ratio of 1.95 to 1. As the market has moved higher, nonreportable traders have gotten increasingly bearish. Nothing much changed for commercial interests who on April 20 were net short by 3,533 contracts, and on May 15 were net short by 6,427 contracts
On April 20, 2011 total open interest in natural gas stood at 1,308,114 contracts. As of May 17, total open interest is 1,211,507 contracts, or a reduction of 96,607 contracts from the bottom as prices move higher. This is not the kind of open interest action that that would cause me to enter the bull camp.
One positive element of the move higher in natural gas has been the change in spreads between the front months and the back months. For example, the June-December natural gas spread bottomed on April 11 at 99.3 cents premium to December. On May 18 that spread shrank 26.6 cents to 72.7 cents premium to December. Although the spreads have a long way to go before they invert with the front months selling at a premium to the back months, it may be an indication that natural gas is in a bottoming process. This will not become apparent for a while, but it is important to watch how the spreads behave when the market rolls over and perhaps retests the old lows.
One very powerful force in many markets is the seasonality of moves at specific times of the year. One very powerful seasonal trend in natural gas is that it tends to peak in the early to mid June period and then trend lower into September. During the past 11 years there have been notable lows made in September. They are September 3, 2009 ($2.18), September 10, 2007 ($5.25), September 24, 2001 ($2.18). I will watch the market and keep you apprised of any important developments. Stand aside.
Copper:
For the week, July copper lost 17.95 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 3,485 contracts of their long positions and added 7,138 contracts to their short positions. Commercial interests added 2,956 contracts to their long positions and liquidated 2,309 contracts of their short positions. As of the latest report, managed money speculators are still long by a ratio of 1.17 to 1. The market has cratered and speculators should wait for a significant rally before entering bearish positions. See the Weekend Wrap of May 13 for more information.
Gold:
For the week, June gold gained $7.90 and the range for the week was $1526.70 to $1597.50. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 387 contracts of their long positions, and added 9,887 contracts to their short positions. Commercial interests liquidated 715 contracts of their long positions and also liquidated 3,823 contracts of their short positions. As of the latest report, managed money speculators are long gold by a ratio of 3.4 to 1.
Although I think gold made an important low of 1526.70 on May 16, the market will have to overcome the resistance at the 50 and 200 day moving average. Since March 13, 2012, the two moving averages have provided formidable resistance. The 50 day moving average is $1642.49 and the 200 day moving average is $1679.49.
Silver:
For the week, July silver lost 17.5 cents. The Commitment of Traders Report showed that in the managed money category, speculators added 191 contracts to their long positions and also added 391 contracts to their short positions. Commercial interests liquidated 1,142 contracts of their long positions and also liquidated 709 contracts of their short positions. As of the latest report, managed money speculators are long by a ratio of 1.46 to 1.
Euro:
For the week, the June Euro lost 1.85 cents. The Commitment of Traders Report showed that in the leveraged funds category, speculators added 12,217 contracts to their long positions, and also added 28,500 contracts of their short positions. As of the latest report leveraged funds are currently short by a ratio of 2.7 to 1. This market is loaded with speculative shorts. Stand aside.
S&P 500 E mini:
For the week, the June S&P 500 E mini lost 59.20 points. The Commitment of Traders Report showed that in the leveraged funds category speculators added 48,329 contracts to their long positions and liquidated 9,614 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.7 to 1.
The decline in the S&P 500 cash index and the other indices began on May 1, 2012. Last year the decline began on May 2 and bottomed out on June 16 at 1258.07. The market then rallied to 1356 on July 7, 2011. It is important to remember that the 200 day moving average provided support on the decline during June of 2011. Currently, the 200 day moving average is 1278 and the S&P 500 cash index closed at 1295.22. If the 200 day moving average does not stem the decline, the market may take another leg down before a rebound occurs. The next area support would be 1210 basis the S&P 500 cash index.
The S&P 500 cash index generated in intermediate term sell signal on May 18.
The Dow Jones Transportation Index closed under its 200 day moving average (4930.51) on May 18, and is at the lowest price (4873.76) since mid December 2011. The Dow Jones Industrial Average is within 171 points of closing under its 200 day moving average of 12198.
The following table lists the percentage of stocks that are above their 50, 150, and 200 day moving averages on the New York Stock Exchange and the S&P 500 cash index as of May 18.
NYSE 50 day 150 day 200 day
12.41% 34.84% 45.69%
SPX 13.80% 39.80% 52.20%
In order to provide some historical context for the above percentages, I’m listing the dates of important lows in the percentage of stocks that traded above their 50 and 150 day moving averages for the New York Stock Exchange. It is important to note that the percentage of stocks above the moving averages can stay low for couple of months. For example, during the period covering May 20 2010 through June 7, 2010 and August 8 through October 3, 2011, the percentage of stocks trading above their 50 day moving average was in single digits, which is an extremely low number. Speculators and investors should keep in mind that a particular metric or set of metrics that indicate a massively oversold condition, can stay that way for a number of months.
Date Percent of Stocks Trading above the 50 Day Moving Avg
April 10, 2012 25.77%
November 25, 2011 24.86%
October 3, 2011 8.38%
August 8, 2011 4.18%
June 7, 2010 9.65%
May 20 2010 9.33%
Date Percent of Stocks Trading above the 150 Moving Avg
April 10, 2012 65.43%
November 25, 2011 17.55%
October 3, 2011 8.53%
August 8, 2011 6.75%
July 2, 2010 23.15%
May 20, 2010 38.38%
World Markets:
The global markets are very weak with all but the DAX closing significantly under their 200 day moving averages as of May 18.
Market 200 day Moving Avg Price May 18 Close
FTSE 100 5547 5267
CAC 40 3195 3008
DAX 30 6185 6271
INDIA SENSEX 30 16839 16152
SINGAPORE STRAIT TIMES 2837 2779
AUSTRALIA ORDINARIES 4281 4098
BRAZIL BOVESPA 59430 54513
