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Soybeans:
For the week, July soybeans gained 23 cents and November beans gained 1 1/4 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 3,552 of their long positions and added 6,150 contracts to their short positions. As of the latest report, managed money speculators are long soybeans by a ratio of 18.8 to 1. Commercial interests liquidated 13,455 contracts of their long positions and also liquidated 9,310 contracts of their short positions. On May 23 soybeans and soybean meal generated a short-term sell signal.
Soybean meal:
For the week, July soybean meal lost $8.60 and December meal lost 70 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 5,390 of their long positions and also liquidated 496 contracts of their short positions. Managed money speculators are long by a ratio of 35.9 to 1. Commercial interests added 3,248 contracts to their long positions and liquidated 3,368 contracts of their short positions.
Corn:
For the week, July corn lost 57 cents and the December contract lost 15 1/2 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 16,495 contracts of their long positions, and also liquidated 41,587 contracts of their short positions. As of the latest report, managed money speculators are long by a ratio of 2.35 to 1. Commercial interests liquidated 6,462 contracts of their long positions and added 29,625 contracts to their short positions.
Wheat:
For the week, July Chicago wheat lost 15 1/4 cents and the December contract lost 4 1/2 cents. The Commitment of Traders Report showed that in the managed money category, speculators added 2,003 contracts to their long positions and liquidated a massive 57,251 contracts of their short positions. This is the first time in quite awhile that managed money speculators are net long by 3,877 contracts. Commercial interests liquidated 4,602 contracts of their long positions, and added 43,594 contracts to their short positions. As speculators panicked out of their short positions commercials were implementing short positions.
The spread between July wheat and July corn widened to $1.02, which is at the widest level for this spread since July 7, 2011 when it closed at $1.05. With very few exceptions in history, wheat has always traded at a premium to corn. Because wheat was selling at a discount to corn, or selling at a slight premium to corn, feeding of wheat to livestock increased substantially. This caused increased consumption of soybean meal because it is blended with wheat to produce a superior feed. If the spread between wheat and corn stay elevated, less wheat will be used for feed.
Crude oil:
For the week, July crude oil lost 94 cents. The Commitment of Traders Reports showed that in the managed money category, speculators liquidated 5,219 contracts of their long positions, and also liquidated 3,314 contracts of their short positions. Similar to last week’s report, commercials were heavy liquidators of crude oil contracts. For the reporting period, commercial interests liquidated 19,751 contracts of their long positions and also liquidated 25,222 contracts of their short positions. As of the latest report, managed money speculators are still long by a ratio of 2.97 to 1. As of the May 1, 2012 COT report, which represented the top in oil prices, managed money was long by a ratio of 5.74 to 1.
Gasoline:
For the week, July gasoline gained 1.15 cents. The Commitment of Traders Report, which is tabulated on Tuesday and released Friday showed that in the managed money category, speculators added 1,529 contracts to their long positions and also added 162 contracts to their short positions. As of the latest report, managed money speculators are long by a ratio of 13.4 to 1. In the April 3, 2012 COT report, which represented the top in gasoline prices, managed money speculators were long by a ratio of 34.7 to 1. Commercial interests liquidated 6,402 contracts of their long positions and also liquidated 6,085 contracts of their short positions.
Copper:
For the week, July copper lost 2.05 cents. The Commitment of Traders Report showed that in the managed money category speculators liquidated 1,563 contracts of their long positions and added 6,078 contracts to their short positions. For the first time in well over a year managed money speculators are now net short 2,808 contracts. This may indicate that a temporary bottom has been reached. Commercial interests added 344 contracts to their long positions and liquidated 5,647 contracts of their short positions. The market is massively oversold.
Gold:
For the week June gold lost $23.00. The Commitment of Traders Report showed that in the managed money category, speculators added 533 contracts to their long positions, and also added 5,986 contracts to their short positions. As of the latest report, managed money speculators are long by a ratio of 2.9 to 1. Commercial interests added 11,219 contracts to their long positions and also added 16,310 contracts to their short positions.
Although I am a long-term bull on gold, caution must be exercised if speculators decide to embark upon a program of buying gold for the long term. The key area to watch is the low of $1523.90 made on December 29, 2011. If the market penetrates that low, the next area of support is $1470.00.
Both gold and silver are highly correlated to the equity markets, which means if equity markets continue to fall, precious metals will likely move lower as well. Although gold stocks have been underperformers for a number of years, there was a substantial rally in the gold ETF’s last week. The ETF’s, GDX, which is comprised of 32 large mining companies and GDXJ, which is comprised of 82 small mining companies both outperformed gold for the week. From May 16 through May 25, GDX advanced $5.57 or 14.16% and GDXJ advanced 11.09%. During the identical time frame, futures for gold, silver, advanced by 2.04% and 2.66%, respectively while platinum declined by 1.35%.
This is not to say that mining companies prospects are turning bullish, rather it is to inform readers that the mining sector may be in the process of bottoming. The appeal of GDXJ is that it currently yields 5.13% versus a yield in GDX of 0.32%. Additionally, the market made a low of $17.37 on May 16, which was the lowest price for GDXJ since the ETF began trading in November of 2009. The volume of shares traded on May 16 was 10,318,200, which is the highest number of shares ever traded since the ETF began trading in November of 2009 and was 2.69 times the 90 day average volume of 3,830,970 shares. When a market makes a new low on extremely heavy volume, and then rallies strongly, the chances are the bottom is in.
It is easy to see why a precious metal ETF such as GDXJ, which yields 5.13% would be appealing to investors of all stripes. It is a safe way to obtain a good return without exposure to the vagaries of individual stocks. In addition, the ETF is priced at its historical low, which means that much of the risk has been mitigated. For those looking to get long GDXJ, a stop should be placed somewhat below $17.37. The 50 day moving average stands at $22.24, and GDXJ closed at $20.03, therefore it is not overbought. Before entering long positions, speculators and investors may want to watch GDXJ and see how it performs vis-à-vis precious metals futures and ETF’s such as SLV and GLD.
Silver:
For the week, July silver lost 32.9 cents. The Commitment of Traders Report showed in the money managed category, speculators added 223 contracts to their long positions and also added 1,807 contracts to their short positions. As of the latest report, managed money speculators are long by a ratio of 1.3 to 1. When silver made its low of $26.39 on December 29, 2011 the COT report issued January 3 showed that managed money speculators were long by a ratio of 1.75 to 1, a higher ratio of longs than the current report. Commercial interests liquidated 542 contracts of their long positions and also liquidated 1,225 contracts of their short positions.The market is massively oversold.
Euro:
For the week, the June Euro lost 2.21. The Commitment of Traders Report showed in the leveraged funds category, speculators liquidated 3,467 contracts of their long positions and added 21,231 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 3.14 to 1. Speculators are heavily short and the number is at record levels. Stand aside.
S&P 500 E mini:
For the week, the S&P 500 E mini gained 24.20 points. The Commitments of Traders Report showed that in the leveraged funds category, speculators liquidated 43,277 contracts of their long positions and added 77,338 contracts to their short positions. As of the latest report leveraged funds are short by a ratio of 2 to 1. On May 18, the S&P cash index generated an intermediate term sell signal. Maintain long put protection.
Odds and Ends:
On May 9, I informed my readers that the Dollar Index had generated a short and intermediate term buy signal. Since making that call, the June Dollar Index has broken out to advance 2.59 points or 3.23%, a high last seen during the week of September 13, 2010. Investors and speculators should always keep in mind that a strong dollar environment is going to be a negative factor for equities and commodities.
The Greenhaven Continuous Commodity Index, ticker symbol, GCC has declined to the lowest close since September 7, 2010 when the index closed at $27.11. The reason I use the Greenhaven Index is because it is equally weighted. It is a true measure of inflation/deflation because one commodity or a group of commodities does not have a disproportional impact on the index. The weight of each commodity in the index is 5.88% and the 17 commodities that comprise the index are the following: live cattle, lean hogs, gold, silver, copper, platinum, corn, wheat, soybeans, coffee, cocoa, orange juice, cotton, sugar, crude oil, heating oil, natural gas. Since reaching a high of 32.14 on February 28, the index is fallen to a low of 27.12 or a decline of approximately 15%. This is indicating deflation ahead and should make any speculator cautious on the long side.
