Soybeans: On September 21, November soybeans generated a short-term sell signal.
For the week, November soybeans lost $1.17 1/4 while January lost $1.18, and the March contract lost $1.23 1/4. The COT report, which is released every Friday afternoon showed that managed money liquidated 8,178 contracts of their long positions and added 2,189 contracts to their short positions. Commercial interests added 13,216 contracts to their long positions and liquidated 6,834 contracts of their short positions. As of the latest report, managed money is long by a ratio of 23.20:1, which is down significantly from the previous week’s ratio of 31.59:1, but about the same as two weeks ago of 23.16:1.
Soybean meal: On September 21, December soybean meal generated a short-term sell signal.
For the week, October soybean meal lost $39.00, December lost 39.40, January lost 40.70 while the March contract lost $43.50. The COT report showed that managed money continued their massive liquidation of long positions and liquidated 5,667 contracts and added 2,147 contracts to their short positions. Commercial interests added 4,285 contracts to their long positions and also added 1,452 contracts to their short positions. The COT report showed that managed money was long by a ratio of 9.14:1 which is down dramatically from the ratio of the previous week of 14.52:1 and the ratio of two weeks ago of 21.57:1. The current ratio is approximately 75% lower than the ratio of three weeks ago of 37.45:1.
Although both soybeans and soybean meal have generated short-term sell signals, speculators should not enter short positions in soybeans for soybean meal under any circumstances. Often, a short-term sell signal is generated after an extended move lower, and then a countertrend rally ensues before the downtrend resumes. Occasionally, a short-term sell signal is immediately negated by a major reversal, which triggers a new buy signal. However, this is a fairly rare occurrence and we do not envision a reversal to a short term buy signal during the coming week.
In the case of soybeans and to a lesser degree in soybean meal, it is highly likely that the carnage is not over. The COT report for soybeans still shows a relatively high number of longs relative to shorts and with the current reading at 23.20:1, the ratio is at the same level of two weeks ago. The COT report is tabulated every Tuesday, and is released on Friday. On Tuesday September 4, when the report was tabulated, November soybeans closed at $17.68 and the long to short ratio was 23.16:1. On Tuesday, September 18, when the recent report was tabulated, November soybeans closed at $16.40, or $1.28 lower than it was two weeks prior when the ratio was 23.20:1. The fact that the ratio is unchanged from two weeks ago while soybeans have moved sharply lower supports our position there is much more liquidation ahead for soybeans. Also, any speculator who purchased soybeans after August 16 when soybeans closed at 16.25 1/4 has losses, and many have large losses. This increases downside momentum which is caused by forced margin selling.
Soybean meal has been hit with massive liquidation, and the current ratio is the lowest in many months. Additionally, open interest declined by another 6,391 contracts on Wednesday and Thursday, which will be reflected in the COT tabulation on September 25. As more speculators liquidate their positions, soybean meal becomes less vulnerable to a significant downside moves. This sets up a bottoming process, which provides the right environment for speculators to get long.
Corn:
For the week, December corn lost 33.75 cents while the March contract lost 35.00 cents. The COT report showed that managed money liquidated 6,409 contracts of their long positions and added 5,802 contracts to their short positions. Commercial interests added 13,144 contracts to their long positions and liquidated 11,548 contracts of their short positions. As of the latest report, managed money is long by a ratio of 11.41:1 which is down from the previous week of 14.70:1 and the ratio of two weeks ago of 17.70:1.
Wheat:
For the week, December Chicago wheat lost 27.00 cents and the March contract lost 28.50. The COT report showed that managed money liquidated 5,084 contracts of their long positions and added 1,922 contracts to their short positions. Commercial interests added 4,829 contracts to their long positions and liquidated 3,682 contracts of their short positions. As of the latest report, managed money is long wheat by a ratio of 1.83:1, which is down from the previous week of 1.96:1 and the ratio of two weeks ago of 2.08:1.
It is a positive development for all of the above listed grains that last week’s downside action showed the front month gaining on the back month(s). If this continues as the grains decline, it would be very bullish. Please review our comments on natural gas and the bearish action revealed by the widening of contango.
Performance for (Mon) September 17- (Fri) September 21:
December soybean meal -7.50%
November soybeans -6.74%
December corn -4.32%
December wheat -2.92%
The decline in the grains began on September 4, and the table below shows performance through September 21. Although soybean meal has under performed in the latest week ending September 21, the underperformance is minuscule when examined in the September 4-September 21 timeframe.
Performance September 4-September 21:
December soybean meal -8.89%
November soybeans -8.29%
December corn -7.05%
December wheat +0.96%
On a year-to-date basis, the table below shows that soybean meal continues to significantly outpace the performance of the grain complex.
Performance Year To Date:
December soybean meal +54.33%
November soybeans +34.67%
December corn +27.63%
December wheat +24.62%
Crude oil:
For the week, November crude oil lost $6.44 while the March contract lost $6.24. The COT report showed that managed money added 11,348 contracts to their long positions and added 4,101 contracts to their short positions. Commercial interests added 4,608 contracts to their long positions and also added 2,608 contracts to their short positions. As of the latest report, managed money is long by a ratio of 6.12:1 which is down from the previous week’s ratio of 6.53:1 and higher than the ratio of two weeks ago of 5.52:1.
Heating oil:
For the week, November heating oil lost 12.08 cents and the March contract lost 13.93. The COT report showed that managed money added 160 contracts to their long positions and liquidated 1,292 contracts of their short positions. Commercial interests liquidated 13,663 contracts of their long positions and also liquidated 14,025 contracts of their short positions. According to the latest report, managed money is long heating oil by a ratio of 2.42:1 which is up from the previous week of 2.25:1 and below the ratio of two weeks ago of 2.52:1.
Gasoline:
For the week, November gasoline lost 11.20 cents and the March contract lost 14.64. The COT report showed that managed money added 112 contracts to their long positions and liquidated 1,956 contracts of their short positions. Commercial interests added 2,280 contracts to their long positions and also added 1,506 contracts to their short positions. According to the latest report, managed money is long by a ratio of 8.49:1, which is higher than the previous week’s ratio of 7.21:1, but about equal with a ratio of two weeks ago of 8.54:1.
Gold:
For the week, December gold gained $5.70. The COT report showed that managed money added 8,276 contracts to their long positions and also added 1,587 contracts to their short positions. Commercial interests massively liquidated 28,383 contracts of their long positions and also liquidated 29,930 contracts of their short positions. According to the latest COT report, managed money is long by a ratio of 13.37:1 which is down from the previous week of 14.65:1, but up substantially from the ratio of two weeks ago of 10.16:1.
Natural gas:
For the week, November natural gas lost 1.2 cents while the March contract gained 5.4 cents. The COT report showed that managed money liquidated 8,825 contracts of their long positions and also liquidated 20,529 contracts of their short positions. Commercial interests added 504 contracts to their long positions and also added 6,766 contracts to their short positions. According to the latest report, managed money is short by a ratio of 1.06:1, which is down from the previous week of 1.11:1 and the ratio of two weeks ago of 1.10:1.
It is important for speculators to understand importance of spreads and what they tell us about market activity. Natural gas is a prime example of a market whose spread activity reveals it is not a bull market. When the front month of natural gas closes essentially unchanged on the week, and contango widens as evidenced by advancing back months, the market is signaling there is plentiful supply. As we have stated before, natural gas’s trading range is bounded by $3.50 on the upside and $2.60- $2.70 on the downside.
Copper:
For the week, December copper lost 4.35 cents. The COT report showed that managed money added 682 contracts to their long positions and also added 1,016 contracts to their short positions. Commercial interests liquidated 289 contracts of their long positions and added 1829 contracts to their short positions. The long December 2012, short July 2013 copper spread widened out slightly to close at 1.40 cents premium July from 1.15 cent premium July on September 14. According to the latest COT report, managed money is long by a ratio of 1.68:1 which is down slightly from the previous week of 1.73:1, but up significantly from the ratio of two weeks ago of 1.02:1.
Silver:
For the week, December silver lost 1.8 cents. The latest COT report showed that managed money added 851 contracts to their long positions and also added 14 contracts to their short positions. Commercial interests liquidated 2,873 contracts of their long positions and also liquidated 12,618 contracts of their short positions. According to the latest COT report, managed money is long by a ratio of 7.92:1, which is up slightly from the previous week’s ratio of 7.73:1, and up significantly from the ratio of two weeks ago of 7.00:1.
Euro:
For the week, the December euro lost 1.27 cents. The COT report showed that leveraged funds liquidated 35,009 contracts of their long positions and also liquidated 18,600 contracts of their short positions. According to the latest report, leveraged funds are short by a ratio of 2.90:1 which is up significantly from the previous week of 1.75:1 and the ratio of two weeks ago of 1.73:1.
S&P 500 E mini:
For the week, the December. S&P 500 E mini lost 7.10. The COT report showed that leveraged funds added 20,218 contracts to their long positions and liquidated 39,200 contracts of their short positions. According to the latest COT report, leveraged funds are short by a ratio of 1.88:1 which is down from the previous week of 2.03:1 and the ratio of two weeks ago of 2.13:1.
The American Association of Individual Investors survey showed that survey participants are still skeptical of the rally. In the most recent reporting week, the number of bears and bulls increased slightly. Apparently this came from the neutral category losing approximately 2 percentage points. We certainly don’t blame investors for being skeptical of the rally when global economic indicators are pointing downward and the money printing machines of the major global economic players are cranking out new money. It seems the prevailing zeitgeist is the market cannot go down because of quantitative easing by the Federal Reserve and other countries. As more people adopt this way of thinking, the market becomes more hazardous. Although conventional wisdom says “don’t fight the Fed,” if the economic slowdown continues, or gets worse, this platitude may be of little comfort to investors when the market reacts to the nuts and bolts of economic reality.
Everyone knows about the looming fiscal disaster at the end of the year, and since the election does not occur until November 6, the market has plenty of time to discount a worst-case scenario. Realistically, it is highly unlikely that anything will be done by Congress prior to November 6. This will give investors plenty of time to take profits.
We have analyzed some long-term moving averages on the S&P 500 cash index and have interesting results to report. Since making its bottom on March 9, 2009, approximately 178 weeks have passed through September 21, 2012. The 178 week moving average is 1199.36, which crossed above its 520 week moving average of 1191.53 approximately 2 weeks ago. From these moving averages, we conclude the 1200 level on the S&P 500 cash index is the long-term value area. In the event of a major downtrend, 1200 for the S&P 500 cash index should be viewed as the downside target.
AAII Survey
Recent week 2 wks ago 3 wks ago
Bulls 37.5% 36.5% 33.1%
Bears 33.8% 33.0% 33.1%
Neutral 28.7% 30.6% 33.9%
