Weekend Wrap for January 12, 2014

Soybeans:

For the week, January soybeans advanced 14.50 cents, March +7.25, May +1.75. The COT report revealed that managed money liquidated 21,145 contracts of their long positions and added 2,850 contracts to their short positions. Commercial interests liquidated 9,346 contracts of their long positions and also liquidated 18,361 contracts of their short positions. As of the latest report, managed money is long soybeans by ratio of 5.13:1, which is down from the previous week of 6.42:1 and the ratio of 2 weeks ago of 10.29:1.

The numbers coming out of the USDA report were neutral and China demand was left at 69 million metric tons (mmt). South Brazilian bean production was increased to 89 mmt. The report did confirm that stocks will be at minimal levels for the rest of the season and the key driver for prices will be China demand and production from South America.

Soybean meal:

For the week, January soybean meal advanced $10.70, March +6.50, May +2.10. The COT report revealed that managed money liquidated 5,354 contracts of their long positions and added 60 contracts to their short positions. Commercial interests added 633 contracts to their long positions and liquidated 6,853 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 3.31:1, which is down from the previous week of 3.55:1 and the ratio of 2 weeks ago of 3.82:1.

Soybean oil:

For the week, January soybean oil declined 39 points, March -37, May -38. The COT report revealed that managed money added 551 contracts to their long positions and also added 3,556 contracts to their short positions. Commercial interests added 2,538 contracts to their long positions and liquidated 5,348 contracts of their short positions. As of the latest report, managed money is short soybean oil by ratio of 2.13:1, which is up from the previous week of 2.07:1 and the ratio of 2 weeks ago of 2.04:1. The current ratio is the highest in at least one year.

Corn:

For the week, March corn advanced 9.25 cents, May +9.00, July +8.75. The COT report revealed that managed money added 1,372 contracts to their long positions and liquidated 3,238 contracts of their short positions. Commercial interests added 184 contracts to their long positions and liquidated 388 contracts of their short positions. As of the latest report, managed money is short corn by a ratio of 1.42:1, which is down slightly from the previous week of 1.45:1 and about the same as 2 weeks ago of 1.41:1.

The corn numbers were the big surprise of the report with the USDA trimming 1.6 bushels per acre and harvested acres were increased by 500,000. Feed usage came in 200 million bushels (mb) more than expected. Feed usage for the 1st quarter of the marketing year came in at over 2.4 billion bushels (bb), which is a record passing the previous record for the 2007-2008 season. Additionally, the USDA raised feed usage 100 mb, which brought ending stocks to 1.631 bb down from 1.792 bb.

Chicago wheat:

For the week, March Chicago wheat declined 36.75 cents, May -36.25, July -33.75. The COT report revealed that managed money added 113 contracts to their long positions and also added 1,527 contracts to their short positions. Commercial interests liquidated 1,466 contracts of their long positions and also liquidated 1,446 contracts of their short positions. As of the latest report, managed money is short Chicago wheat by a ratio of 1.80:1, which is up from the previous week of 1.78:1 and the ratio of 2 weeks ago of 1.71:1.

Kansas City wheat:

For the week, March Kansas City wheat lost 16.50 cents, May -20.75, July -23.75. The COT report revealed that managed money added 941 contracts to their long positions and also added 2,221 contracts to their short positions. Commercial interests added 1,255 contracts to their long positions and also added 1,225 contracts to their short positions. As of the latest report, managed money is long Kansas City wheat by a ratio of 1.21:1, which is down from the previous week of 1.26:1 and the ratio of 2 weeks ago of 1.29:1.

The big surprise in the USDA report was the record low feeding usage in the 2nd quarter of the marketing year, which explains the very large corn number. Although exports were increased by 25 mb, ending stocks were raised to 608 mb. Apparently, the USDA decided to disregard the numbers issued by the NASS in their September report.

Cotton:

For the week, March cotton declined 35 points, May -19, July -45. The COT report revealed that managed money added 506 contracts to their long positions and liquidated 650 contracts of their short positions. Commercial interests added 1,691 contracts to their long positions and also added 1,825 contracts to their short positions. As of the latest report, managed money is long cotton by a ratio of 7.06:1, which is up from the previous week of 6.42:1 and the ratio of 2 weeks ago of 4.91:1.

Although March cotton remains on a short and intermediate term buy signal, we are becoming increasingly concerned about its performance. On January 10, March cotton closed at 82.59, which is its lowest weekly close since December 2 when March cotton closed at 80.41. The current long to short ratio of 7.06:1, is close to the high for the ratio of 7.86:1 made in the COT report of August 20, 2013. The trading range of cotton during Wednesday August 14 through Tuesday August 20 (COT report period) was from 88.76-93.90. In short, the long to short ratio is at a substantially high level despite cotton prices being dramatically below their mid August highs.

The long to short ratio has been increasing steadily and on December 24 stood at 4.91:1. The net short position of managed money on December 24 was 37,449 contracts and by January 7 had increased by 6,270 to 43,719 contracts. During this time, the net short position of commercial interests went from 84,714 to 90,627 contracts or an increase of 5,913 contracts.  Managed money increased their long positions from December 24 through January 7 by approximately 16.5%, yet this was only able to move cotton prices 1.49 cents higher or 1.79%. On December 9, March cotton generated a short-term buy signal and an intermediate term buy signal was generated on December 27.

It is important keep in mind that the 50 day moving average of 80.65 is significantly below the 200 day moving average of 83.74. In short the longer-term trend is down. Another factor to consider is that the March-May 2014 spread closed at a 15 point premium to May on January 10. This is the lowest close for the spread since December 10 when May sold at a 28 point premium to March. On December 10, March cotton closed at 80.69. Although cotton has not generated a short-term sell signal, we think it is inevitable. Adventurous clients should consider writing out of the money calls in the May contract. We would liquidate this position if March cotton makes a daily low above 83.27.

Sugar #11:

For the week, March sugar lost 51 points, May -52, July -52. The COT report revealed that managed money liquidated 2,839 contracts of their long positions and added 7,782 contracts to their short positions. Commercial interests liquidated 560 contracts of their long positions and also liquidated 8,376 contracts of their short positions. As of the latest report, managed money is short sugar by a ratio of 1.23:1, which is up from the previous week of 1.16:1 and the ratio of 2 weeks ago of 1.14:1.

Coffee:

For the week, March coffee advanced 4.30 cents, May +4.35, July +4.45. The COT report revealed that managed money added 1,151 contracts to their long positions and liquidated 4,619 contracts of their short positions. Commercial interests liquidated 942 contracts of their long positions and added 3,618 contracts to their short positions. As of the latest report, managed money is short coffee by ratio of 1.13:1, which is down from the previous week of 1.30:1 and the ratio of 2 weeks ago of 1.27:1.

Cocoa:

For the week, March cocoa advanced $13.00, May +14.00, July +13.00. The COT report revealed that managed money liquidated 5,377 contracts of their long positions and also liquidated 15 contracts of their short positions. Commercial interests added 4,474 contracts to their long positions and liquidated 2,173 contracts of their short positions. As of the latest report, managed money is long cocoa by a ratio of 6.85:1, which is down from the previous week of 7.26:1 and the ratio of 2 weeks ago of 8.31:1.

Live cattle:

For the week, February live cattle advanced 40 points, April +40, June +20. The COT report revealed that managed money added 4,177 contracts to their long positions and liquidated 3,419 contracts of their short positions. Commercial interests liquidated 77 contracts of their long positions and added 8,460 contracts to their short positions. As of the latest report, managed money is long cattle by ratio of 6.44:1, which is up significantly from the previous week of 5.23:1 and the ratio of 2 weeks ago of 4.99:1. The current ratio is the highest recorded during the bull market.

Lean hogs:

For the week, February lean hogs lost 85 points, April -57, June +17. The COT report revealed that managed money liquidated 1,258 contracts of their long positions and added 697 contracts to their short positions. Commercial interests liquidated 53 contracts of their long positions and also liquidated 687 contracts of their short positions. As of the latest report, managed money is long hogs by ratio of 2.83:1, which is down from the previous week of 2.99:1 and the ratio of 2 weeks ago of 3.18:1.

WTI crude oil:

For the week, February WTI crude oil lost $1.24, March -1.19, April -1.14. The COT report revealed that managed money liquidated 3,576 contracts of their long positions and added 18,115 contracts to their short positions. Commercial interests added 3,210 contracts to their long positions and also added 1,745 contracts to their short positions. As of the latest report, managed money is long WTI crude oil by a ratio of 5.57:1, which is down dramatically from the previous week of 8.59:1 and the ratio of 2 weeks ago of 8.30:1.

Heating oil:

For the week, February heating oil advanced 13 points, March -22, April -43. The COT report revealed that managed money liquidated 8,405 contracts of their long positions and added 1,936 contracts to their short positions. Commercial interests liquidated 2,313 contracts of their long positions and also liquidated 16,152 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 1.93:1, which is down dramatically from the previous week of 2.71:1 and the ratio of 2 weeks ago of 2.22:1.

Gasoline:

For the week, February gasoline gained 2.03 cents, March sign 1.64, April +1.20. The COT report revealed that managed money liquidated 6,695 contracts of their long positions and also liquidated 282 contracts of their short positions. Commercial interests liquidated 80 contracts of their long positions and also liquidated 5,935 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 8.11:1, which is down from the previous week of 8.74:1, but above the ratio of 2 weeks ago of 7.68:1.

Natural gas:

For the week, February natural gas lost 25.1 cents, March -26.1, April -26.3. The COT report revealed that managed money liquidated 7,722 contracts of their long positions and added 3,616 contracts to their short positions. Commercial interests added 8,867 contracts to their long positions and also added 10,920 contracts to their short positions. As of the latest report, managed money is long natural gas by ratio of 1.67:1, which is down slightly from the previous week of 1.76:1 and the ratio of 2 weeks ago of 1.79:1.

Copper:

For the week, March copper lost 1.90 cents. The COT report revealed that managed money liquidated 3 contracts of their long positions and added 595 contracts to their short positions. Commercial interests liquidated 1,089 contracts of their long positions and added 223 contracts to their short positions. As of the latest report, managed money is long copper by a ratio of 2.68:1, which is down from the previous week of 2.76:1, but above the ratio of 2 weeks ago of 2.40:1.

We view copper at being at a crossroads of sorts. Since making a secondary top on January 2, copper declined to a low of $3.2885 on January 9, which is the lowest price since December 19. From January 2 through January 9 (final stats only) total open interest declined by 3,598 contracts while March copper declined by 9.75 cents. On January 9, March copper declined by 4.35 cents on volume of 63,902 contracts while open interest declined by 3,428 contracts. On January 10, March copper reversed and closed 4.25 cents higher while preliminary open interest stats show an increase of 4,245 contracts on volume of 61,229 contracts.

Both price advances and declines show bullish open interest action and the current long to short ratio is not out of line considering copper’s performance. Although refined stocks of copper on the major exchanges are very tight, our concern is that the Shanghai Composite Index is performing abysmally and is trading at levels last seen in late July 2013. This may be the canary in the coal mine. If long copper, we suggest that money management stops be in place because of a possible reversal.

If March copper makes a daily low that is above 3.3332, a retest of the late December and early January highs is more than likely. On the other hand, if the daily high is below $3.2929, lower prices are in store and a short-term sell signal would be generated. March copper generated a short-term buy signal on December 11 and an intermediate term buy signal on December 16.

Palladium:

For the week, March palladium advanced $14.85. The COT report revealed that managed money added 926 contracts to their long positions and liquidated 882 contracts of their short positions. Commercial interests liquidated 3 contracts of their long positions and added 710 contracts to their short positions. As of the latest report, managed money is long palladium by a ratio of 6.17:1, which is up substantially from the previous week of 4.65:1 and the ratio of 2 weeks ago of 5.21:1.

Platinum:

For the week, April platinum advanced $22.70. The COT report revealed that managed money liquidated 791 contracts of their long positions and also liquidated 5,014 contracts of their short positions. Commercial interests liquidated 1,103 contracts of their long positions and added 1,681 contracts to their short positions. As of the latest report, managed money is long platinum by a ratio of 2.90:1, which is up significantly from the previous week of 1.97:1 and the ratio of 2 weeks ago of 1.80:1.

The long to short ratio in platinum increased dramatically, but this was due to a massive decline in short positions held by managed money, which as a percentage represented a significantly higher number than the 791 contract decline of open interest. In short, the ratio’s increase was not due to new long positions being initiated by managed money The previous report tabulated on December 31, showed that managed money liquidated 1,324 contracts of their short positions while they only added 168 contracts to their long positions. Managed money is reducing bearish positions, but not increasing bullish positions. This tells us platinum has much further to go on the upside. On January 2, April platinum generated a short-term buy signal, and is likely to generate an intermediate term buy signal this coming week. For this to occur, the daily low in platinum must be above $1424.10

Gold:

For the week, February gold advanced $8.30. The COT report revealed that managed money added 2,600 contracts to their long positions and liquidated 3,913 contracts of their short positions. Commercial interests liquidated 189 contracts of their long positions and added 2,258 contracts to their short positions. As of the latest report, managed money is long gold by ratio of 1.33:1, which is up from the previous week of 1.23:1 and the ratio of 2 weeks ago of 1.14:1.

The current COT ratio of 1.33:1 is the highest since the November 19 tabulation date when the long to short ratio stood at 1.55:1. During the period in which that report was compiled (November 13-November 19) February gold traded in a range from $1268.8 to 1,278.70. The trading range for the current COT reporting period is 1202.50-1244.70. If gold moves to the 1278.00 level, we would expect to see the long to short ratio significantly above 1.55:1.

For the past 3 weeks beginning with the week of December 23, February gold advanced each week through January 10. In this time frame, February gold advanced $43.70 or 3.64% while March silver advanced 76 cents or 3.93% while platinum was the outstanding performer having gained $102.30, or 7.67%. Importantly, the March dollar index was flat during this time and therefore, the advance in precious metals cannot be attributed to a declining dollar.

From December 23 through January 9, February gold has advanced $43.70, however total open interest has increased only 1,628 contracts. During the same time frame, March silver advanced 76 cents, but total open interest declined 563 contracts. Platinum, which has been the stellar performer having gained $102.30 lost open interest by declining 6,810 contracts, which is far and away the worse performance with respect to open interest.

The January 10 close of $1246.90, is the highest weekly print since the week of November 25 when February gold closed at 1250.40. Additionally, the current COT report shows the long to short ratio increased because managed money increased their long positions and decreased their short positions, which is the opposite of platinum, though platinum is significantly outperforming gold.

February gold will generate a short-term buy signal if the daily low is above 1234.10. Additional confirmation of the short-term buy signal would be a daily low in February gold above $1245.20. A move to 1270.00 increases the likelihood of a continued move to 1350.00. One major barrier that gold is going to have to overcome is the 50 day moving average of $1249.75. The 50 day moving average has been strong resistance since mid to late September 2013.

Silver:

For the week, March silver advanced 1.9 cents. The COT report revealed that managed money liquidated 1,482 contracts of their long positions and also liquidated 3,252 contracts of their short positions. Commercial interests liquidated 555 contracts of their long positions and also liquidated 378 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.46:1, which is up from the previous week of 1.33:1 and the ratio of 2 weeks ago of 1.12:1.

Like platinum, the increase in the long to short ratio in silver was the result of a much larger percentage decline of short positions held by managed money, which more than offset the decline of their long positions. For silver to generate a short-term buy signal, the daily low must be above $20.06.

Canadian dollar:

For the week, the March Canadian dollar lost 2.36 cents. The COT report revealed that leveraged funds added 4,083 contracts to their long positions and also added 5,612 contracts to their short positions. As of the latest report, leveraged funds are short the Canadian dollar by a ratio of 4.11:1, which is down from the previous week of 4.73:1 and the ratio of 2 weeks ago of 4.74:1.

Australian dollar:

For the week, the March Australian dollar advanced 21 pips. The COT report revealed that leveraged funds liquidated 1,215 contracts of their long positions and also liquidated 173 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by a ratio of 4.99:1, which is up from the previous week of 4.59:1 and the ratio of 2 weeks ago of 4.22:1. The current ratio is the highest in at least one year.

Ironically though the March Australian dollar may be on the verge of generating a short-term buy signal. During the 3 most recent COT reports, we have seen the long to short ratio at a stratospheric level, despite the Australian dollar being essentially flat during this period. For example, from December 17 January 7, which encompasses the 3 periods, the March Australian dollar has in fact advanced 36 pips, or +0.41%. Contrast this with the performance of the March Canadian dollar, which lost 1.35% and the March yen which lost 1.765%. However, the short to long ratio in the Australian dollar is approximately 20% higher than the Canadian dollar and over 50% higher than the Japanese yen.

For a short-term buy signal to be generated, the daily low in the March Australian dollar must be above 89.29. The massive short position of manage money will provide plenty of fuel for the upside move. On Friday, the Australian dollar rallied strongly closing 1.03 cents higher on heavy volume. The preliminary open interest stats show that open interest declined 4210 contracts.

Swiss franc:

For the week, the March Swiss franc advanced 16 pips. The COT report revealed that leveraged funds liquidated 7,694 contracts of their long positions and also liquidated 1,185 contracts of their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 2.08:1, which is down significantly from the previous week of 2.61:1 and the ratio of 2 weeks ago of 2.56:1.

British pound:

For the week, the March British pound advanced 52 pips. The COT report revealed that leveraged funds liquidated 10,206 contracts of their long positions and also liquidated 2,232 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by a ratio 3.32:1, which is down from the previous week of 3.40:1 but up from the ratio of 2 weeks ago of 3.10:1.

Euro:

For the week, the March euro advanced 62 pips. The COT report revealed that leveraged funds liquidated 12,398 contracts of their long positions and added 1,089 contracts to their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.94:1, which is down from the previous week of 2.29:1 and the ratio of 2 weeks ago of 2.30:1.

Yen:

For the week, the March yen advanced 57 pips. The COT report revealed that leveraged funds liquidated 1,604 contracts of their long positions and also liquidated 6,188 contracts of their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 2.97:1, which is down from the previous week of 3.01:1 and the ratio of 2 weeks ago of 3.08:1.

Dollar index:

For the week, the March dollar index lost 20 points. The COT report revealed that leveraged funds liquidated 771 contracts of their long positions and added 3,623 contracts to their short positions. As of the latest report, leveraged funds are short the dollar index by ratio 4.79:1, which is up significantly from the previous week of 3.86:1 but down from the ratio of 2 weeks ago of 5.51:1.

S&P 500 E mini:

For the week, the March S&P 500 E mini advanced 12.20 points The COT report revealed that leveraged funds liquidated 6,348 contracts of their long positions and also liquidated 16,821 contracts of their short positions. As of the latest report, leveraged funds are short the S&P 500 E mini by a ratio of 1.49:1, which is about the same as the previous week of 1.50:1 and slightly below the ratio of 2 weeks ago of 1.54:1.