Weekend Wrap for March 16, 2014

The COT reporting period is from March 5-March 11.

Soybeans:

For the week, May soybeans lost 69.25 cents, July -53.00, November -12.75. The COT report revealed that managed money liquidated 4,605 contracts of their long positions and added 2,535 contracts to their short positions. Commercial interests added 11,112 contracts to their long positions and liquidated 2,011 contracts of their short positions. As of the latest report, managed money is long soybeans by ratio of 7.05:1, which is down from the previous week of 7.82:1 and the ratio of 2 weeks ago of 9.20:1.

Soybean meal:

For the week, May soybean meal lost $13.80, July -13.60, December + 30 cents. The COT report revealed that managed money liquidated 464 contracts of their long positions and also liquidated 54 contracts of their short positions. Commercial interests added 1,248 contracts to their long positions and liquidated 455 contracts of their short positions. As of the latest report, managed money is long soybean meal by ratio of 3.80:1, which is the same as the previous week of 3.81:1 but down from the ratio of 2 weeks ago of 4.23:1.

Soybean oil:

For the week, May soybean oil lost 2.07 cents, July -2.03, December -1.62. The COT report revealed that managed money added 12,760 contracts to their long positions and liquidated 16,022 contracts of their short positions. Commercial interests liquidated 14,400 contracts of their long positions and added 22,563 contracts to their short positions. As of the latest report, managed money is now long soybean oil by ratio of 1.53:1, which is a complete reversal from the previous week when they were short by ratio of 1.11:1 and the ratio of 2 weeks ago when managed money was short by 1.39:1.

Just as managed money got long for the first time in over a year, the market is correcting and conceivably may have topped on March 7. In the report of March 13, we recommended that bullish positions recommended in the February 10 report be closed out along with the short call position. This was a highly profitable trade that was put on with very little risk. On February 10, May soybean oil closed at 39.04 and on March 13 closed at 42.99.

Corn:

For the week, May corn lost 3.00 cents, July -2.50, December +2.50. The COT report revealed that managed money added 20,267 contracts to their long positions and liquidated 18,460 contracts of their short positions. Commercial interests added 8,908 contracts to their long positions and also added 27,763 contracts to their short positions. As of the latest report, managed money is long by a massive 3.78:1, which is up dramatically from the previous week of 2.83:1 and the ratio of 2 weeks ago of 1.68:1.

As remarkable as it is, managed money’s long position exceeds that of March 26, 2013, when the long to short ratio made a high of 3.62:1 and corn closed at $7.34 3/4. From February 26 through March 11, which encompasses 2 COT periods, the long to short ratio has increased from 1.68:1 to 3.78:1, yet May corn prices have advanced only 22.00 cents. We consider this to be a danger sign to anyone long the market. There is extreme bullishness in the market, yet corn’s advance  has been tepid. Although we are unwilling to call a top in the corn market, the massive long position of manage money and the unimpressive performance during the past couple of weeks should give anyone pause about having any significant position in the market.

Another reason for caution is that commercials are increasing their net short position and have gone from a short ratio of 1.88:1 on February 25 to being short by 2.30:1 on March 11. In summary as prices have been advancing, commercials were doing what they usually do, which is to protect themselves in the event of a market decline. We suggest if clients are long corn that they do the same. Another important point is that the crisis in Ukraine is not doing much to bolster corn prices and the main effect of the turmoil has been to increase the price of wheat.

From the March 9 Weekend Wrap:

In last weekend’s report, we wrote about the large net long position of manage money, and according to this week’s COT report, they have increased long positions to a level last seen in early April and late March of 2013. The last time the long to short ratio approached the level of this week’s COT report occurred in the report of April 2, 2013 when the long to short ratio reached 2.43:1 In the report tabulated on March 26, 2013, the ratio reached 3.62:1. On April 2, 2013, May corn closed at $6.42 and on March 26, 2013, May corn closed at 7.34 3/4.

Chicago wheat:

For the week, May Chicago wheat advanced 33.25 cents, July +31.25, December +29.75. The COT report revealed that managed money added 3,870 contracts to their long positions and liquidated 13,988 contracts of their short positions. Commercial interests liquidated 4,694 contracts of their long positions and added 13,281 contracts to their short positions. As of the latest report, managed money is finally long Chicago wheat, this time by ratio of 1.15:1, which is a complete reversal from the previous week when they were short by ratio of 1.08:1 and the ratio of 2 weeks ago when managed money was short by 1.24:1.

Is important to note that the move to a net long position was the result of shorts being liquidated rather than new longs being added. The advance in wheat during the past 5 weeks must have been very painful for managed money shorts and undoubtedly  lost considerable sums on this trade.

In prior weekend reports, we commented that managed money was contributing to the rise of wheat prices through short covering rather than the addition of new long positions. We decided to take a closer look at this and the stats are as follows: In the February 4 COT report managed money was holding 96,662 contracts long and 151,309 contracts short. On March 11, managed money held 88,287 contracts long and 76,878 contracts short. On February 4, May Chicago wheat closed at $5.86 3/4 and by March 11 the close was 6.59, or an advance of 72.25 cents.

In summary, between the 2 reports, managed money liquidated 8,375 of their long positions and liquidated a massive 74,431 contracts of their short positions. This confirms what we have been saying for the past couple weeks, namely that managed money has been liquidating long positions throughout the rally and that the increase in the long to short ratio is a function of short covering, not the addition of new long positions.

With wheat prices as high as they are and the fact there has not been a meaningful correction, we would normally suggest that out of the money calls be written against bullish positions  that were recommended in the February 6 report. However, with the crisis in Ukraine intensifying and the fact there is plenty of money sitting on the sidelines that can be deployed into wheat, we think it is wise to stay with the remaining bullish positions. Due to the fact that managed money has not added new longs over the past 5 weeks reduces the likelihood of a severe correction.

Kansas City wheat:

For the week, May Kansas City wheat advanced 30.25 cents, July +30.75, December +28.50. The COT report revealed that managed money added 539 contracts to their long positions and liquidated 4,208 contracts of their short positions. Commercial interests liquidated 1,657 contracts of their long positions and added 1,526 contracts to their short positions. As of the latest report, managed money is long Kansas City wheat by ratio of 4.73:1, which is up significantly from the previous week of 3.16:1 and nearly double the ratio of 2 weeks ago of 2.42:1.

Year to date, May Kansas City wheat is the leader with a gain of 16.87%, May corn +12.96%, May Chicago wheat +12.30%, May soybean oil +9.30%, May soybean oil +8.93%, May soybeans +8.73%.

Cotton:

For the week, May cotton advanced 92 points, July +47, December +52. The COT report revealed that managed money added 5,029 contracts to their long positions and liquidated 1,984 contracts of their short positions. Commercial interests liquidated 582 contracts of their long positions and added 13,695 contracts to their short positions. As of the latest report, managed money is long cotton by ratio of 12.79:1, which is up massively from the previous week of 8.51:1 and the ratio of 2 weeks ago of 7.79:1.

Sugar #11:

For the week, May sugar lost 76 points, July -60, October -53. The COT report revealed that managed money added 12,311 contracts to their long positions and liquidated 22,548 contracts of their short positions. Commercial interests added 1,148 contracts to their long positions and also added 18,750 contracts to their short positions. As of the latest report, managed money is long sugar by ratio of 2.44:1, which is up dramatically from the previous week of 1.77:1 and nearly double the ratio of 2 weeks ago of 1.25:1.

The current ratio is the highest seen in sugar since the COT report of November 26, 2013 when the long to short ratio reached 2.91:1. The trading range encompassed by the November 26 report was from 17.35 to 17.67. On March 11 , May sugar closed at 18.03, which means the ratio is not out of line compared to November 26 report.

Coffee:

For the week, May coffee advanced 1.80 cents, July +1.50, September +1.55. The COT report revealed that managed money added 3.319 contracts to their long positions and liquidated 3,258 contracts of their short positions. Commercial interests added 4,985 contracts to their long positions and also added 5,690 contracts to their short positions. As as of the latest report, managed money is long coffee by ratio of 5.51:1, which is up dramatically from the previous week of 3.62:1 and the ratio of 2 weeks ago of 3.00:1.

Cocoa:

and For the week, May Cocoa advanced $11.00, July +13.00, December +18.00. The COT report revealed that managed money added 2,230 contracts to their long positions and also added 7,293 contracts to their short positions. Commercial interests liquidated 948 contracts of their long positions and also liquidated 2,345 contracts of their short positions. As of the latest report, managed money is long cocoa by ratio of 4.51:1, which is down from the previous week of 6.64:1 and the ratio of 2 weeks ago of 7.07:1.

Year to date, May coffee is the leader with a gain of 75.65%, May Cocoa +10.16%, May cotton + 9.23% May sugar +4.17%.

Live cattle:

For the week, April live cattle advanced 2.00 cents, June +1.98, August +1.62. The COT report revealed that managed money liquidated 848 contracts of their long positions and also liquidated 206 contracts of their short positions. Commercial interests liquidated 3,110 contracts of their long positions and also liquidated 2,883 contracts of their short positions. As of the latest report, managed money is long cattle by ratio of 12.19:1, which is up slightly from the previous week of 12.05:1, but up significantly from the ratio of 2 weeks ago of 10.71:1.

Lean hogs:

For the week, April lean hogs advanced 6.30 cents, June +7.35, August +5.78. The COT report revealed that managed money liquidated 1,006 contracts of their long positions and also liquidated 3,723 contracts of their short positions. Commercial interests added 589 contracts to their long positions and also added 761 contracts to their short positions. As of the latest report, managed money is long by a stratospheric 17.34:1, which is up dramatically from the previous week of 9.41:1 and the ratio of 2 weeks ago of 5.94:1.

Year to date, April lean hogs is the leader with a gain of 31.57%, April live cattle +14.71%.

WTI crude oil: On March 12, April WTI crude oil generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, April WTI crude oil declined $3.69, May -3.43, June -3.08. The COT report revealed that managed money liquidated 8,544 contracts of their long positions and added 4,145 contracts to their short positions. Commercial interests added 14,981 contracts to their long positions and also added 12,546 contracts to their short positions. As of the latest report, managed money is long crude oil by ratio of 12.49:1, which is down from the previous week of 14.98:1 and the ratio of 2 weeks ago of 13.97:1.

Heating oil:

For the week, April heating oil lost 6.90 cents, May -4.72, June -3.85. The COT report revealed that managed money liquidated 10,109 contracts of their long positions and also liquidated 1,079 contracts of their short positions. Commercial interests liquidated 10,884 contracts of their long positions and also liquidated 21,167 contracts of their short positions. As of the latest report, managed money is long heating oil by ratio of 3.34:1, which is down from the previous week of 3.76:1 and the ratio of 2 weeks ago of 4.49:1.

Gasoline:

For the week, April gasoline lost 1.41 cents, May -1.42, June -1.44. The COT report revealed that managed money added 1,230 contracts to their long positions and also added 2,431 contracts to their short positions. Commercial interests added 3,433 contracts to their long positions and also added 4,056 contracts to their short positions. As of the latest report, managed money is long gasoline by ratio of 4.34:1, which is down from the previous week of 4.97:1 and the ratio of 2 weeks ago of 4.76:1.

Ethanol:

For the week, April ethanol advanced 16.4 cents and made a new contract high at $2.48. This is the highest price on the continuation chart since the print of $2.50 made on December 4, 2013. During the past 2 years, ethanol has made a high at $2.76 on July 19, 2012 and $2.75 on May 31, 2013.

Natural gas: On March 12, April natural gas generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, April natural gas lost 19.3 cents, May -16.4, June -15.6. The COT report revealed that managed money liquidated 6,268 contracts of their long positions and also liquidated 3,050 contracts of their short positions. Commercial interests liquidated 2,694 contracts of their long positions and also liquidated 2,215 contracts of their short positions. It is somewhat unusual to see manage money and commercials liquidate both long and short positions. As of the latest report, managed money is long natural gas by ratio of 2.04:1, which is exactly the same as the ratio of 2 weeks ago (2.04:1) and below the ratio of 2 weeks ago of 2.30:1.

Year to date, April ethanol is the leader with a gain of 42.19%, April natural + 7.70%, April crude oil +0.46%, April gasoline -0.09%, May Brent crude oil – 1.74%, April heating oil -3.40%.

Copper:

For the week, May copper lost 13.20 cents. The COT report revealed that managed money liquidated 3,255 contracts of their long positions and added 4,618 contracts to their short positions. Commercial interests added 3,461 contracts to their long positions and liquidated 3,289 contracts of their short positions. As of the latest report, managed money is short copper by ratio of 1.32:1, which is significantly above the ratio of the previous week of 1.07:1 and a total reversal from the ratio of 2 weeks ago when managed money was long copper by ratio of 1.05:1.

Palladium:

For the week, June palladium lost $8.55. The COT report revealed that managed money added 1,791 contracts to their long positions and also added 661 contracts to their short positions. Commercial interests liquidated 338 contracts of their long positions and added 439 contracts to their short positions. As of the latest report, managed money is long palladium by ratio of 5.10:1, which is down from the previous week of 5.46:1 but above the ratio of 2 weeks ago of 4.55:1.

Platinum:

For the week, April platinum lost $14.00. The COT report revealed that managed money added 2,868 contracts to their long positions and liquidated 1,251 contracts of their short positions. Commercial interests liquidated 676 contracts of their long positions and added 2,845 contracts to their short positions. As of the latest report, managed money is long platinum by ratio of 8.76:1, which is up significantly from the previous week of 6.24:1 and more than double the ratio of 2 weeks ago of 4.21:1.

Gold:

For the week, April gold advanced $40.80. The COT report revealed that managed money liquidated 554 contracts of their long positions and also liquidated 5,418 contracts of their short positions. Commercial interests liquidated 5,706 contracts of their long positions and also liquidated 3,329 contracts of their short positions. As of the latest report, managed money is long gold by ratio of 5.87:1, which is up from the previous week of 4.72:1 and the ratio of 2 weeks ago of 4.10:1.

We  continually see distortions in the long to short ratios-short to long ratios versus performance in commodities traded by managed money. For example, managed money is long crude oil by a ratio of 12.49:1 when it has advanced only 0.46% year to date while April gold has advanced 14.71% year to date and managed money is long gold by only 5.87:1. In platinum year to date, gold is outperforming it by 2 to 1, yet managed money is long platinum by 8.76:1.

We examined gold using the same 2 COT reports (February 4 and March 11) as used in wheat. We found the same unexplainable behavior in gold as we did in wheat. For example, the February 4 COT report showed that managed money held 107,407 contracts long and 63,755 contracts short in gold. In the March 11 report, managed money held 127,797 contracts long and 21,766 contracts short. From February 4 through March 11, April gold advanced $95.50, yet long positions increased by only 20,390 contracts while the number of short positions liquidated totaled 41,989 contracts. In other words, during a major gold rally, managed money liquidated twice the number of short positions than new additions to long positions.

Again, this tells us that the rally has farther to go, and that corrections will be short-lived and shallow.

From the February 23 Weekend Wrap:

“We continue to be amazed by the relatively low long to short ratio of managed money in gold. The bulk of the action in the latest COT report was the liquidation of short positions by managed money, rather than the addition of new long positions. April gold has had 8 weeks when it closed higher and only one week when it closed lower (week of January 27). The market is overbought relative to its 20 day moving average of $1278.70, and the 50 day moving average of 1250.30, but April gold has been trading steadily upward. Additionally, there are not sufficient numbers of new longs to add selling pressure on a pullback. As we have said in previous reports, it is likely that corrections will be shallow, and this will continue to frustrate would be longs sitting on the sidelines.”

Silver:

For the week, May silver advanced 48.5 cents. The COT report revealed that managed money liquidated 292 contracts of their long positions and added 1,901 contracts of their short positions. Commercial interests added 857 contracts to their long positions and also added 224 contracts to their short positions. As of the latest report, managed money is long silver by ratio of 2.85:1, which is down from the previous week of 3.39:1 and the ratio of 2 weeks ago of 3.81:1.

The current ratio is the lowest since the COT tabulation date of February 18, 2014 (2.66:1).

Silver suffers from the same malady as wheat and gold. In the February 4 COT report, managed money held 31,093 contracts long and 28,715 contracts short. By March 11, managed money held 35,984 contracts long and 12,610 contracts short. From February 4 through March 11, May silver advanced $1.358, but the net increase of long positions held by managed money was only 4,891 contracts in this time frame. The number of short positions declined by 16,105 contracts, or over 3 times the increase of long positions.

Again, this reinforces our belief that silver prices are headed higher and that managed money still does not believe in the rally of gold and silver.

Year to date, April gold is the leader with a gain of 14.71%, May silver +10.62%, June palladium +7.79%, April platinum +7.21%, May copper -13.21%.

Canadian dollar:

For the week, the June Canadian dollar advanced one pip. The COT report revealed that leveraged funds added 1,293 contracts to their long positions and liquidated 5,537 contracts of their short positions. As of the latest report, leveraged funds are short the Canadian dollar by a ratio of 6.95:1, which is down from the previous week of 8.60:1 and down dramatically from the ratio of 2 weeks ago of 10.20:1.

Australian dollar:

For the week, the June Australian dollar lost 40 pips. The COT report revealed that leveraged funds liquidated 3,231 contracts of their long positions and also liquidated 2,199 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by ratio of 6.23:1, which is up significantly from the previous week of 4.62:1 and the ratio of 2 weeks ago of 4.66:1.

Swiss franc:

For the week, the June Swiss franc advanced 60 pips. The COT report revealed that leveraged funds added 1,223 contracts to their long positions and liquidated 6,689 contracts of their short positions. As of the latest report, leveraged funds are long the Swiss franc by ratio of 2.17:1, which is up dramatically from the previous week of 1.33:1 and the ratio of 2 weeks ago of 1.39:1.

British pound:

For the week, the June British pound lost 95 pips. The COT report revealed that leveraged funds liquidated 10,364 contracts of their long positions and also liquidated 5,027 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by ratio of 3.77:1, which is up from the previous week of 3.56:1 and the ratio of 2 weeks ago of 3.47:1.

The decline of long positions in the current COT report is the largest since they liquidated 10,206 contracts in the report tabulated on January 7, 2014. The pound is looking a bit tired, and for it to continue to advance, the low of the day must be above 1.6656. If the pound continues to drift only a little bit lower, it is likely to generate a short-term sell signal.

Euro:

For the week, the June euro advanced 32 pips. The COT report revealed that leveraged funds added 10,295 contracts to their long positions and liquidated 4,862 contracts of their short positions. As of the latest report, leveraged funds are long the euro by ratio of 2.44:1, which is up significantly from the previous week of 1.99:1 and the ratio of 2 weeks ago of 1.86:1.

Yen:

For the week, the June yen advanced 194 pips. The COT report revealed that leveraged funds liquidated 3,654 contracts of their long positions and added 11,953 contracts to their short positions. As of the latest report, leveraged funds are short the yen by ratio of 2.29:1, which is up from the previous week of 1.87:1, and the ratio of 2 weeks ago of 2.06:1.

Dollar index:

For the week, the June dollar index lost 30 points. The COT report revealed that leveraged funds added 4,603 contracts to their long positions and also added 4,527 contracts to their short positions. As of the latest report, leveraged funds are short the dollar index by ratio of 2.00:1, which is down from the previous week of 2.36:1 and down massively from the ratio of 2 weeks ago of 4.36:1.

Year to date, the March yen is the leader with a gain of 3.92%, March Swiss franc +1.80%, March Australian dollar + 1.58%, March euro +0.84%, March British pound +0.43%, March dollar index -1.08%, March Canadian dollar -4.07%.

S&P 500 E mini:

For the week, the June S&P 500 E mini lost 38.00 points. The COT report revealed that leveraged funds liquidated 42,658 contracts of their long positions and also liquidated 16,131 contracts of their short positions. As of the latest report, managed money is short the S&P 500 E mini by ratio of 1.85:1, which is up from the previous week of 1.75:1 and the ratio of 2 weeks ago of 1.75:1.

 10 year Treasury Note: On March 14, the June 10 year treasury note generated a short-term buy signal, which reversed the short-term sell signal generated on March 7. It remains on an intermediate term buy signal.