Weekend Wrap for March 23, 2014

The compilation period for this week’s COT report is from Wednesday, March 12 through Tuesday, March 18

There are some interesting setups in a number of markets due to the unusually large long to short ratios combined with price and open interest action that indicates some markets may be rolling over. At the top of the list is sugar and WTI crude oil along with the soybean and wheat complex. We think corn looks especially vulnerable. The grain markets will begin to focus on the March 31 planting intentions and quarterly grain stocks report. There is number private forecasters who are projecting a massive increase in soybean acreage and large increase in corn acreage. Although many commodities remain on short and intermediate term buy signals, we could see this reverse, possibly this week. If long any of the above-named commodities, we would tighten stops and look to exit these commodities on any rally.

Soybeans:

For the week, May soybeans advanced 20.25 cents, July +10.50, November +2.75. The COT report revealed that managed money liquidated 1,173 contracts of their long positions and also liquidated 1,041 contracts of their short positions. Commercial interests liquidated 5,426 contracts of their long positions and also liquidated 14,908 contracts of their short positions. As of the latest report, managed money is long soybeans by ratio of 7.25:1, which is up slightly from the previous week of 7.05:1, but down from the ratio of 2 weeks ago of 7.82:1.

Soybean meal:

For the week, May soybean meal advanced $11.90, July +9.50, December +7.10. The COT report revealed that managed money liquidated 215 contracts of their long positions and also liquidated 581 contracts of their short positions. Commercial interests liquidated 3,161 contracts of their long positions and also liquidated 223 contracts of their short positions. As of the latest report, managed money is long soybean meal by ratio 3.88:1, which is up slightly from the previous week of 3.80:1 and the ratio of 2 weeks ago of 3.81:1.

Soybean oil: On March 20, May soybean oil generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, May soybean oil lost 1.27 cents, July -1.22, December -1.30. The COT report revealed that managed money added 6,596 contracts to their long positions and liquidated 2,098 contracts of their short positions. Commercial interests liquidated 3,611 contracts of their long positions and also liquidated 2,067 contracts of their short positions. As of the latest report, managed money is long soybean oil by ratio 1.77:1, which is up from the previous week of 1.53:1 and a complete reversal from 2 weeks ago when managed money was short by ratio of 1.11:1.

As we have seen many times before, managed money got heavily net long at the top of the market. On March 20, May soybean oil generated a short-term sell signal.

Corn:

For the week, May corn lost 7.00 cents, July -6.75, December -7.25. The COT report revealed that managed money added 5,693 contracts to their long positions and liquidated 9,775 contracts of their short positions. Commercial interests added 8,493 contracts to their long positions and also added 10,980 contracts to their short positions. As of the latest report, managed money is long corn by an unbelievable ratio of 4.41:1, which is up significantly from the previous week of 3.78:1 and the ratio of 2 weeks ago of 2.83:1. Three weeks ago, managed money was long corn by ratio 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 and February 5, 2013 when managed money was long by a ratio of 3.72:1. During this time, corn traded in a range of $7.30 to 7.45. 

From February 19 through March 18, which encompasses 4 COT periods, the long to short ratio has increased from 1.68:1 to 4.41:1, yet May corn prices have advanced only 30.75 cents. This is an extreme bullish position when corn’s performance has been underwhelming.

Upon further examination of the COT numbers consider on February 25 managed money held a net long position of 102,380 contracts. By the report of March 18, this had exploded to a net long position of 230,145 contracts or an increase of 127,765 contracts.

On February 25, commercials held a net short position of 281,242 contracts or a short to long ratio of 1.88:1. By the March 18 report, the net short position of commercials increased to 378,949 contracts, a net gain of 97,707 contracts, or a short to long ratio of 2.27%.

The end result of the large increase of long positions by managed money and the large short position of commercials from February 19 through March 18 has been a paltry gain of 30.75 cents. It is apparent that commercial selling is keeping a lid on prices and that managed money continues to pile in on the long side despite tepid price performance during the past month.

If one looks at the May chart, it appears that a large topping formation is occurring and the impetus for a significant downside move may be the impending March 31 planting intentions and quarterly grain stocks report. However, we think corn will begin its descent long before then. We are adamantly opposed to being long corn, despite it being on a short and intermediate term buy signal. Additionally, unlike wheat, corn has not benefited greatly from the crisis in Ukraine and this is another sign that corn may be about to rollover. If the situation in Ukraine improves, a flood of selling could be unleashed. With managed money stratospherically long, there will be plenty of fuel for a downside move. Additionally, managed money has a habit of holding long corn positions longer than is prudent, which means the imminent downside move could be greatly extended.

Chicago wheat:

For the week, May Chicago wheat advanced 6.00 cents, July +5.25, December +4.25. The COT report revealed that managed money added 2,743 contracts to their long positions and liquidated 11,285 contracts of their short positions. Commercial interests liquidated 138 contracts of their long positions and added 9,975 contracts to their short positions. As of the latest report, managed money is long Chicago wheat by ratio of 1.39:1, which is up from the previous week of 1.15:1 and a complete reversal from the ratio of 2 weeks ago when managed money was short by ratio of 1.08:1.

Kansas City wheat:

For the week, May Kansas City wheat advanced 19.75 cents, July +20.75, December +17.75. The COT report revealed that managed money added 1,311 contracts to their long positions and liquidated 2,796 contracts of their short positions. Commercial interests added 1,887 contracts to their long positions and also added 5,017 contracts to their short positions. As of the latest report, managed money is long Kansas City wheat by ratio of 7.14: 1, which is up dramatically from the previous week of 4.73:1 and more than double the ratio of 2 weeks ago of 3.16:1.

Year to date, May Kansas City wheat is the leader with a gain of 19.95%, May wheat +13.28%, May soybean meal +11.85%, May corn +11.33%, May soybeans +10.32%, May soybean oil +3.87%.

Cotton:

For the week, May cotton advanced 1.12 cents, July +1.86, December +41 points. The COT report revealed that managed money added 5,145 contracts to their long positions and also added 365 contracts to their short positions. Commercial interests added 791 contracts to their long positions and also added 3,128 contracts to their short positions. As of the latest report, managed money is long cotton by ratio of 12.87:1, which is about the same as the previous week of 12.79:1, but dramatically higher than the ratio of 2 weeks ago of 8.51:1.

Sugar #11: On March 21, May sugar generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, May sugar lost 42 points, July -41, October -36. The COT report revealed that managed money added 3,057 contracts to their long positions and liquidated 9,361 contracts of their short positions. Commercial interests added 3,332 contracts to their long positions and also added 10,894 contracts to their short positions. As of the latest report, managed money is long sugar by ratio of 2.81:1, which is up from the previous week of 2.44:1 and up dramatically from the ratio of 2 weeks ago of 1.77:1.

We think there is a terrific opportunity on the bearish side of sugar, but there is a caveat about to the potential position. As is usually the case, managed money was massively short at the bottom of the market and from the beginning of the rally on January 30 through March 6 when May sugar topped out at 18.47, total open interest declined by 55,772 contracts. During this time, May sugar rallied 3.37 cents or 22.54%. Interestingly, the trough of the open interest decline occurred on March 4 when there were 787,953 contracts outstanding versus 851,368 outstanding on January 30.

Subsequent to March 6, total open interest declined by another 13,293 contracts to a total of 782,303 as of March 20 (March 21 stats will not be released until March 24). In short, total open interest is at the lowest level since the beginning of the rally on January 30 and is the lowest since December 4, 2013 of 774,353 contracts. This means that the amount of new selling pressure is likely to be reduced because short sellers got severely burned on the massive rally that ended on March 6. As a result, it is unlikely they will be aggressive short sellers again until sugar is near the bottom of the trading range. 

Usually, after the generation of a sell signal, the market has a tendency to rally from 1-3 days and this is the opportunity to initiate bearish positions. The sugar market is very close to generating an intermediate term sell signal and if the daily high in the May contract is below 16.79, the sell signal be triggered.

Coffee:

For the week, May coffee lost 27.25 cents, July – 27.15, September -27.30. The COT report revealed that managed money added 4,641 contracts to their long positions and liquidated 718 contracts of their short positions. Commercial interests liquidated 483 contracts of their long positions and added 788 contracts to their short positions. As of the latest report, managed money is long coffee by ratio of 6.69:1, which is up substantially from the previous week of 5.51:1 and the ratio of 2 weeks ago of 3.62:1.

Cocoa:

For the week, May cocoa lost $35.00, July -35.00, December -38.00.The COT report revealed that managed money liquidated 1,015 contracts of their long positions and also liquidated 440 contracts of their short positions. Commercial interests liquidated 111 contracts of their long positions and also liquidated 2,500 contracts of their short positions. As of the latest report, managed money is long cocoa by ratio of 4.56:1, which is approximately the same as the previous week of 4.51:1, but down significantly from the ratio of 2 weeks ago of 6.64:1.

Year to date, May coffee is the leader with a gain of 51.53%, May cotton +10.56%, May Cocoa +8.87%, May sugar +1.63%.

Live cattle:

For the week, April live cattle lost 1.25 cents, June -1.73, August -1.97. The COT report revealed that managed money added 2,757 contracts to their long positions and liquidated 1,660 contracts of their short positions. Commercial interests added 505 contracts to their long positions and also added 139 contracts to their short positions. As of the latest report, managed money is long cattle by a stratospheric 14.60:1, which is up significantly from the previous week of 12.19:1 and the ratio of 2 weeks ago of 12.05:1. This week’s ratio is the highest for managed money during the entire length of the bull market.

Lean hogs:

For the week, April lean hogs advanced 6.37 cents, June +2.47, August +4.35. The COT report revealed that managed money liquidated 1,588 contracts of their long positions and added 42 contracts to their short positions. Commercial interests added 1,086 contracts to their long positions and liquidated 334 contracts of their short positions. As of the latest report, managed money is long lean hogs by ratio of 16.81: 1, which is down from the previous week of 17.34:1, but up dramatically from the ratio of 2 weeks ago of 9.41:1.

Year to date, April lean hogs is the leader with a gain of 38.60%, April cattle +6.43%.

WTI crude oil: 

For the week, May WTI crude oil advanced 90 cents, June +66, July +44. The COT report revealed that managed money liquidated 24,528 contracts of their long positions and added 11,840 contracts to their short positions. Commercial interests liquidated 4302 contracts of their long positions and also liquidated 13,113 contracts of their short positions. As of the latest report, managed money is long WTI crude oil by a ratio of 8.21:1, which is down dramatically from the previous week of 12.49:1 and the ratio of 2 weeks ago of 14.98:1.

It appears that managed money has recently become far less enamored of crude oil. For example, during the past 2 COT reports, managed money has liquidated 33,072 contracts of their long positions and added 15,985 contracts to their short positions. Additionally, the long to short ratio of managed money is the lowest since the COT tabulation date of February 4 when managed money was long WTI crude oil by ratio of 7.69:1. The trading range encompassed by the February 4 COT report was from January 29 through February 4 and during this time May WTI crude traded in a range from $94.62-97.19. On February 4, the May contract closed at 95.64. In short, the current ratio is somewhat above the ratio of February 4, but so is the price of crude oil.

The large liquidation of long positions and addition of short positions in the March 18 report is the largest change by managed money thus far in 2014. The preliminary stats for March 21 show volume traded at 392,862 contracts and a total open interest decline of 469 contracts while crude oil advanced 56 cents. Preliminary volume stats are very reliable and volume traded on March 21 was the lowest since February 28 when 353,576 contracts were traded and May WTI closed at 101.89.

Other bearish factors to consider is that Brent crude is on a short and intermediate term sell signal, heating oil is on a short and intermediate term sell signal while gasoline generated a short-term sell signal on March 17. Looking at year to date performance, gasoline, heating oil and Brent crude are all trading lower year to date, while May crude is up only $1.50 in 2014.. In other words, year to date, the petroleum complex has been trading sideways to lower.

Maintain out of the money calls written on March 12 and new bearish positions recommended in the March 19 report.

Brent crude oil: On March 17, Brent crude oil generated a short and intermediate term sell signal.

Heating oil:

For the week, May heating oil lost 1.48 cents, June -1.37, July -1.34. The COT report revealed that managed money liquidated 8,075 contracts of their long positions and added 2,300 contracts to their short positions. Commercial interests added 3,091 contracts to their long positions and liquidated 8,700 contracts of their short positions. As of the latest report, managed money is long heating oil by ratio of 2.30:1, which is down significantly from the previous week of 3.34:1 and the ratio of 2 weeks ago of 3.76:1.

Gasoline: On March 17, May gasoline generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, May gasoline lost 5.06 cents, June -4.68, July -4.26. The COT report revealed that managed money liquidated 310 contracts of their long positions and added 1,392 contracts to their short positions. Commercial interests added 3,787 contracts to their long positions and also added 2,032 contracts to their short positions. As of the latest report, managed money is long gasoline by ratio of 4.01:1, which is down from the previous week of 4.34:1 and the ratio of 2 weeks ago of 4.97:1.

Ethanol:

For the week, April ethanol advanced 38.7 cents, May + 23.0 cents, June + 14.0 cents. All 3 delivery months made new contract highs for the week and the April contract made a high of $2.858, which took out the July 19, 2012 high of $2.760. The April contract is approaching the $2.890 high made on August 26, 2011 and is approximately 10 cents from the all-time high of $2.95 made on July 26, 2011 and June 18, 2008. 

Natural gas:

For the week, May natural gas lost 10.6 cents, June -10.4, July -10.6. The COT report revealed that managed money liquidated 9,923 contracts of their long positions and added 1,338 contracts to their short positions. Commercial interests added 576 contracts to their long positions and liquidated 4,840 contracts of their short positions. As of the latest report, managed money is long natural gas by ratio of 1.95:1, which is down from the previous week of 2.04:1 and the ratio of 2 weeks ago of 2.04:1.

Note: The ratios of WTI crude, heating oil, gasoline and natural gas have been declining during the past 3 COT reporting periods.

Year to date, April ethanol is the leader with a gain of 64.20%, May WTI crude oil +1.53%, May gasoline -1.60%, May Brent crude oil -2.82%, May heating oil -4.00%.

Copper:

For the week, May copper closed unchanged. The COT report revealed that managed money liquidated 3,093 contracts of their long positions and added 8,430 contracts to their short positions. Commercial interests added 963 contracts to their long positions and liquidated 2,371 contracts of their short positions. As of the latest report, managed money is short copper by ratio of 1.75:1, which is up from the previous week of 1.32:1 and the ratio of 2 weeks ago of 1.07:1. 

Palladium:

For the week, June palladium advanced $16.05. The COT report revealed that managed money liquidated 44 contracts of their long positions and added 525 contracts to their short positions. Commercial interests added 105 contracts to their long positions and also added 363 contracts to their short positions. As of the latest report, managed money is long palladium by ratio of 4.62:1, which is down from the previous week of 5.10:1 and the ratio of 2 weeks ago of 5.46:1.

Platinum:

For the week, April platinum lost $33.60. The COT report revealed that managed money added 1,664 contracts to their long positions and also added 1,458 contracts of their short positions. Commercial interests liquidated 75 contracts of their long positions and added 659 contracts to their short positions. As of the latest report, managed money is long platinum by ratio of 6.81:1, which is down from the previous week of 8.76:1, but above the ratio of 2 weeks ago of 6.24:1.

Gold:

For the week, April gold lost $43.00. The COT report revealed that managed money added 9,419 contracts to their long positions and liquidated 5,613 contracts of their short positions. Commercial interests added 349 contracts to their long positions and also added 14,912 contracts to their short positions. As of the latest report, managed money is long gold by ratio of 8.49:1, which is up dramatically from the previous week of 5.87:1 and the ratio of 2 weeks ago of 4.72:1.

The long to short ratio is at an extremely lofty level, and as we have pointed out in previous reports, much of this is due to the liquidation of short positions rather than the addition of new long positions (see extract of March 16 report). The report of March 18 was the first since February 11 when more new longs were added than shorts liquidating. However, looking back over 6 months, the current long to short ratio is significantly above the ratio of early September 2013 when gold prices were trading in the same approximate range. For example, in the COT report tabulated on September 3, the long to short ratio stood at 3.34:1 and the trading range encompassed by the report was from a low of 1373 to a high of 1416.

If we go back to the early part of 2013 when gold was trading in a range from 1554-1697 during January and February, the highest ratio of longs to shorts occurred in the COT report of January 22, 2013 at 5.10:1. We find this troubling because the current ratio is significantly above January and February 2013 yet gold prices are approximately $200.00-$300.00 lower. Although April gold would have to trade in the 1300-1310 range before it could generate a short-term sell signal, we are mindful that the long to short ratio is out of line and an adjustment downward is desirable. Thus far, platinum remains on a short and intermediate term buy signal as is gold and the only weak link in the precious metals chain is silver

 From the March 16 Weekend Wrap:

“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.”

Silver: On March 20, May silver generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, May silver lost $1.103. The COT report revealed that managed money added 627 contracts to their long positions and also added 3,353 contracts to their short positions. Commercial interests added 2,871 contracts to their long positions and also added 3,306 contracts to their short positions. As of the latest report, managed money is long silver by ratio 2.29:1, which is down from the previous week of 2.85:1 and the ratio of 2 weeks ago of 3.39:1.

Unlike gold which has a stratospheric long to short ratio, the ratio in silver is back down to the area of the COT report of February 18 (2.66:1). Open interest action has been terrible recently, and it wouldn’t take much for an intermediate term sell signal to be generated. On March 17, we recommended that all bullish positions in silver be liquidated. Clients should be on the sidelines.

Year to date, April gold is the leader with a gain of 10.63%, June palladium +10.61%, May silver +4.69%, April platinum +4.62%, May copper -12.90%.

Canadian dollar:

For the week, the June Canadian dollar lost 86 pips. The COT report revealed that leveraged funds added 9,544 contracts to their long positions and also added 18,561 contracts to their short positions. As of the latest report, leveraged funds are short the Canadian dollar by ratio of 4.52:1, which is down dramatically from the previous week of 6.95:1 and the ratio of 2 weeks ago of 8.60:1. The reduction of the ratio was due primarily to the addition of large long positions.

Australian dollar:

For the week, the June Australian dollar gained 68 pips. The COT report revealed that leveraged funds added 13,534 contracts to their long positions and liquidated 12,246 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by ratio of 1.73:1, which is down dramatically from the previous week of 6.23:1 and the ratio of 2 weeks ago of 4.62:1.

The current ratio is the lowest since November 5 when leveraged funds were short by a ratio of 1.57:1.The trading range during that COT report was from 93.55 to 95.12 and the December contract closed at 94.67 on November 5. On Tuesday March 18, the June Australian dollar closed at 90.69, or 3.98 cents below the November 5 close. In short, managed money is far more bullish on the Australian dollar at this juncture than they were in early November 2013 when it was trading significantly higher. The Australian dollar generated a short-term buy signal on February 7 and an intermediate term buy signal on March 7.

Swiss franc:

this For the week, the June Swiss franc lost 1.30 cents. The COT report revealed that leveraged funds added 1,788 contracts to their long positions and also added 3,365 contracts to their short positions. As of the latest report, leveraged funds are long the Swiss franc by ratio of 1.58:1, which is down from the previous week of 2.17:1, but above the ratio of 2 weeks ago of 1.33:1.

British pound: On March 19, the June British pound generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, the June British pound lost 1.35 cents. The COT report revealed that leveraged funds liquidated 2,999 contracts of their long positions and also liquidated 7,878 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by a ratio 4.7:1, which is up dramatically from the previous week of 3.77:1 and the ratio of 2 weeks ago of 3.56:1. The advance in the long to short ratio this week was the result of a substantial liquidation of short positions.

From the March 16 Weekend Wrap:

“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 lost 1.11 cents. The COT report revealed that leveraged funds liquidated 2,769 contracts of their long positions and also liquidated 10,151 contracts of their short positions. As of the latest report, leveraged funds are long the euro by ratio of 3.10:1, which is up substantially from the previous week of 2.44:1 and the ratio of 2 weeks ago of 1.99:1. Like the British pound, the advance in the ratio occurred as a result of the liquidation of short positions.

Yen:

For the week, the June yen lost 92 pips. The COT report revealed that leveraged funds liquidated 17,156 contracts of their long positions and also liquidated 24,860 contracts of their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 2.84:1, which is up from the previous week of 2.29:1 and the ratio of 2 weeks ago of 1.87:1. The reason for the increase in the short ratio was due primarily to the liquidation of long positions.

Dollar index:

For the week, the June dollar index advanced 70 points. The COT report revealed that leveraged funds liquidated 9,359 contracts of their long positions and added 1,277 contracts to their short positions. As of the latest report, leveraged funds are short the dollar index by ratio of 4.39:1, which is more than double the previous week of 2.00:1 and the ratio of 2 weeks ago of 2.36:1. The short ratio increased primarily to the hefty liquidation of long positions.

Year to date, the June yen is the leader with a gain of 3.00%, June Australian dollar +2.33%, June Swiss franc +0.63%, June euro + 0.22%, June dollar index -0.11%, June British pound -0.37%, June Canadian dollar -4.98%.

S&P 500 E mini:

For the week, the June S&P 500 E mini advanced 24.10 points. The COT report revealed that leveraged funds added 73,342 contracts to their long positions and also added 1,899 contracts of their short positions. As of the latest report, leveraged funds are short the S&P 500 E mini by ratio of 1.64:1, which is down from the previous week of 1.85:1 and the ratio of 2 weeks ago of 1.75:1.

Year to date, the S&P 400 is the leader with a gain of 2.78%,  Russell 2000 +2.58%, NASDAQ 100+1.70%, S&P 500 +0.98%, Dow Jones Industrial Average -1.65%.

10 year Treasury Note: On March 19, the June Treasury Note generated a short and intermediate term sell signal.