Weekend Wrap for March 30, 2014

The USDA will release its planting intentions and quarterly grain stocks report at 11:00 a.m. CDT on March 31. We strongly urge clients to liquidate all grain positions (with the exception of bullish positions in wheat that are protected by long puts) and move to the sidelines. This report has a history of generating huge moves up or down and it is best to be out of the line of fire while waiting for the smoke to clear.

The COT tabulation period is from March 19 – March 25.

Soybeans:

For the week, May soybeans advanced 27.75 cents, July +25.50, November +13.25. The COT report revealed that managed money liquidated 13,804 contracts of their long positions and also liquidated 7,209 contracts of their short positions. Commercial interests liquidated 13,398 contracts of their long positions and also liquidated 23,254 contracts of their short positions. During the COT reporting period both managed money and commercials were liquidating positions. As of the latest report, managed money long soybeans by ratio of 8.90:1, which is up significantly from the previous week of 7.25:1 and the ratio of 2 weeks ago of 7.05:1. The the increase of the ratio was due primarily to the liquidation of short positions.

Soybean meal:

For the week, May soybean meal advanced $12.50, July +12.80, December +7.50. The COT report revealed that managed money liquidated 1,476 contracts of their long positions and also liquidated 1,687 contracts of their short positions. Commercial interests liquidated 700 contracts of their long positions and also liquidated 3,845 contracts of their short positions. Like soybeans, both managed money and commercials were liquidating positions across the board. As of the latest report, managed money is long soybean meal by ratio of 4.17:1, which is up from the previous week of 3.88:1 and the ratio of 2 weeks ago of 3.80:1. The increase in the ratio was due to the liquidation of short positions. The current ratio is the highest ratio we have seen in at least a couple of months.

Soybean oil:

For the week, May soybean oil lost 54 points, July -48, December -2. The COT report revealed that managed money liquidated 4,363 contracts of their long positions and added 5609 contracts to their short positions. Commercial interests added 9,880 contracts to their long positions and liquidated 5,559 contracts of their short positions. As of the latest report, managed money is long soybean oil by ratio of 1.46:1, which is down from the previous week of 1.77:1 and the ratio of 2 weeks ago of 1.53:1.

Corn:

For the week, May corn advanced 13.00 cents, July +12.50, December +7.25. The COT report revealed that managed money added 11,680 contracts to their long positions and liquidated 3,208 contracts of their short positions. Commercial interests liquidated 10,452 contracts of their long positions and added 1,616 contracts to their short positions. As of the latest report, managed money is long by an unbelievable 4.82:1, which is up from the previous week of 4.41:1 and the ratio of 2 weeks ago of 3.78:1.

In the February 25 COT report managed money held a net long position of 102,380 contracts, or a long to short ratio of 1.68:1. By the report of March 25, this had exploded to a net long position of 245,033 contracts or an increase of 142,653 contracts representing a long to short ratio of 4.82:1.

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 25 report, the net short position of commercials increased to 391,017 contracts, a net gain of 109,775 contracts sold short, or a short to long ratio of 2.36:1.

The net result of the large increase of long positions by managed money and the large increase of short positions by commercials from February 19 through March 25 has been a paltry gain of 31.00 cents. Commercial selling is keeping a lid on prices, but despite this, managed money continues to pile in on the long side. This is hazardous for anyone long the corn market

Chicago wheat:

For the week, May Chicago wheat advanced 2.25 cents, July +3.75, December +4.25. The COT report revealed that managed money added 8,115 contracts to their long positions and liquidated 6,411 contracts of their short positions. Commercial interests added 472 contracts to their long positions and also added 7,990 contracts to their short positions. As of the latest report, managed money is long Chicago wheat by ratio of 1.68:1, which is up significantly from the previous week of 1.39:1 and the ratio of 2 weeks ago of 1.15:1. The current ratio is the highest that we have seen during the past year.

Kansas City wheat:

For the week, May Kansas City wheat lost 7.75 cents, July -2.75, December -2.25. The COT report revealed that managed money added 4,050 contracts to their long positions and liquidated 1,851 contracts of their short positions. Commercial interests added 4,431 contracts to their long positions and also added 10,814 contracts to their short positions. As of the latest report, managed money is long Kansas City wheat by a stratospheric ratio of 11.26:1, which is up dramatically from the previous week of 7.14:1 and nearly 2 1/2 times the ratio of 2 weeks ago of 4.73:1.

Year to date, May Kansas City wheat is the leader with a gain of 18.74%, May soybean meal +14.92%, May corn +14.35%, May Chicago wheat +13.64%, May soybeans +12.49%, May soybean oil +2.51%.

Cotton:

For the week, May cotton advanced 43 points, July +91, December -32. The COT report revealed that managed money added 837 contracts to their long positions and also added 1,015 contracts to their short positions. Commercial interests liquidated 749 contracts of their long positions and also liquidated 2,387 contracts of their short positions. As of the latest report, managed money is long cotton by ratio of 10.99:1, which is down from the previous week of 12.87:1 and the ratio of 2 weeks ago of 12.79:1. The reduction of the ratio in this week’s report was due to the addition of short positions.

Sugar #11: On March 27, May sugar generated a short-term buy signal and remains on an intermediate term buy signal.

For the week, May sugar advanced 1.15 cents, July +1.07, October +1.01. The COT report revealed that managed money liquidated 583 contracts of their long positions and also liquidated 431 contracts of their short positions. Commercial interests added 6,597 contracts to their long positions and also added 660 contracts to their short positions. As of the latest report, managed money is long sugar by ratio 2.82:1, which is the same as the previous week of 2.81:1 and above the ratio of 2 weeks ago of 2.44:1.

Coffee:

the For the week, May coffee advanced 9.45 cents, July +9.55, September +9.95. The COT report revealed that managed money added 2,936 contracts to their long positions and liquidated 146 contracts of their short positions. Commercial interests added 1,336 contracts to their long positions and also added 99 contracts to their short positions. As of the latest report, managed money is long coffee by ratio of 7.24:1, which is up significantly from the previous week of 6.69:1 and the ratio of 2 weeks ago of 5.51:1. The current ratio is the highest since the beginning of the bull market on January 28.

Cocoa:

For the week, May cocoa advanced $26.00, July +29.00, December +39.00. The COT report revealed that managed money liquidated 3,975 contracts of their long positions and added 857 contracts to their short positions. Commercial interests added 2,801 contracts to their long positions and liquidated 3,475 contracts of their short positions. As of the latest report, managed money is long cocoa by ratio of 4.20:1, which is down from the previous week of 4.56:1 and the ratio of 2 weeks ago of 4.51:1.

Year to date, May coffee is the leader with a gain of 59.89%, May cotton +11.0%, May Cocoa +9.83%, May sugar +8.57%.

Live cattle:

For the week, live cattle advanced 2.50 cents, June +2.23, August +1.57. The COT report revealed that managed money added 2,211 contracts to their long positions and also added 975 contracts to their short positions. Commercial interests liquidated 3,201 contracts of their long positions and also liquidated 2,112 contracts of their short positions. As of the latest report, managed money is long cattle by ratio of 13.46:1, which is down from the previous week of 14.60:1 but above the ratio of 2 weeks ago of 12.19:1. The reduction in this week’s ratio was due to the addition of short positions.

Lean hogs:

For the week, April lean hogs lost 10 points, June -75, August -93. The COT report revealed that managed money added 4,250 contracts to their long positions and also added 61 contracts to their short positions. Commercial interests liquidated 2,534 contracts of their long positions and also liquidated 1,017 contracts of their short positions. As of the latest report, managed money is long hogs by ratio of 17.54:1, which is up from the previous week of 16.81:1 and the ratio of 2 weeks ago of 17.34:1.

Year to date April lean hogs is the leader with a gain of 38.49%, June hogs +29.38%, April live cattle +8.28%, June live cattle +6.90%.

WTI crude oil: On March 27, May WTI crude oil generated a short-term buy signal, which reversed the short-term sell signal generated on March 12. It remains on an intermediate term buy signal.

For the week, May WTI crude oil advanced $2.21, June +2.24, July +2.21. The COT report revealed that managed money liquidated 1,672 contracts of their long positions and added 5,913 contracts to their short positions. Commercial interests liquidated 10,254 contracts of their long positions and also liquidated 559 contracts of their short positions. As of the latest report, managed money is long crude oil by ratio of 7.12:1, which is down from the previous week of 8.21:1 and down dramatically from the ratio of 2 weeks ago of 12.49:1. The current ratio is lower than 7.69:1 per the COT report of February 4. It is the lowest since the COT tabulation date of January 28 when the long to short ratio was 5.83:1.

Interestingly, the current ratio of managed money is lower than the ratio in the February 4 report, even though prices are a couple of dollars above the trading range encompassed by the February 4 report. For example, the trading range was $94.62-97.19 from January 29 through February 4. May WTI crude oil closed at $95.64 on February 4. The range in the current COT report was from a low of 98.09 to a high of 100.25 and May WTI closed at 99.19, or $3.55 higher than the close on February 4. The current ratio reveals a great deal of skepticism on the part of managed money even though prices are trading at the upper end of the range of the past year. As a result, WTI prices may continue to climb higher and only top out when managed money begins to jump in on the long side with both feet. However, keep in mind before this occurs, crude oil will likely pull back because it generated a short-term buy signal on March 27.

Heating oil:

For the week, May heating oil advanced 3.44 cents, June +3.23, July +3.26. The COT report revealed that managed money added 268 contracts to their long positions and liquidated 569 contracts of their short positions. Commercial interests liquidated 9,998 contracts of their long positions and also liquidated 8,825 contracts of their short positions. As of the latest report, managed money is long heating oil by ratio of 2.49:1, which is up slightly from the previous week of 2.30:1, but down significantly from the ratio of 2 weeks ago of 3.34:1.

Gasoline:

For the week, May gasoline advanced 3.71 cents, June +4.54, July +5.02. The COT report revealed that managed money liquidated 655 contracts of their long positions and added 1,084 contracts to their short positions. Commercial interests added 8,204 contracts to their long positions and also added 6,992 contracts to their short positions. As of the latest report, managed money is long gasoline by ratio of 3.75:1, which is down slightly from the previous week of 4.01:1 and the ratio of 2 weeks ago of 4.34:1.

Natural gas:

For the week, May natural gas advanced 18.8 cents, June +19.0, July +19.1. The COT report revealed that managed money liquidated 6,688 contracts of their long positions and added 10,229 contracts to their short positions. Commercial interests liquidated 1,861 contracts of their long positions and also liquidated 1,262 contracts of their short positions. As of the latest report, managed money is long natural gas by ratio of 1.78:1, which is down from the previous week of 1.95:1 and the ratio of 2 weeks ago of 2.04:1. The current ratio broke below 1.87:1, the ratio in the January 14 COT report, but is above the January 7 report of 1.67:1.

Year to date, April ethanol is the leader with a gain of 87.44%, May ethanol +50.49%, May natural gas +8.97%, May WTI crude oil +3.59%, May gasoline -0.89%, May Brent crude oil -1.90%, May heating oil -2.88%.

Copper:

For the week, May copper advanced 9.10 cents. The COT report revealed that managed money liquidated 556 contracts of their long positions and added 2,530 contracts to their short positions. Commercial interests liquidated 342 contracts of their long positions and also liquidated 1,011 contracts of their short positions. As of the latest report, managed money is short copper by ratio of 1.87:1, which is above the previous week’s ratio of 1.75:1 and dramatically above the ratio of 2 weeks ago of 1.32:1.

Palladium:

For the week, June palladium lost $15.60. The COT report revealed that managed money liquidated 680 contracts of their long positions and added 737 contracts to their short positions. Commercial interests liquidated 858 contracts of their long positions and also liquidated 2,565 contracts of their short positions. As of the latest report, managed money is long palladium by ratio of 3.97:1, which is down from the previous week of 4.62:1 and the ratio of 2 weeks ago of 5.10:1.

Platinum: On March 25, July platinum generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, July platinum lost $29.80. The COT report revealed that managed money liquidated 1,575 contracts of their long positions and also liquidated 796 contracts of their short positions. Commercial interests added 171 contracts to their long positions and liquidated 6,837 contracts of their short positions. As of the latest report, managed money is long platinum by ratio of 7.59:1, which is up from the previous week of 6.81:1 but down from the ratio of 2 weeks ago of 8.76:1. This week’s ratio increased by the liquidation of short positions.

Gold: On March 26, June gold generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, June gold lost $41.70. The COT report revealed that managed money liquidated 11,985 contracts of their long positions and added 2,065 contracts to their short positions. Commercial interests liquidated 2,428 contracts of their long positions and also liquidated 34,721 contracts of their short positions. As of the latest report, managed money remains long gold by ratio of 6.87:1, which is down from the previous week of 8.49:1, but up from the ratio of 2 weeks ago of 5.87:1.

In order to determine how much additional selling pressure remains in gold, we examined the stats contained in the February 18 COT report when gold was trading at approximately the level encompassed by the March 25 report (1305.90-1360.20). On February 18, the COT report revealed that managed money held 123,273 contracts long and 54,503 contracts short.  The March 25 report showed that managed money held 125,231 contracts long and 18,218 contracts short.

In other words, there are approximately the same number of managed money longs on February 18 as March 25 when prices are nearly at the same level. However, the long to short ratio on March 25 (6.87:1) is 3 times the ratio in the February 18 report of 2.26:1. This supports our findings in the March 16 Weekend Wrap (below) that managed money was not adding significantly to their long positions as gold prices advanced. Although, gold may continue to drift lower, especially since it is on a short-term sell signal, we do not see a heavy amount of selling going forward due to the relatively light long positions of managed money.

If  we go back farther to the COT report of February 4 when June gold was trading in a range of 1238.50 -1270.60 during the reporting period (February 4 close $1251.50), managed money held 107,407 contracts long and 63,755 contracts short, or 17,824 contracts less than March 25. In short, the bearishness in gold was manifested by a large short position rather than a small long position. We recommend a stand aside posture until such time that gold generates a short-term buy signal. It generated a short-term sell signal on March 26.

From the March 16 Weekend Wrap:

“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.”

Silver: On March 24, May silver generated an intermediate term sell signal after generating a short-term sell signal on March 20.

For the week, May silver lost 52 cents. The COT report revealed that managed money liquidated 939 contracts of their long positions and added 6,913 contracts of their short positions. Commercial interests liquidated 426 contracts of their long positions and also liquidated 6,353 contracts of their short positions. As of the latest report, managed money is long silver by ratio of 1.56:1, which is down significantly from the previous week of 2.29:1 and the ratio of 2 weeks ago of 2.85:1.

Year to date, June palladium is the leader with a gain of 7.96%, June gold + 7.54%, July platinum +2.63%, May silver +2.16%, May copper -10.30%.

Canadian dollar:

For the week, the June Canadian dollar advanced 1.25 cents. The COT report revealed that leveraged funds added 24,005 contracts to their long positions and liquidated 16,765 contracts of their short positions. As of the latest report, leveraged funds are short the Canadian dollar by ratio of 1.65:1, which is down dramatically from the previous week of 4.52:1 and the ratio of 2 weeks ago of 6.95:1. 

Australian dollar:

For the week, the June Australian dollar gained 1.69 cents. The COT report revealed that leveraged funds added 4,291 contracts to their long positions and liquidated 1,360 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by ratio of 1.39:1, which is down from the previous week of 1.73:1 and down dramatically from the ratio of 2 weeks ago of 6.23:1.

Swiss franc:

For the week, the June Swiss franc lost 55 pips. The COT report revealed that leveraged funds liquidated 274 contracts of their long positions and added 8 contracts to their short positions. As of the latest report, leveraged funds are long the Swiss franc by ratio of 1.57:1, which is the same as the previous week of 1.58:1, but down substantially from the ratio of 2 weeks ago of 2.17:1.

British pound:

For the week, the June British pound advanced 1.51 cents. The COT report revealed that leveraged funds liquidated 4,254 contracts of their long positions and also liquidated 2,549 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by ratio of 5.00:1, which is up from the previous week of 4.71:1 and up substantially from the ratio of 2 weeks ago of 3.77:1. The ratio was lifted by the liquidation of short positions.

Euro:

For the week, the June euro lost 42 pips. The COT report revealed that leveraged funds liquidated 8,373 contracts of their long positions and added 1,911 contracts to their short positions. As of the latest report, leveraged funds are long the euro by ratio of 2.7:1, which is down from the previous week of 3.10:1, but up from the ratio of 2 weeks ago of 2.44:1.

Yen:

For the week, the June yen lost 56 pips. The COT report revealed that leveraged funds liquidated 4,456 contracts of their long positions and added 499 contracts to their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 3.44:1, which is up substantially from the previous week of 2.84:1 and the ratio of 2 weeks ago of 2.29:1. The increase in the short ratio was due primarily to the liquidation of long positions.

Dollar index:

For the week, the June dollar index gained 7 points. The COT report revealed that leveraged funds liquidated 3,261 contracts of their long positions and added 976 contracts to their short positions. As of the latest report, leveraged funds are short the dollar index by a massive ratio of 7.38:1, which is up substantially from the ratio of the previous week of 4.39: 1 and has increased  nearly 3 1/2 times from the ratio of 2 weeks ago of 2.00:1.

Year to date, the June Australian dollar is the leader with a gain of 4.25%, June yen +2.30%, June pound +0.54%, June Swiss franc +0.14%, June dollar index -0.02%, June euro -0.28%, June Canadian dollar -3.65%.

S&P 500 E mini:

For the week, the June S&P 500 E mini lost 6.60 points. The COT report revealed that leveraged funds liquidated 185,860 contracts of their long positions and also liquidated 162,651 contracts of their short positions. The massive liquidation was due to the expiration of the March contract. As of the latest report, leveraged funds are short the E mini by ratio of 1.96:1, which is up from the previous week of 1.64:1 and the ratio of 2 weeks ago of 1.85:1.

Year to date, the S&P 400 is the leader with a gain of 1.17%, S&P 500 +0.50%, New York Composite Index +0.33%, NASDAQ 100-0.57%, Russell 2000-1.02%, Dow Jones Industrial Index -1.53%.

Although the Dow Jones Industrial Average is in last place on a year-to-date basis, beginning on March 13, it has been outperforming with a gain of 1.33 percent through March 28, which compares to the S&P 500 cash index gaining 0.61% while the Dow Jones Transportation Index lost 0.39%, Russell 2000-2.12%, NASDAQ 100-2.19%. We think this may represent a rotation into the stocks that pay hefty dividends from high fliers such as Google, Netflix Amazon etc.

Looking at individual issues, AT&T has gained 8.41% from March 13 through March 28 while on a year-to-date basis has declined 0.26%. During the same time frame, Exxon Mobil has gained 4.34%, but on a year-to-date basis  declined 3.46%. Intel has gained 4.27% while year to date has declined 1.29%. Cisco has gained 3.76% while year to date has declined 0.45%. Other DJIA stocks that have gained in the March 13-March 28 time frame while losing on a year-to-date basis are: Chevron, Verizon, 3M, Coca-Cola, General Electric, Boeing, Travelers Insurance, Walmart, Procter & Gamble.

On December 31, the DJIA cash index made its all-time high at 16588.25 and made a secondary high of 16505.70 on March 7. On March 28, the index closed at 16,233.06. For the index to have a chance at making a new all-time high, the low for the day in the cash index must be above 16383.60.

For the S&P 500 cash index to make a new all time high, the low for the day must be above 1871.87.  Recently, we have advised clients to pare some of their long exposure via out of money calls and weight the positions more towards the bearish side. If the Dow and/or S&P 500 make a daily low above the aforementioned pivot points of 16,383.60 and 1871.87, we would reinstate more long call positions.