Weekend Wrap for May 4, 2014

This week’s COT report covers the period of April 23-April 29.

We are directing your attention to a number of commodities that have extremely high long to short ratios with soybean meal and soybean oil at their highest for 2014. Since the cutoff date for the report is Tuesday, April 29, there have been changes, but the mindset of managed money, especially for agricultural commodities is quite bullish based upon our analysis of the COT report.We disagree with this and think the path of least resistance for many commodities is lower. The Greenhaven Continuous Commodity Index (GCC)  topped on March 31 and through May 2 is down 5.14%. The Greenhaven Index is an equally weighted index of 17 commodities, therefore a particular group or individual commodity is unable to dominate the index.

Soybeans:

For the week, July soybeans lost 23.50 cents, August -21.25, new crop November -17.25. The COT report revealed that managed money added 1,890 contracts to their long positions and liquidated 4,470 contracts of their short positions. Commercial interests liquidated 23,476 contracts of their long positions and also liquidated 7,957 contracts of their short positions. As of the latest report, managed money is long soybeans by ratio of 7.88:1, which is up significantly from the previous week of 6.63:1 and the ratio of 2 weeks ago of 7.42:1.The current ratio is the highest since the April 1 COT report when managed money was long by ratio of 7.90:1.

In the April 27 Weekend Wrap, we mentioned that a further sign of caution was preliminary open interest stats for Friday’s trading (April 25) that showed a decline of open interest when July soybeans advanced 24.25 cents. We stated in pertinent part “If open interest declined on the rally, we would see this as confirmation that there is a dearth of new buyers willing to pay ever higher prices for soybeans at this time.” As it turned out open interest declined by a massive 19,730 contracts, which confirmed our thesis about the internal weakness of soybeans: Buyers were liquidating as prices advanced and this was indicative of a topping formation. Also in the April 27 report, was to advise against bullish positions.

Currently, with the massive long position of managed money still intact, there is a large amount of potential selling by speculators who have lost significant profit, or those showing losses. We expect the carnage to continue and that soybeans will generate a short-term sell signal, probably this week.

From the April 27 Weekend Wrap:

“Although front month weakness may not last, especially for the July contract (we expect to see some upside fireworks in the July contract in late May through mid July), we advise against bullish positions at this juncture. Another sign of caution is the preliminary open interest stats for Friday’s trading which show a decline of 1,916 contracts on total volume of 247,971 contracts when July beans advanced 24.25 cents. The preliminary open interest stats are notoriously inaccurate and often change once the final stats are released Monday morning, but if open interest declined on the rally, we would see this as confirmation that there is dearth of new buyers willing to pay ever higher prices for soybeans at this time. Both May, July and November soybeans remain on short and intermediate term buy signals.”

Soybean meal:

For the week, July soybean meal lost $1.00, August -90 cents, and new crop December -90. The COT report revealed that managed money added 603 contracts to their long positions and liquidated 2,071 contracts of their short positions. Managed money added 550 contracts to their long positions and also added 8,892 contracts to their short positions. As of the latest report, managed money is long soybean meal by ratio of 4.74:1, which is above the previous week of 4.27:1 and the ratio of 2 weeks ago of 4.39:1. The current ratio is the highest of 2014 and the primary reason was the liquidation of short positions by managed money.

Soybean oil: On May 1, July soybean oil generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, July soybean oil lost 1.64 cents, August -1.51, new crop December -1.31. The COT report revealed that managed money added 2,322 contracts to their long positions and liquidated 2,249 contracts of their short positions. Commercial interests liquidated 7,856 contracts of their long positions and also liquidated 7,259 contracts of their short positions. As of the latest report, managed money is long soybean oil by ratio of 2.00:1, which is up from the previous week of 1.82:1 and the ratio of 2 weeks ago of 1.60:1. The current ratio is the highest of 2014.

Corn: It appears likely that July corn will generate a short-term sell signal, and for this to occur the high for the day must be below $5.01 1/2. Additionally, the new crop December contract will generate a short-term sell signal if the daily high is below $4.97.

For the week, July corn lost 13.25 cents, September -13.00, new crop December -12.25. The COT report revealed that managed money added 23,468 contracts to their long positions and also added 2,139 contracts to their short positions. Commercial interests liquidated 20,433 contracts of their long positions and added 16,305 contracts to their short positions. As of the latest report, managed money is long corn by ratio of 6.29:1, which is up from the previous week of 6.09:1 and the ratio of 2 weeks ago of 5.75:1. The current ratio is the highest since the COT report of April 8 when managed money was long by ratio of 7.50:1.

Chicago wheat:

For the week, July Chicago wheat advanced 7.75 cents, September +7.75, new crop December +7.25. The COT report revealed that managed money added 8,621 contracts to their long positions and liquidated 4,574 contracts of their short positions. Commercial interests liquidated 5,346 contracts of their long positions and added 14,629 contracts to their short positions. As of the latest report, managed money is long Chicago wheat by ratio of 1.90:1, which is above the previous week’s ratio of 1.60:1 and the ratio of 2 weeks ago of 1.80:1. The current ratio is the highest since the COT report of April 1 when managed money was long by ratio of 1.95:1.

Kansas City wheat: On April 28, July Kansas City wheat generated a short-term buy signal and remains on an intermediate term buy signal.

For the week, July Kansas City wheat advanced 42.25 cents, September +38.00, new crop December +32.00. The COT report revealed that managed money added 1,821 contracts to their long positions and also added 1,904 contracts to their short positions. Commercial interests liquidated 704 contracts of their long positions and added 2,,202 contracts to their short positions. As of the latest report, managed money is long Kansas City wheat by ratio of 5.24:1, which is significantly below the previous week of 6.50:1 and the ratio of 2 weeks ago of 8.68:1. The current ratio is the lowest since the COT report of March 11 when managed money was long Kansas City wheat by ratio of 4.73:1.

For the 2nd quarter, July Kansas City wheat is the out performer with a gain of 7.38%, July soybean meal +3.62%, July soybeans +2.89%, July soybean oil +2.17%, July Chicago wheat +2.07%, July corn -1.43%.

Year to date, July Kansas City wheat is the out performer with a gain of 27.70%, July soybean meal +19.83%, July soybeans +16.31%, July Chicago wheat +16.09%, July corn +14.30%, July soybean oil +4.14%.

Cotton:

For the week, July cotton advanced 1.07 cents, new crop December +1.23, March 2015 +1.07. The COT report revealed that managed money added 3,115 contracts to their long positions and liquidated 491 contracts of their short positions. Commercial interests liquidated 1,787 contracts of their long positions and added 125 contracts to their short positions. As of the latest report, managed money is long cotton by ratio of 7.38:1, which is significantly above the previous week of 6.69:1 and the ratio of 2 weeks ago of 5.34:1. The current ratio is the highest since the COT report of April 1 when managed money was long cotton by ratio of 7.64:1, but is significantly below the COT report of March 25 when managed money was long by ratio of 10.99:1 and the report of March 18 when managed money was long cotton by ratio of 12.87:1.

Sugar #11:

For the week, July sugar lost 40 points, October -42 March 2015 -48. The COT report revealed that managed money added 4,504 contracts to their long positions and also added 3,755 contracts to their short positions. Commercial interests liquidated 16,462 contracts of their long positions and added 454 contracts to their short positions. As of the latest report, managed money is long sugar by ratio of 2.87:1, which is down slightly from the previous week of 2.97:1 and the ratio of 2 weeks ago of 2.94:1.

It appears that July sugar will generate an intermediate term sell signal, and for this to occur the high for the day in the July contract must be below OIA’s key pivot point of 17.19. Additionally, the moving averages have a bearish set up with the 5 and 20 day moving averages at 17.62, which is below the 50 day moving average of 17.74. On April 2, July sugar generated a short-term sell signal, and despite numerous rallies has been unable to reverse the signal.

Coffee:

For the week, July coffee lost 3.80 cents, September -3.80, December -3.75. The COT report revealed that managed money added 2,751 contracts to their long positions and liquidated 574 contracts of their short positions. Commercial interests added 1,447 contracts to their long positions and also added 2,010 contracts to their short positions.As of the latest report, managed money is long coffee by a stratospheric 12.20:1, which is up significantly from the previous week of 10.05:1 and the ratio of 2 weeks ago of 9.40:1. The current ratio is the highest since the beginning of the bull market that started in late January 2014.

Cocoa: On May 1, July Cocoa generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, July cocoa lost 36.00, September -36.00, December -32.00. The COT report revealed that managed money liquidated 5,703 contracts of their long positions and added 124 contracts to their short positions. Commercial interests added 4,009 contracts to their long positions and liquidated 4,447 contracts of their short positions. As of the latest report, managed money is long cocoa by ratio of 3.84:1, which is down from the previous week of 4.13:1 and the ratio of 2 weeks ago of 4.07:1.The current ratio is the lowest of 2014 and is significantly below the ratio derived from the January 28, 2014 COT report when managed money was long cocoa by ratio 7.94:1.

For the 2nd quarter, July coffee is the out performer with a gain of 12.89%, July cotton +0.82%, July cocoa -1.72%, July sugar -3.75%.

Year to date, July coffee is the out performer with a gain of 76.54%, July cotton +12.31%, July Cocoa +7.09%, July sugar +4.30%.

Live cattle: On April 28, August cattle generated a short-term buy signal and remains on an intermediate term buy signal.

For the week, June live cattle advanced 1.28 cents, August +1.75, October +2.05. The COT report revealed that managed money added 1,750 contracts to their long positions and also added 458 contracts to their short positions. Commercial interests liquidated 501 contracts of their long positions and also liquidated 513 contracts of their short positions. As of the latest report, managed money is long live cattle by ratio of 13.83:1, which is down from the previous week of 14.29:1 and the ratio of 2 weeks ago of 15.44:1. The reduction in the ratio was the result of short positions added by managed money.

Lean hogs:

For the week, June lean hogs lost 2.30 cents, August +1.20, October +1.25. The COT report revealed that managed money added 431 contracts to their long positions and also added 1,051 contracts to their short positions. Commercial interests liquidated 2,373 contracts of their long positions and also liquidated 1,068 contracts of their short positions. As of the latest report, managed money is long lean hogs by ratio of 29.14:1, which is down dramatically from the previous week of 49.42:1 but above the ratio of 2 weeks ago of 21.20:1. The reduction in this week’s ratio was the result of short positions added by managed money.

From the April 27 Weekend Wrap:

“We recommend against holding long positions in lean hogs until the June contract makes a daily low above 1.26200. Until this occurs, June hogs will trade sideways to lower. However, under no circumstances should anyone short this market.”

“On March 18, June hogs made their 52-week high at 1.33425, and as of Friday’s close is trading 6.67% below this high. Additionally, the 20 day moving average is 1.23675 and the 50 day is trading at 1.20875. In short, hogs have plenty of room to correct and yet continue to be in a bullish set up. With the current stratospheric long to short ratio, there is a surplus of funds to fuel a further downside move.” 

For the 2nd quarter, August cattle is the out performer with a gain of 2.40%, June cattle +0.40%, June hogs -3.89%.

Year to date, June hogs is the out performer with a gain of 22.04%, August cattle +7.70%, June cattle +6.66%.

WTI crude oil: On April 30, June WTI crude oil generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, June WTI crude oil lost 84 cents, July -99, August -1.11. The COT report revealed that managed money liquidated 667 contracts of their long positions and added 1,816 contracts to their short positions. Commercial interests added 854 contracts to their long positions and also added 2,081 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 10.38:1, which is down slightly from the previous week of 10.99:1 and the ratio of 2 weeks ago of 11.23:1.

Heating oil:

For the week, June heating oil lost 5.86 cents, July -5.57, August -5.35. The COT report revealed that managed money added 1,189 contracts to their long positions and liquidated 1,454 contracts of their short positions. Commercial interests liquidated 1,518 contracts of their long positions and also liquidated 860 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 3.01:1, which is up from the previous week of 2.72:1 and the ratio of 2 weeks ago of 1.92:1.The current ratio is the highest since the COT report of March 11 when managed money was long by ratio of 3.34:1.

With the extremely high long to short ratio of managed money, there will be plenty of selling pressure as prices continue to decline. On Friday, June heating oil closed at $2.9223, which is below OIA’s key pivot point of 2.9253. The sell signal will be generated when the high of the day is below the pivot point. The June contract topped out at $3.0158 on April 24, and through May 1 has declined 9.55 cents while total open interest has declined by 14,185 contracts. This is healthy open interest action on a price decline, however heating oil has negative technicals. For example, the 5 day moving average for the June contract is 2.9345, which is below the 20 day moving average 2.9559 and the 50 day moving average of 2.9431.

Additionally, during the current quarter, June heating oil has lost 0.11% while year to date has declined  3.43%.In order to avoid the distortions created by inversion and backwardation, we examined cash heating oil  moving averages and found they have a bearish technical set up as well. The moving averages are as follows: 5 day, 2.9377, 20 day, 2.9611, 50 day, 2 9671, 100 day, 2.9994, 200 day 3.0000. Year to date, the moving average for cash heating oil is 2.9922 and on Friday, closed at 2.9236.

Gasoline:

For the week, June gasoline lost 8.21 cents, July -6.78, August -5.82. The COT report revealed that managed money added 8,980 contracts to their long positions and also added 2,371 contracts to their short positions. Commercial interests liquidated 9,872 contracts of their long positions and also liquidated 3,197 contracts of their short positions. As of the latest report, managed money is long gasoline by ratio of 5.50:1, which is down slightly from the previous week of 5.76:1 and the ratio of 2 weeks ago of 6.35:1.

Natural gas:

For the week, June natural gas advanced 1.6 cents, July +1.7, August +1.8. The COT report revealed that managed money added 469 contracts to their long positions and also added 8,830 contracts to their short positions. Commercial interests liquidated 5,701 contracts of their long positions and also liquidated 6,312 contracts of their short positions. As of the latest report, managed money is long natural gas by ratio of 1.58:1, which is down slightly from the previous week of 1.65:1 and the ratio of 2 weeks ago of 1.68:1. The current ratio is the lowest since the COT report of April 1 when managed money was long natural gas by ratio of 1.54:1.

For the 2nd quarter, June natural gas is the out performer with a gain of 6.49%, June gasoline +1.47%, June Brent crude oil +0.88%, June heating oil -0.11%, June WTI crude oil -0.86%, June ethanol -14.35%.

Year to date, June ethanol is the out performer with a gain of 19.07%, June natural gas +13.61%, June WTI crude oil +2.63%, June natural gas +0.71%, June Brent crude oil -0.88%, June heating oil -3.43%.

Copper:

For the week, July copper lost 2.30 cents. The COT report revealed that managed money added 1,974 contracts to their long positions and liquidated 6,493 contracts of their short positions. Commercial interests liquidated 7,146 contracts of their long positions and added 1,491 contracts to their short positions. As of the latest report, managed money is long copper by ratio of 1.17:1, which is a complete reversal from the previous week when they were short by a ratio of 1.11:1 and the ratio of 2 weeks ago when managed money was short by 1.51:1.

Palladium:

For the week, June palladium advanced $1.20. The COT report revealed that managed money added 376 contracts to their long positions and liquidated 170 contracts of their short positions. Commercial interests added 343 contracts to their long positions and also added 467 contracts to their short positions.As of the latest report, managed money is long palladium by ratio of 6.68:1, which is up from the previous week of 6.27:1 and the ratio of 2 weeks ago of 5.68:1.

Platinum:

For the week, July platinum advanced $16.40. The COT report revealed managed money liquidated 608 contracts of their long positions and added 700 contracts to their short positions. Commercial interests added 1,046 contracts to their long positions and liquidated 1,115 contracts of their short positions. As of the latest report, managed money is long platinum by ratio of 6.76:1, which is down from the previous week of 8.04:1 and the ratio of 2 weeks ago of 8.34:1.

Gold:

For the week, June gold advanced $2.10. The COT report revealed managed money added 1,238 contracts to their long positions and also added 937 contracts to their short positions. Commercial interests added 1,801 contracts to their long positions and also added 2,995 contracts to their short positions. As of the latest report, managed money is long gold by ratio of 3.62:1, which is down slightly from the previous week of 3.7:1, but above the ratio of 2 weeks ago of 3.25:1.

Silver:

For the week, July silver lost 17.2 cents. The COT report revealed managed money liquidated 4 contracts of their long positions and added 1,815 contracts to their short positions. Commercial interests liquidated 5,104 contracts of their long positions and also liquidated 4,261 contracts of their short positions. As of the latest report, managed money is long silver by ratio of 1.15:1, which is down from the previous week of 1.22:1 and the ratio of 2 weeks ago of 1.18:1.

For the 2nd quarter, June palladium is the out performer with a gain of 4.84%, July copper +1.39%, July platinum +1.37%, June gold +1.07%, July silver -1.84%.

Year to date, June palladium is the out performer with a gain of 13.12%, June gold +7.90%, July platinum +4.61%, July silver +0.29%, July copper -9.12%.

Canadian dollar:

For the week, the June Canadian dollar advanced 53 pips. The COT report revealed that leveraged funds added 1,939 contracts to their long positions and liquidated 1,318 contracts of their short positions. As of the latest report, leveraged funds are short the Canadian dollar by ratio of 1.87:1, which is down from the previous week of 2.03:1 and the ratio of 2 weeks ago of 2.09:1.

Australian dollar:

For the week, the June Australian dollar advanced 2 pips. The COT report revealed that leveraged funds added 1,497 contracts to their long positions and also added 5,629 contracts to their short positions.As of the latest report, leveraged funds are long the Australian dollar by ratio of 1.80:1, which is down from the previous week of 2.17:1 and slightly above the ratio of 2 weeks ago of 1.78:1.

As we stated in the April 27 Weekend Wrap, if the rally in the Australian dollar was to resume, the June contract had to make a daily low above 92.63 (this was last week’s pivot point). This did not occur and the market closed essentially unchanged for the week. On Friday May 2, the June Australian dollar made a new low for the move at 91.75, which is the lowest print since 91.60 made on April 3. However, the June contract snapped back from the low to close only 4 pips lower on the day. Conceivably, the low made on Friday may be an interim low, or a major low from which the Australian dollar recovers and eventually resume its uptrend. Also, preliminary stats show a decline of open interest of 2,714 contracts, which would make it the 3rd day in a row that open interest has declined. This may be the kind of wash out required to put the Australian dollar on a more healthy footing.

From the April 27 Weekend Wrap:

“The hefty long position of managed money will begin to pressure prices as the June Australian dollar moves lower. On Friday, the June contract closed at 92.38, which is below the 20 day moving average of 92.77. It appears likely the June Aussie is headed for the 50 day moving average of 90.97.”

“As a result, the June Australian dollar may generate a short-term sell signal. For the rally to resume, the June Australian dollar must make a daily low above 92.63. However, we think rallies will be muted due to the very large number of speculative longs showing losses on positions. We think speculators will use advances to liquidate positions, which will serve to cap any major rally.”

Swiss franc:

For the week, the June Swiss franc advanced 37 pips. The COT report revealed that leveraged funds added 240 contracts to their long positions and also added 380 contracts to their short positions. As of the latest report, leveraged funds are long the Swiss franc by ratio of 1.39:1, which is down from the previous week of 1.41:1, but above the ratio of 2 weeks ago of 1.34:1

British pound:

For the week, the June British pound advanced 70 pips. The COT report revealed that leveraged funds liquidated 5,577 contracts of their long positions and also liquidated 1,081 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by ratio of 4.66:1, which is down slightly from the previous week of 4.68:1, and the ratio of 2 weeks ago of 5.14:1.

Euro:

For the week, the June euro advanced 36 pips. The COT report revealed that leveraged funds liquidated 303 contracts of their long positions and added 3,929 contracts to their short positions. As of the latest report, leveraged funds are long the euro by ratio 1.82:1, which is down from the previous week of 1.98:1 and the ratio of 2 weeks ago of 1.93:1.

Yen:

For the week, the June yen lost 11 pips. The COT report revealed that leveraged funds liquidated 4,344 contracts of their long positions and added 1,281 contracts to their short positions. As of the latest report, leveraged funds are short the yen by ratio of 3.65:1, which is up significantly from the previous week of 2.97:1 and the ratio of 2 weeks ago of 3.15:1.

Dollar index:

For the week, the June dollar index lost 25 points. The COT report revealed that leveraged funds liquidated 43 contracts of their long positions and added 2,724 contracts to their short positions. As of the latest report, leveraged funds are short the dollar index by ratio of 3.66:1, which is up from the previous week of 3.35:1 and the ratio of 2 weeks ago of 2.63:1.

For the 2nd quarter, the June British pound is the out performer with a gain of 1.21%, June yen +0.94%, June Canadian dollar +0.71%, June euro +0.70%, June Swiss franc +0.66%, June Australian dollar +0.16%, June dollar index -0.87%.

Year to date, the June Australian dollar is the out performer with a gain of 4.66%, June yen +2.89%, June British pound +1.92%, June Swiss franc +1.12%, June euro +0.59%, June dollar index -0.99%, June Canadian dollar -2.88%.

S&P 500 futures (x 250):

For the week, the June S&P 500 futures contract gained 14.30 points. The COT report revealed that leveraged funds added 4,714 contracts to their long positions and liquidated 1,245 contracts of their short positions. As of the latest report, leveraged funds are long the S&P 500 futures contract by ratio of 1.36:1, which is a complete reversal from the previous week when they were short by ratio of 1.28:1 and the ratio of 2 weeks ago when leveraged funds were short by ratio of 2.13:1.

For the 2nd quarter, the cash New York Composite Index is the out performer with a gain of 0.97%, S&P 500 cash index +0.47%, Dow Jones Industrial Average cash index +0.34%, NASDAQ 100 cash index -0.23%, S&P 400 cash index -1.23%, Russell 2000 cash index-3.77%.

Year to date, the New York Composite Index is the out performer with a gain of 2.21%, S&P 500 cash index +1.77%, S&P 400 cash index +1.42%, NASDAQ 100 cash index -0.12%, Dow Jones Industrial Average cash index -0.38%, Russell 2000 cash index -2.99%.