Weekend Wrap for November 10, 2013

Soybeans:

For the week, November soybeans advanced 40.00 cents, January +44.50, March +39.75. The COT report showed that managed money liquidated 3,444 contracts of their long positions and added 10,507 contracts to their short positions. Commercial interests liquidated 12,842 contracts of their long positions and also liquidated 31,369 contracts of their short positions. As of the latest report, managed money is long soybeans by a ratio of 4.31:1, which is down significantly from the previous week of 6.52:1 and the ratio of 2 weeks ago of 7.28:1.

The USDA report on Friday showed that yields increased from from 41.2 bushels per acre in the September report to 43 bushels per acre in the November 8 report. Ending stocks for the 2013-2014 season remain relatively tight with the USDA increasing carryout only 20 million bushels due to sizable export demand and increasing demand for soybean meal.

Soybean meal:

For the week, December soybean meal advanced $27.40, January +27.00, March +23.60. The COT report showed that managed money liquidated 11,168 contracts of their long positions and added 3,700 contracts to their short positions. Commercial interests added 3,141 contracts to their long positions and liquidated 17,818 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.84:1, which is down significantly from the previous week of 3.95:1 and the ratio of 2 weeks ago of 3.72:1.

Soybean oil:

For the week, December soybean oil lost 1.35 cents, January -1.35, March -1.29. The COT report showed that managed money liquidated 2,711 contracts of their long positions and 1,873 contracts of their short positions. Commercial interests added 2,830 contracts to their long positions and also added 8,167 contracts to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.37:1, which is up slightly from the previous week of 1.33:1, but down from the ratio of 2 weeks ago of 1.39:1.

Corn:

For the week, December corn lost 0.50 cents, March -1.00, May +1.25. The COT report showed that managed money added 4,084 contracts to their long positions and also added 929 contracts to their short positions. Commercial interests added 5,188 contracts to their long positions and also added 19,631 contracts to their short positions. As of the latest report, managed money is short corn by a ratio of 1.35:1, which is slightly below the previous week of 1.37:1, but above the ratio of 2 weeks ago of 1.31:1.

The USDA released its report on November 8, and there were no major surprises with the numbers coming in much as expected. Although yields increased from the September estimate to 160.4 bushels per acre, this figure was already in the market and acreage dropped by approximately 2 million, which also was not unexpected. It appears the big surprise was ending stocks for the 2013-2014 season rose only 32 million bushels. The USDA increased export demand by 175 million bushels and the export numbers thus far are impressive to say the least.

On November 8, December corn made a low of $4.15 1/2 on low volume, just prior to the release of USDA report. Once the report was released, on the 15 minute chart corn dipped to 4.21 1/4 on 2 occasions within one hour, and was unable to break below it for the rest of the session. We bring this up because we believe that corn is overdue for a countertrend rally and speculators should be vigilant about watching for potential suppot. However, we have much more evidence to support our thesis that the short side of corn has been played out at least temporarily.

Number 1: From October 22 through November 5, which encompasses 3 COT reports, total open interest increased by 48,618 contracts while corn declined only 13.25 cents in that time frame. This reveals that although market participants were initiating new short positions and driving prices lower, the move was fairly tepid, and represented only a 3.02% decline. Number 2: The short to long ratio of managed money between October 22 and November 5 basically flatlined. It is apparent that managed money was unwilling to significantly increase their exposure to the short side of corn despite the move lower. On October 22, the short to long ratio stood at 1.31:1 and by November 5, it had increased only slightly to 1.35:1. Number 3: The short to long ratio of commercial interests stood at 1.13:1 on October 22 and by November 5 increased fractionally to 1.15:1. In summary, commercials were not significantly increasing their short exposure. Number 4: Under the heading “Other Reportables,” the short to long ratio fell from 1.44:1 on October 22 to 1.26:1 on November 5. The 5th and final reason is the likelihood that farmers will store grain at current prices, which will cause basis levels to rise and this will propel futures higher. Combine this with the large short position of all 3 categories of market participants, and a short-term rally could ensue that would surprise most observers. The target is the 50 day moving average of $4.46 3/8. In any event, we strongly recommend against shorting corn at current levels. Corn remains on a short and intermediate term sell signal.

Chicago wheat:

For the week, December Chicago wheat lost 18.00 cents, March -18.25, May -18.25. The COT report showed that managed money liquidated 14,039 contracts of their long positions and added 18,893 contracts to their short positions. Commercial interests added 11,223 contracts to their long positions and liquidated 20,194 contracts of their short positions. Note that commercials were doing the exact opposite of managed money. According to the latest report, managed money is now short by a ratio of 1.23:1, which is a complete reversal from the previous week when they were long by a ratio of 1.16:1, and dramatically lower than the ratio of 2 weeks ago when managed money was long by 1.35:1.

Kansas City wheat:

For the week, December Kansas City wheat lost 25.00 cents, March -24.75, May -24.00. The COT report showed that managed money liquidated 928 contracts of their long positions and added 814 contracts to their short positions. Commercial interests added 341 contracts to their long positions and liquidated 4,862 contracts of their short positions. According to the latest report, managed money remains long by a stratospheric 7.14:1, which is down from the previous week of 8.25:1, but the same as the ratio of 2 weeks ago of 7.17:1.

The USDA report was disappointment because it did not raise total export demand, which resulted in an increase in ending stocks above the numbers in the September report.

Cotton:

For the week, December cotton advanced 30 points, March -6, May -7. The COT report showed that managed money liquidated 310 contracts of their long positions and added 3,815 contracts to their short positions. Commercial interests liquidated 4,256 contracts of their long positions and also liquidated 15,377 contracts of their short positions. As of the latest report, managed money is long cotton by a ratio of 1.41:1, which is down from the previous week of 1.63:1 and dramatically down from the ratio of 2 weeks ago of 3.88:1. As a result of the considerable amount of liquidation by managed money, much selling pressure has been relieved.

Sugar #11

For the week, March sugar lost 17 points, May -15, July -13. The COT report showed that managed money liquidated 4,853 contracts of their long positions and also liquidated 212 contracts of their short positions. Commercial interests liquidated 3,387 contracts of their long positions and also liquidated 8,956 contracts of their short positions. As of the latest report, managed money is long sugar by a ratio of 3.84:1, which is down slightly from the previous week of 3.91:1 but above the ratio of 2 weeks ago of 3.64:1.

From the October 27 Weekend Wrap:

On October 18, March sugar topped out at 20.16 on extremely heavy volume of 399,832 contracts. This was the heaviest volume day of 2013. On that day, open interest increased by 5,887 contracts. On October 1, total open interest open interest in all contracts reached its low point of 787,891 contracts before it started to climb beginning on October 2. On October 2, March sugar closed at 18.51 and total open interest was 794,083 contracts. On October 22, total open interest increased to 830,021 contracts, or an increase of 35,938 contracts from October 2. On October 24, total open interest stood at 826,193 contracts and March sugar closed at 18.97. In short, as of October 24, open interest had increased 35,938 contracts from October 2, but since then, March sugar advanced only 46 points through October 24.

We reposted the pertinent part of the October 27 weekend report because it is relevant to the subsequent action since the date of the report. Now that we have COT stats for the past 3 weeks, it is obvious that managed money refuses to liquidate despite prices trading at the level of early October. From October 22 through November 5, which encompasses 3 COT reporting periods, the long to short ratio has advanced from 3.64:1 to 3.84:1. However, during this time frame, March sugar declined by 1.19 cents or 6.12%. Open interest during this period declined by 13,467 contracts, which represents a decline of only 1.62% of total open interest in all delivery months. On November 6 and 7, total open interest declined by 10,124 contracts, and we believe this is just the beginning of an exit from sugar by managed money. From October 22 through November 5, commercial interests increased their short position from 3.46: to 3.60:1, therefore commercials are getting increasingly bearish as prices move lower. On October 29, March 2014 sugar generated a short-term sell signal, but as of this writing has not generated an intermediate term sell signal. Pay special attention if March sugar closes below 17.94 and then 17.67, which would trigger an intermediate sell signal. We like the short side of sugar, but would like to see a rally to the 18.45 area before recommending bearish positions.

Live cattle:

For the week, December live cattle advanced 33 points, February +48, April +1.35. The COT report showed that managed money liquidated 232 contracts of their long positions and also liquidated 4,562 contracts of their short positions. Commercial interests added 940 contracts to their long positions and also added 4,738 contracts to their short positions. As of the latest report, managed money is long by a stratospheric 6.01:1, which is up significantly from the previous week of 4.84:1 and the ratio of 2 weeks ago of 4.21:1. The current ratio is the highest since December cattle generated a short term buy signal on September 23.

From October 22 when the COT ratio for managed money stood at 4.21:1 through November 5 when it was at 6.01:1, December cattle declined 93 points or 7 ticks shy of one cent.  The commercial short to long ratio declined from 5.17:1 on October 22 to 4.90:1 on November 5. Total open interest increased from 322,415 on October 22 to 327,981 on November 5, or a gain of 5,566 contracts. Under conditions when prices are moving lower, with a stratospheric high long to short ratio, it would be normal to see open interest decline rather than increase. We consider the increase to be another warning sign that the long side of cattle should be avoided at this juncture. We think a break below 131500 would find support from 1.29520 and 1.30200.

Lean hogs:

For the week, December lean hogs lost 23 points, February +85, April + 83. The COT report showed that managed money liquidated 6,746 contracts of their long positions and also liquidated 2,850 contracts of their short positions. Commercial interests added 2,086 contracts to their long positions and liquidated 431 contracts of their short positions. As of the latest report, managed money is long hogs by a ratio of 8.41:1, which is significantly above the previous week of 7.20:1 and the ratio of 2 weeks ago of 7.17:1.

Crude oil:

For the week, December crude oil lost 1 cent. The COT report showed that managed money added 5,091 contracts to their long positions and also added 10,549 contracts to their short positions. Commercial interests liquidated 42,112 contracts of their long positions and also liquidated 42,073 contracts of their short positions. As of the latest report, managed money is long crude oil by a ratio of 4.82:1, which is down from the previous week of 5.81:1 and the ratio of 2 weeks ago of 6.17:1.

OIA announced on September 23 that December crude oil had generated a short-term sell signal and on October 21 generated an intermediate term sell signal. From September 23 through October 21, crude oil traded sideways to lower, however once the intermediate term sell signal was generated, crude oil proceeded to decline swiftly. Despite this, we think it is unwise to get overly bearish at the current price due to some very interesting stats we uncovered when examining the COT reports during May and June 2013. Although crude can certainly move lower from here, we suggest that bearish views be tamped down with the realization that crude may make a temporary low and rally to the 20 and 200 day moving averages of $97.72 and 97.45 respectively.

During the time frame of May 14 through June 25, 2013, the long to short ratio was never lower than 6.13:1 and got as high as 9.78:1 while crude traded in the mid-90 level. The stats below provide a a context for the current degree of bullishness by managed money.
Date            Long to Short Ratio  Closing Price on COT tabulation date (continuation chart )
June 25        9.78:1                               $95.25
June 11         7.62:1                                 94.92
June 4          6.13:1                                  93.77
May 28        6.68:1                                  95.01
May 14         7.04:1                                  94.27
NOV 5        4.82:1                                 93.37 (December contract)          

 Heating oil:

For the week, December heating oil lost 1.03 cents, January -1.04, February -83 points. The COT report showed that managed money liquidated 1,615 contracts of their long positions and added 1,658 contracts to their short positions. Commercial interests added 8,912 contracts to their long positions and also added 3,300 contracts to their short positions. As of the latest report, managed money is short heating oil by a ratio of 1.06:1, which is a complete reversal from the previous week when they were long by a ratio of 1.07:1, and down dramatically from the ratio of 2 weeks ago when managed money was long by a ratio of 1.76:1.

Gasoline:

For the week, December gasoline advanced 80 points. The COT report showed that managed money added 1,814 contracts to their long positions and also added 5,558 contracts to their short positions. Commercial interests added 3,851 contracts to their long positions and liquidated 434 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 2.88:1, which is down substantially from the previous week of 4.30:1 and the ratio of 2 weeks ago of 3.83:1.

Natural gas:

For the week, December natural gas advanced 4.6 cents. The COT report showed that managed money added 788 contracts to their long positions and added a massive 58,156 contracts to their short positions. Commercial interests liquidated 21,110 contracts of their long positions and also liquidated 46,225 contracts of their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.30:1, which is significantly above the previous week when they were short by 1.08:1, and a dramatic reversal from 2 weeks ago when managed money was long by a ratio of 1.06:1.

Copper:

For the week, December gold copper lost 4.45 cents. The COT report showed that managed money liquidated 2,218 contracts of their long positions and added 3,142 contracts to their short positions. Commercial interests liquidated 2,435 contracts of their long positions and also liquidated 278 contracts of their short positions. As of the latest report, managed money is long copper by a ratio of 1.21:1, which is a reduction from the previous week of 1.50:1 and down dramatically from the ratio of 2 weeks ago of 2.10:1.

Palladium:

For the week, December palladium advanced $19.65. The COT report showed that managed money added 36 contracts to their long positions and also added 30 contracts to their short positions. Commercial interests liquidated 153 contracts of their long positions and added 22 contracts to their short positions. As of the latest report, managed money is long by a ratio of 18.56:1, which is about the same as the previous week of 18.94:1, but down from the ratio of 2 weeks ago of 23.87:1.

Platinum:

For the week, January platinum lost $9.00. The COT report showed that managed money added 947 contracts to their long positions and liquidated 2,218 contracts of their short positions. Commercial interests liquidated 511 contracts of their long positions and added 5,091 contracts to their short positions. As of the latest report, managed money is long platinum by a ratio of 9.67:1, which is up dramatically from the previous week of 5.54:1 and the ratio of 2 weeks ago of 3.36:1. The high long to short ratio in platinum confirms our advice provided earlier last week about placing sell stops close to your entry point. The large number of net longs will increase selling pressure.

Gold:

For the week, December gold lost $28.60. The COT report showed that managed money liquidated 4,620 contracts of their long positions and added 5,699 contracts to their short positions. Commercial interests liquidated 2,775 contracts of their long positions and also liquidated 199 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 3.90:1, which is down from the previous week of 5.17:1, but above the ratio of 2 weeks ago of 2.73:1.

Silver:

For the week, December silver lost 52 cents. The COT report showed that managed money liquidated 1,523 contracts of their long positions and also liquidated 63 contracts of their short positions. Commercial interests liquidated 322 contracts of their long positions and also liquidated 317 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 2.47:1, which is down from the previous week of 2.58:1 and the ratio of 2 weeks ago of 2.52:1.

Canadian dollar:

For the week, the December Canadian dollar lost 53 points. The COT report showed that leveraged funds added 2,703 contracts to their long positions and also added 3,376 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.83:1, which is down from the previous week of 1.91:1 but above the ratio of 2 weeks ago of 1.47:1.

Australian dollar

For the week, the December Australian dollar lost 56 points. The COT report showed that leveraged funds liquidated 2,332 contracts of their long positions and also liquidated 2,967 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.57:1, which is about the same as the previous week of 1.55:1 and the ratio of 2 weeks ago of 1.50:1.

Swiss franc:

For the week, the December Swiss franc lost 1.19 cents. The COT report showed that leveraged funds liquidated 2,218 contracts of their long positions and added 1,204 contracts to their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 1.64:1, which is down from the previous week of 2.03:1 and the ratio of 2 weeks ago of 1.96:1.

British pound:

For the week, the December British pound gained 75 points. The COT report showed that leveraged funds liquidated 7,548 contracts of their long positions and added 5,782 contracts to their short positions. According to the latest report, leveraged funds are long the British pound by a ratio of 2.39:1, which is down significantly from the previous week of 3.08:1 and the ratio of 2 weeks ago of 3.62:1.

Euro:

For the week, the December euro lost 1.37 cents. The COT report showed leveraged funds liquidated a massive 28,940 contracts of their long positions and added 6,038 contracts to their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.98:1, which is down dramatically from the previous week of 3.04:1 and the ratio of 2 weeks ago of 3.18:1.

Yen: It is likely that the December yen will generate an intermediate sell signal this week. The yen generated a short-term sell signal on November 1.

For the week, the December yen lost 40 points. The COT report showed that leveraged funds added 6,309 contracts to their long positions and also added 10,679 contracts to their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 2.40:1, which is down from the previous week of 2.57:1 and the ratio of 2 weeks ago of 3.30:1.

Dollar index:

For the week, the December dollar index gained 57 points. The COT report showed that leveraged funds liquidated 7,802 contracts of their long positions and also liquidated 4,388 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.38:1, which is up dramatically from the previous week of 1.61:1 and the ratio of 2 weeks ago of 1.49:1.

On November 1, OIA announced that the Swiss franc, euro, Australian dollar, Canadian dollar, Japanese yen, and British pound generated a short-term sell signals. Additionally, we announced that the dollar index generated a short-term buy signal. From November 4 through November 8, all currencies closed lower on the week, with the exception of the British pound, which gained 0.47%, and the dollar index, which gained 0.60% and had generated a short-term buy signal. For the week, the December Swiss franc lost 1.086%, December euro -1.015%, December Australian dollar -0.60%, December Canadian dollar -0.55%, December Japanese yen -0.40%.

We expect to see continued dollar strength, which we believe will be supported by higher interest rates on longer-term notes and bonds. Our near-term target price for the December dollar index is 83.15.

S&P 500 E mini:

For the week, the December S&P 500 E mini advanced 11.40 points. The COT report showed that leveraged funds added 39,807 contracts to their long positions and also added 15,469 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.24:1, which is down from the previous week of 1.30:1 and the ratio of 2 weeks ago of 1.27:1.