Weekend Wrap for November 24, 2013

 The COT reporting period for this week’s report is from November 13 through November 19.

Soybeans:

For the week, January soybeans advanced 39.00 cents, March +40.25, May +40.25. The COT report showed that managed money added 6,107 contracts to their long positions and liquidated 1,501 contracts of their short positions. Commercial interests added 291 contracts to their long positions and added 6,597 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 6.93:1, which is up from the previous week of 6.24:1 and the ratio of 2 weeks ago of 4.31:1.

Soybean meal:

For the week, December soybean meal advanced $17.30, January +15.30, March +16.20. The COT report showed that managed money added 2,430 contracts to their long positions and also added 5,017 contracts to their short positions. Commercial interests added 3,385 contracts to their long positions and liquidated 3,264 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.86:1, which is down significantly from the previous week of 3.44:1 and the ratio of 2 weeks ago of 2.84:1. Note the disparity in the long to short ratio between soybeans and soybean meal.

It is always mystified us why managed money is significantly more bullish in soybeans than soybean meal. Thus far in the 4th quarter through November 22, January soybeans advanced 2.68% while January soybean meal gained 4.50% and year to date January soybeans had only advanced 0.80% while January soybean meal has gained 11.03%. Yet the long to short ratio of managed money is 115% greater in soybeans than soybean meal. We have commented on this a number of times over the past year and have no explanation for it other than the trading volume in soybean meal is approximately 50% less than soybeans, and this may present problems for funds who trade large numbers. Soybean oil during the 4th quarter advanced only 0.12% and year to date has declined 17.9%.

Soybean oil:

For the week, December soybean oil advanced 69 points, January +71, March +70. The COT report showed that managed money liquidated 2,137 contracts of their long positions and added 7,509 contracts to their short positions. Commercial interests added 14,809 contracts to their long positions and liquidated 1,465 contracts of their short positions. As of the latest report, managed money is short soybean oil by  1.66:1, which is up from the previous week of 1.43:1 and the ratio of 2 weeks ago of 1.37:1.

Corn:

For the week, December corn advanced 0.25 cents, March -1.25, May -1.25. The COT report showed that managed money added 10,527 contracts to their long positions and also added 1,908 contracts to their short positions. Commercial interests added 12,582 contracts to their long positions and also added 7,765 contracts to their short positions. As of the latest report, managed money is short corn by a ratio of 1.19:1, which is down from the previous week’s ratio of 1.24:1 and the ratio of 2 weeks ago of 1.35:1. The current ratio is the lowest since the COT tabulation date of September 24 when the short to long ratio reached 1.20:1.

Chicago wheat:

For the week, December Chicago wheat lost 5.00 cents, March +2.50, May +2.75. The COT report showed that managed money liquidated 174 contracts of their long positions and added 9,839 contracts to their short positions. Commercial interests added 3,418 contracts to their long positions and liquidated 502 contracts of their short positions. As of the latest report, managed money is short Chicago wheat by a ratio of 1.66:1, which is up from the previous week of 1.55:1 and the ratio of 2 weeks ago of 1.23:1. The current ratio is the highest that we have seen during the past 3 months. Note that the low short to long ratio in Chicago wheat is significantly higher than corn.

The COT report of November 5 showed that managed money was short Chicago wheat by a ratio of 1.23:1 or a net short position of 19,393 contracts and by November 19 the net short position of managed money had increased to 59,018 contracts or a short to long ratio of 1.66:1. From November 5 through November 19, the short to long ratio of commercials declined from 2.26:1 on November 5 to 1.47:1 on November 19. In other words the net short position of commercials have been decreasing while the net short position of managed money has been increasing. 

From November 5 through November 19, March Chicago wheat declined only 8.00 cents or a loss of 1.20% while March KC wheat lost 24.25 cents or 3.34%. In other words the loss of KC wheat was 3 times that of Chicago wheat, yet the net short position in Chicago wheat increased dramatically and the net long position in KC wheat was reduced from 42,179 on November 5 to 24,661 on November 19. However, during the 2 week timeframe, managed money has been able to move the market a mere 8 cents. This confirms our view that Chicago wheat has already bottomed, or is very close to it and Kansas City wheat is not far behind.

Kansas City wheat:

For the week, December KC wheat advanced 3.50 cents, March +0.75, May +0.50. The COT report showed that managed money liquidated 2,542 contracts of their long positions and added 6,064 contracts to their short positions. Commercial interests liquidated 706 contracts of their long positions and also liquidated 7,348 contracts of their short positions. As of the latest report, managed money is long KC wheat by a ratio of 2.28:1, which is down significantly from the previous week of 3.52:1 and down dramatically from the ratio of 2 weeks ago of 7.14:1.

From October 23 when Chicago and Kansas City wheat topped out through November 22, March Chicago wheat is trading 7.66% lower while KC wheat lost 8.90% in the same time frame. Similar to soybeans and soybean meal, it mystifies us why managed money is net long in KC wheat, but significantly net short in Chicago wheat.

Cotton:

For the week, December cotton lost 1.91 cents, March -97 points, May -1.03 cents. The COT report showed that managed money liquidated 192 contracts of their long positions and added 394 contracts to their short positions. Commercial interests liquidated 9,266 contracts of their long positions and also liquidated 11,867 contracts of their short positions. As of the latest report, managed money is long cotton by a ratio of 1.18:1, which is down slightly from the previous week of 1.20:1 and the ratio of 2 weeks ago of 1.41:1.

Sugar #11 On October 29, March 2014 sugar generated a short-term sell signal and an intermediate term sell signal on November 14.

For the week, March sugar lost 15 points, May -3, July +7. The COT report showed that managed money liquidated 22,437 contracts of their long positions and also liquidated 360 contracts of their short positions. Commercial interests added 10,198 contracts to their long positions and liquidated 11,040 contracts of their short positions. As of the latest report, managed money is long sugar by a ratio of 3.54:1, which is down from the previous week of 3.93:1 and the ratio of 2 weeks ago of 3.84:1. The ratio of 3.93:1 was the highest recorded during the past couple of months.

Ever since March sugar topped out at 20.16 on October 18, the market has declined steadily without much of a rally. From October 21 through November 22 (25 trading days) sugar has declined every day with the exception of October 22, October 25, November 4, November 8, November 18. Therefore, it is unbelievable that the long to short ratio remains at the stratospheric 3.54:1. From October 21 through November 22, sugar has declined 2.10 cents or 10.77%.

From October 21 through November 21 (which is the latest report from the exchange, open interest has declined only 24,624 contracts, which is a little less than 3%. Total open interest on November 21 was 801,813 contracts. The open interest and COT stats tell us that speculators are refusing to liquidate despite the sharp move lower. However as bad as that is, “Swap Dealers” according to the COT report are long sugar by a ratio of 4.27:1 and hold a net long position of 178,702 contracts. In the category of “Other Reportables,” they are long by a ratio of 2.44:1 and hold a net long position of 31,586 contracts.

During the week just past, another ominous signal appeared in sugar, and that was the inversion that had been in evidence during the course of the rally has been narrowing since the beginning of the decline on October 21. On November 21, March sugar sold at a discount to May and July contracts for the first since mid June 2013. To further illustrate the degree to which the spreads have changed consider that on November 15 March sugar closed at 17.55, May 17.50, July 17.45 and on November 22 March closed at 17.40, May 17.47, July 17.52. The high for the March 2014-July 2014 spread occurred on October 18 when March sold at a 54 point premium to July. A little more than one month later, March is selling at a 12 point discount to July.

This is an extremely negative development and confirms that sugar prices are headed much lower. With the huge number of longs in the market, there is plenty of fuel for a continued move to the downside, and the large number of longs explain why rallies peter out after one day. There is a massive overhang of longs who initiated positions at much higher levels and are looking to trim losses on any rally. This will keep a lid on rallies until a significant portion of speculative interest has liquidated.

From the November 3 Weekend Wrap:

“From a technical point of view, sugar has some definite positives. For example, the 50 day moving average crossed above the 200 day moving average on the continuation chart and the term structure of the market is in backwardation. Trends in sugar can last for extended periods of time, and we may be seeing the nascent signs of the longer-term bull market. However, the market is overbought from an open interest point of view due to the large numbers of managed money longs, who are likely holding positions from higher levels. The 50 day moving average on the March chart is 18.10 and 17.81 on the continuation chart. Sugar looks like it is overdue for a short-term rally, and we would use this as an opportunity to initiate bearish positions.”

Live cattle:

For the week, December live cattle lost 1.93 cents, February -3.00, April -2.45. The COT report showed that managed money liquidated 5,793 contracts of their long positions and added 1,947 contracts to their short positions. Commercial interests added 5,158 contracts to their long positions and also added 2,271 contracts to their short positions. As of the latest report, managed money is long cattle by a ratio of 4.95:1, which is down from the previous week of 5.74:1 and the ratio of 2 weeks ago of 6.01:1. This ratio is the highest recorded during the bull move in cattle.

Cattle suffers from the same problem as sugar, but the major difference is cattle has very bullish fundamentals and sugar does not. The similarity lies in the fact that the long to short ratio of managed money is at stratospheric levels compared to price levels back in September. For example, during the COT reporting period of September 18 through September 24, February cattle traded from a low of 1.29775 on September 18 to a high of 1.32925 on September 24. However, the long to short ratio on September 24 was 1.79:1. Though cattle closed at 1.31675 on November 19 (the tabulation date of the COT report), which was below the close on September 24, the long to short ratio is significantly higher at 4.95:1. In simple terms, the net long position of managed money on September 24 was 36,993 contracts and on November 19 the net long position of managed money is 84,244 contracts despite February cattle trading at the lows last seen on September 20. In other words, there are thousands of contracts purchased after September 24 at higher prices, which are showing losses. As the market continues to fall, speculators will be forced to meet margin calls or liquidate. We continue to be bearish on cattle prices short term, but believe a major rally will ensue once the overhang of speculative longs are reduced.

From from September 24 when the COT long to short ratio stood at 1.79:1 through November 19 when it registered 4.95:1, February cattle declined 1.23 cents, or 0.92%. The commercial short to long ratio increased from 2.90:1 on September 24  to 4.19:1 on November 19. 

Lean hogs: On November 22, February lean hogs generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, December lean hogs lost 28 points, February -60 April +55. The COT report showed that managed money liquidated 9,813 contracts of their long positions and added 710 contracts to their short positions. Commercial interests added 2,895 contracts to their long positions and liquidated 8,467 contracts of their short positions. As of the latest report, managed money is long hogs by a ratio of 7.24:1, which is down from the previous week of 8.65:1 and the ratio of 2 weeks ago 8.41:1.

From October 28 when February hogs made its high close at 94.550 through November 21, February hogs lost 3.975 cents while total open interest declined by a massive 32,918 contracts, or approximately 10.75%. While it is positive to see open interest decline as price declines, the fact that February hogs generated a short-term sell signal and the long to short ratio remains at a stratospheric level despite the decline, informs us that lower prices are ahead. For example, the net long position of managed money according to the COT report of October 29 was 88,755 contracts and by November 19 had only been reduced to 70,933 contracts or a net decline of 17,822 contracts. Interestingly, on October 29, the long to short ratio of managed money stood at 7.20:1 and the current ratio is 7.24:1.

In addition to the above stats, the February 2014 – April 2014 hog spread closed on Friday at 3.325 premium to April, which is a new closing low and the largest discount of February to April going back to November 2012. This is another sign that the cash market is weakening and combined this with the large net long position of managed money, “Swap Dealers” (net long 61,518) and “Other Reportables,” you have all the ingredients for lower prices.

WTI Crude oil:

For the week, January crude oil advanced 35 cents. The COT report showed that managed money liquidated 5,851 contracts of their long positions and liquidated 19,774 contracts of their short positions. Commercial interests liquidated 14,004 contracts of their long positions and also liquidated 12,514 contracts of their short positions. As of the latest report, managed money is long crude oil by a ratio of 5.94:1, which is up significantly from the previous week of 4.22:1 and the ratio of 2 weeks ago of 4.82:1.

Heating oil: On November 21, January heating oil generated a short-term buy signal.

For the week, December heating oil advanced 10.24 cents, January  +9.84, February +9.38.The COT report showed that managed money added 554 contracts to their long positions and liquidated 1,449 contracts of their short positions. Commercial interests liquidated 2,674 contracts of their long positions and also liquidated 2,017 contracts of their short positions. As of the latest report, managed money is short heating oil by a ratio of 1.20:1, which is down slightly from the previous week of 1.28:1, but above the ratio of 2 weeks ago of 1.06:1.

On November 7, January heating oil made its low at 2.8449 and the January 2014-April 2014 spread closed at a 38 tick premium to April. On November 22, the same spread closed at a 2.20 premium to January. This is precisely the kind of spread action we want to see on a move higher. The spread close on November 22 was the highest since October 21 when January heating oil closed at 3.0070 and April closed at 2.9850 (2.20 cents premium to January). On November 22, January heating oil closed at 3.0393 and April 3.0173. In short, the spread is trading at the same level as it was on October 21, but prices of the January April contracts are approximately 3.00 cents higher. Open interest has been acting positively as well. For example, from November 8 through November 21, total open interest increased by 8,228 contracts, which is approximately a 2.8% increase. Although the increase is rather tepid considering that heating oil advanced 5.42% from November 8 through November 21, the advance occurred in the face of a fairly large short interest held by managed money. The short position of managed money will add fuel for continued move higher

We analyze heating oil and gasoline, not because we think they are good trading vehicles (the liquidity and volatility in heating oil and gasoline futures make them risky to trade and the options market is illiquid), but rather because it reflects potential support for WTI crude. This is especially relevant since Brent crude oil generated a short and intermediate term buy signal on November 21. In short, it appears the petroleum complex is headed higher, but a potential lessening of tension between the United States Iran appears to be on the horizon. An initial agreement has been reached for further talks that set the stage for a possible release of the Iranian oil embargo. Conceivably, if market participants are overly optimistic about this, a wave of selling could engulf the complex which would reverse the recent buy signals.

Gasoline: On November 21, January gasoline generated a short and intermediate term buy signal

For the week, December gasoline advanced 6.84 cents, January +7.22, February +6.96. The COT report showed that managed money added 2,313 contracts to their long positions and liquidated 3,253 contracts of their short positions. Commercial interests added 5,903 contracts to their long positions and also added 8,253 contracts to their short positions. As of the latest report, managed money is long gasoline by a ratio of 4.73:1, which is up significantly from the previous week of 3.37:1 and the ratio of 2 weeks ago of 2.88:1.

Since making its bottom on November 7, January gasoline has advanced 8.54% through November 21 versus 5.42% for heating oil. Open interest during this time increased by 8,149 contracts or 3.3%, or slightly more than heating oil. Managed money is bullish on gasoline and bearish on heating oil. The January 2014-April 2014 spread closed at 18.44 cents premium to April. In other words, as gasoline rallied strongly beginning on November 8, January gasoline remains at a significant discount to April.

Natural gas: 

For the week, January natural gas advanced 10.3 cents. The COT report showed that managed money added 602 contracts to their long positions and liquidated 11,198 contracts of their short positions. Commercial interests liquidated 316 contracts of their long positions and added 1,325 contracts to their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.32:1, which is down from the previous week of 1.37:1 but slightly above the ratio of 2 weeks ago of 1.30:1. The ratio of 1.37:1 was the highest reading of the past couple of months. 

Natural gas is getting very close to generating a short-term buy signal, and if it does, managed money will be net short. The buy signal could come as early as Monday. From November 5 through November 21, January natural gas advanced 22 cents or 6.13% while open interest declined 36,107 contracts. Year to date, January natural gas has lost 5.56%. In short, as the market has rallied, both longs and shorts have used this as an opportunity to liquidate. On a seasonal basis, natural gas tends to bottom toward the end of November and rally into mid December.

Copper:

For the week, March copper advanced 3.65 cents. The COT report showed that managed money liquidated 651 contracts of their long positions and added a massive 15,276 contracts to their short positions. Commercial interests added 5,806 contracts to their long positions and liquidated 6,882 contracts of their short positions. As of the latest report, managed money short copper by a ratio of 1.87:1, which is significantly above the previous week of 1.29:1, and a complete reversal from 2 weeks ago when managed money was long copper by a ratio of 1.21:1. The current short to long ratio is the highest that we’ve seen in several months.

Palladium:

For the week, March palladium lost $18.35. The COT report showed that managed money liquidated 2,527 contracts of their long positions and added 271 contracts to their short positions. Commercial interests liquidated 304 contracts of their long positions and also liquidated 1,065 contracts of their short positions. As of the latest report, managed money is long palladium by a ratio of 12.30:1, which is down from the previous week of 15.68:1 and the ratio of 2 weeks ago of 18.56:1.

Platinum: On November 18, January platinum generated a short and intermediate term sell signal.

For the week, January platinum lost $56.20. The COT report showed that managed money liquidated 727 contracts of their long positions and added 1,904 contracts to their short positions. Commercial interests added 132 contracts to their long positions and liquidated 2,197 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 6.10:1, which is down dramatically from the previous week of 10.18:1 and the ratio of 2 weeks ago of 9.67:1.

Last week, we warned clients about the danger of being long in platinum and by November 22 January platinum had fallen to the lowest level since October 16.

From the November 17 Weekend Wrap:

“The massive long position of managed money when prices are moving lower is another cautionary sign that platinum is likely headed south. From October 29, when the long to short ratio stood at 5.54:1 through November 12 when it increased to 10.18:1, January platinum lost $26.20 or -1.79%. In this time frame, open interest increased by 1,078 contracts, which means that new short sellers were in control. Corroborating this is the short to long ratio by commercial interests, which went from 6.09:1 on October 29 to 9.01:1 on November 12. In other words, commercial interests were taking advantage of higher prices to increase their short positions.”

“Year to date, January platinum is trading 7.24% lower and the 50 day moving average of 1432.40 is below the 150 day moving average of 1451.50 and the 200 day moving average of 1490.90. The bearish moving average configuration also is in evidence on the continuation chart. Although platinum remains on a short and intermediate term buy signal, we think it is imminent that short and intermediate term sell signals will be generated. The abysmal performance of gold and silver and the general deflationary trends in commodities are other factors dragging down platinum prices, even though automobile sales have been fairly robust. A more conservative way of trading platinum is to write out of the money calls in the January contract which expires on December 18. Strike prices should be based upon your risk tolerance. The erosion of the time value of the option begins to work for the benefit of the option seller in addition to any declines in price.”

Gold:

For the week, February gold lost $43.70. The COT report showed that managed money liquidated 3,429 contracts of their long positions and added 8,147 contracts to their short positions. Commercial interests liquidated 3,736 contracts of their long positions and also liquidated 11,439 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 1.55:1, which is down from the previous week of 1.84:1 and down dramatically from the ratio of 2 weeks ago of 3.90:1.

Silver:

For the week, March silver lost 87.6 cents. The COT report showed that managed money liquidated 419 contracts of their long positions and added 4,090 contracts to their short positions. Commercial interests added 2,696 contracts to their long positions and liquidated 1,515 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 1.22:1, which is down from the previous week of 1.49:1 and down dramatically from the ratio of 2 weeks ago of 2.47:1.

Canadian dollar:

For the week, the December Canadian dollar lost 73 points. The COT report showed that leveraged funds added 2,382 contracts to their long positions and also added 3,434 contracts to their short positions. As of the latest report, leveraged funds are short the Canadian dollar by a ratio of 1.74:1, which is down from the previous week of 1.77:1 and the ratio of 2 weeks ago of 1.83:1.

Australian dollar:

For the week, the December Australian dollar lost 1.90 cents. The COT report showed that leveraged funds liquidated 1,651 contracts of their long positions and also liquidated 1,374 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 2.21:1, which is above the previous week’s ratio of 2.12:1 and the ratio of 2 weeks ago of 1.57:1.

Swiss franc:

For the week, the December Swiss franc advanced 96 points. The COT report showed that leveraged funds liquidated 972 contracts of their long positions and also liquidated 1,416 contracts of their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 1.68:1, which is above the previous week of 1.47:1 and the ratio of 2 weeks ago of 1.64:1.

British pound: On November 22, the December British pound generated a short term buy signal and remains on an intermediate term buy signal.

For the week, the British pound advanced 96 points. The COT report showed that leveraged funds added 11,010 contracts to their long positions and also added 3,032 contracts to their short positions. As of the latest report, leveraged funds are long the British pound by a ratio of 2.40:1, which is up slightly from the previous week of 2.30:1 and the ratio of 2 weeks ago of 2.39:1.

Euro:

For the week, the December euro advanced 61 points. The COT report showed that leveraged funds liquidated 1,353 contracts of their long positions and added 791 contracts to their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.58:1, which is down from the previous week of 1.64:1 and the ratio of 2 weeks ago of 1.98:1.

Yen:

For the week, the December yen lost 108 points. The COT report showed that leveraged funds added 1,847 contracts to their long positions and also added 15,328 contracts to their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 3.23:1, which is up from the previous week of 2.95:1 and the ratio of 2 weeks ago of 2.40:1.

Dollar index:

For the week, the December dollar index lost 50 points. The COT report showed that leveraged funds added 2,954 contracts to their long positions and also added 1,583 contracts to their short positions. As of the latest report, leveraged funds are short the dollar index by ratio of 2.58:1, which is down from the previous week of 3.40:1 and the ratio of 2 weeks ago of 2.38:1.

S&P 500 E mini:

For the week, the December S&P 500 E mini gained 7.70 points. The COT report showed that leveraged funds liquidated 1,948 contracts of their long positions and added 10,548 contracts to their short positions. As of the latest report, leveraged funds are short the S&P 500 E mini by a ratio of 1.23:1, which is up slightly from the previous week of 1.21:1 and about the same as 2 weeks ago of 1.24:1.