Weekend Wrap for September 2, 2013

Latest COT reporting period: Wednesday, August 21-Tuesday, August 27

Soybeans:

For the week, September soybeans advanced 58.75 cents, November +29.50. The COT report showed that managed money added 16,384 contracts to their long positions and liquidated 14,329 contracts of their short positions. Commercial interests liquidated 6,870 contracts of their long positions and added 37,583 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 5.00:1, which is up dramatically from the previous week of 3.15:1 and more than 2 1/2 times the ratio of 2 weeks ago of 1.85:1.

Soybean meal:

For the week, September soybean meal advanced $35.00, October +7.40, December +4.20. The COT report showed that managed money added 3,473 contracts to their long positions and liquidated 6,005 contracts of their short positions. Commercial interests liquidated 4,483 contracts of their long positions and added 4,176 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio of 2.94:1, which is up dramatically from the previous week of 2.30:1 and almost double the ratio of 2 weeks ago of 1.62:1.

Soybean oil: On August 27, December soybean oil generated a short-term buy signal, but remains on an intermediate term sell signal.

For the week, September soybean oil advanced 1.25 cents, October +1.25, December +1.29. The COT report showed that managed money added 17 contracts to their long positions and liquidated 15,838 contracts of their short positions. Commercial interests liquidated 9,096 contracts of their long positions and added 15,483 contracts to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.33:1, which is down from the previous week of 1.62:1 and the ratio of 2 weeks ago of 1.91:1. The current ratio is the lowest in at least several weeks.

Corn:

For the week, September corn lost 0.50 cents, December + 12.00. The COT report showed that managed money liquidated 17,202 contracts of their long positions and also liquidated 34,563 contracts of their short positions. Commercial interests liquidated 24,460 contracts of their long positions and also liquidated 25,772 contracts of their short positions. As of the latest report, managed money is short corn by a ratio of 1.08:1, which is down from the previous week of 1.15:1 and the ratio of 2 weeks ago of 1.21:1.

Chicago wheat:

For the week, September Chicago wheat advanced 8.75 cents, December +8.00. The COT report showed that managed money liquidated 1,751 contracts of their long positions and also liquidated 13,752 contracts of their short positions. Commercial interests liquidated 13,054 contracts of their long positions and added 1,499 contracts to their short positions. As of the latest report, managed money is short Chicago wheat by a ratio of 1.36:1, which is down from the previous week of 1.50:1 and the ratio of 2 weeks ago of 1.47:1.

Kansas City wheat:

For the week, September Kansas City wheat advanced 5.25 cents, December +6.25. The COT report showed that managed money added 1,067 contracts to their long positions and liquidated 140 contracts of their short positions. Commercial interests liquidated 485 contracts of their long positions and added 3,853 contracts to their short positions. As of the latest report, managed money is long Kansas City wheat by a ratio of 1.53:1, which is up from the previous week of 1.49:1 and the ratio of 2 weeks ago of 1.35:1. The current ratio is the highest in more than a couple of months.

Although we are bullish the wheat market-Kansas City wheat in particular, the problem is that managed money has been aggressively increasing their net long exposure, but KC wheat has been declining. For example, from July 31 through August 27, which encompasses 4 COT periods, KC wheat has declined 6.00 cents, but the net long position of managed money increased from 1.06:1 to 1.53:1. On the other hand, the commercial net short position has increased from 1.96:1 on August 6 to 2.62:1 on August 27. In short, managed money has not been able to move KC wheat higher from 4 weeks ago and commercial selling is keeping a lid on prices.

This leads us to believe that if KC breaks down further, a mini avalanche of selling could occur because of the net long position of managed money. From July 31 through August 27, KC open interest increased only 486 contracts, which shows lackluster interest. Even the mini rally in corn futures has been unable to light a fire under wheat. Corn prices will to a great extent determine the direction of wheat. The next downside target is $6.90, the low made on July 26 and 6.84, the low made on July 5. There is a lot to like about the wheat market, but it is not ready to make a move higher. Both Chicago and KC wheat remain on a short and intermediate term sell signal.

 COT August 21-August 27 – Year to Date Performance

 08/20/2013 – 08/27/2013
Excel Spreadsheet

Cotton:

For the week, December cotton lost 59 points. The COT report showed that managed money liquidated a massive 24,793 contracts of their long positions and also liquidated 1,318 contracts of their short positions. Commercial interests added 4,480 contracts to their long positions and liquidated 19,507 contracts of their short positions. As of the latest report, managed money remains long cotton by a ratio of 6.44:1, which is down significantly from the previous week of 7.86:1, but above the ratio of 2 weeks ago of 6.07:1.

Remarkably, the net long position of managed money is higher than it was 2 weeks ago when cotton was trading at higher prices.  For example, the trading range of cotton during the COT report which covered the period from August 7 through August 13 was 85.69-92.54 and December cotton closed at 91.72 on August 13. The net long position of manage money during this time was 6.07:1. In short, cotton is trading considerably below the range of 2 weeks ago , yet the net long position of managed money is nearly 10% above it. This tells us more liquidation is ahead.

 Live cattle:

For the week, October live cattle advanced 10 points. The COT report showed that managed money added 2,403 contracts to their long positions and liquidated 2,197 contracts of their short positions. Commercial interests liquidated 205 contracts of their long positions and added 1,035 contracts to their short positions. As of the latest report, managed money is long cattle by a ratio of 2.90:1, which is up from the previous week of 2.62:1 and the ratio of 2 weeks ago of 1.97:1. Three weeks ago, the ratio stood at 1.44:1. The current ratio is the highest since October cattle generated a short and intermediate term buy signal on August 8.

From the time cattle generated a short and intermediate term buy signal on August 8 through August 30, October cattle has declined 0.22%, despite the fact that managed money has doubled their net long position. Apparently, commercial interests are keeping a lid on prices because the net short position of commercial interests has increased from 2.66:1 on August 6 to 3.46:1 on August 27. Due to the massive increase in speculative long positions, the market remains vulnerable to more corrective action, which will serve to wash out weak longs. There is a gap of approximately 1 cent between the high on August 7 and the low of August 8. We  are confident this will be filled before cattle begins a move that takes out the August 16 high of 1.29050. 

WTI crude oil:

For the week, October WTI advanced $1.23. The COT report showed that managed money added 5,063 contracts to their long positions and also added 498 contracts to their short positions. Commercial interests liquidated 81 contracts of their long positions and added 5,836 contracts to their short positions. As of the latest report, managed money is long WTI by a ratio of 6.40:1, which is up slightly from the previous week of 6.36:1, but down substantially from the ratio of 2 weeks ago of 7.42:1.

As crude oil has moved higher during the past couple of weeks, the net long position of managed money has been declining. During the latest COT reporting, October WTI advanced $3.82, yet the net long position of managed money increased fractionally. Additionally, open interest increased only 19,917 contracts over these 5 sessions, which is minuscule and dramatically below average. In short, there appears to be little interest in the long side of WTI. Perhaps, the most revealing trading day occurred on August 28 when WTI made a new high $112.24, closed $1.09 higher while open interest declined 560 contracts. We are bearish crude oil, however, it remains on a short and intermediate term buy signal.   

 Heating oil:

For the week, October heating oil advanced 3.76 cents. The COT report showed that managed money liquidated 615 contracts of their long positions and also liquidated 661 contracts of their short positions. Commercial interests liquidated 12,241 contracts of their long positions and also liquidated 4,450 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.84:1, which is up from the previous week of 2.79:1 and the ratio of 2 weeks ago of 2.48:1. The current ratio is the highest we have seen in many months.

Gasoline:

For the week, October gasoline advanced 1.14 cents. The COT report showed that managed money added 1,636 contracts to their long positions and liquidated 1,375 contracts of their short positions. Commercial interests liquidated 2,260 contracts of their long positions and added 5,184 contracts to their short positions. As of the latest report, managed money is long gasoline by a ratio of 8.40:1, which is up substantially from the previous week of 7.06:1 and the ratio of 2 weeks ago of 6.64:1.

Natural gas: On August 29, October natural gas generated a short-term buy signal, but remains on an intermediate sell signal.

For the week, October natural gas advanced 6 cents. The COT report showed that managed money liquidated 365 contracts of their long positions and also liquidated 14,781 contracts of their short positions. Commercial interests liquidated 2,005 contracts of their long positions and added 191 contracts to their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.01:1, which is down from the previous week of 1.08:1 and the ratio of 2 weeks ago of 1.12:1.

COT August 21-August 27 – Year to Date Performance

08/20/2013 – 08/27/2013
Excel Spreadsheet

Copper:

For the week, December copper lost 12.30 cents. The COT report showed that managed money liquidated 1,622 contracts of their long positions and also liquidated 400 contracts of their short positions. Commercial interests added 552 contracts to their long positions and also added 753 contracts to their short positions. As of the latest report, managed money is long copper by a ratio of 1.61:1, which is down slightly from the previous week of 1.65:1 but up from the ratio of 2 weeks ago of 1.29:1.

Palladium:

For the week, December palladium lost $28.90. The COT report showed that managed money liquidated 507 contracts of their long positions and added 74 contracts to their short positions. Commercial interests added 67 contracts to their long positions and liquidated 2 contracts of their short positions. As of the latest report, managed money is long palladium by a ratio of 23.42:1, which is down slightly from the previous week of 25.63:1, but up slightly from the ratio of 2 weeks ago of 22.22:1.

Platinum:

For the week, October platinum advanced $14.50. The COT report showed that managed money added 878 contracts to their long positions and liquidated 844 contracts of their short positions. Commercial interests liquidated 97 contracts of their long positions and added 1,481 contracts to their short positions. As of the latest report, managed money is long platinum by a ratio of 8.65:1, which is up substantially from the previous week of 7.03:1 and the ratio of 2 weeks ago of 5.45:1. The current ratio is the highest in at least 3 or 4 months.

Gold: On August 26, December gold generated an intermediate term buy signal, which confirmed the short-term buy signal generated on August 9.

For the week, December gold advanced 30 cents. The COT report showed that managed money added 1,048 contracts to their long positions and liquidated 20,925 contracts of their short positions. Commercial interests liquidated 4,842 contracts of their long positions and added 3,348 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 3.00:1, which is up substantially from the previous week of 1.86:1 and the ratio of 2 weeks ago of 1.61:1. The current ratio is the highest in at least 3 to 4 months.

 Silver:

For the week, December silver lost 26.8 cents. The COT report showed that managed money liquidated 2,328 contracts of their long positions and also liquidated 1,176 contracts of their short positions. Commercial interests liquidated 2,165 contracts of their long positions and added 1,010 contracts to their short positions. As of the latest report, managed money is long silver by a ratio of 2.27:1, which is up slightly from the previous week of 2.24:1 and up substantially from the ratio of 2 weeks ago of 1.62:1.

 COT August 21-August 27 – Year to Date Performance

 08/20/2013 – 08/27/2013
Excel Spreadsheet

Canadian dollar:

For the week, the September Canadian dollar lost 16 points. The COT report showed that leveraged funds added 7,204 contracts to their long positions and also added 22,896 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 1.82:1, which is up substantially from the previous week of 1.40:1 and the ratio of 2 weeks ago of 1.60:1.

Australian dollar:

For the week, the September Australian dollar lost 1.27 cents. The COT report showed that leveraged funds liquidated 1,582 contracts of their long positions and added 2,722 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 2.13:1, which is up from the previous week of 1.97:1 and the ratio of 2 weeks ago of 1.91:1.

Swiss franc:

For the week, the September Swiss franc lost 1.08 cents. The COT report showed that leveraged funds liquidated 583 contracts of their long positions and added 43 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 1.71:1 and the ratio of 2 weeks ago of 2.14:1.

British pound:

For the week, the September British pound lost 79 points. The COT report showed that leveraged funds added 11,371 contracts to their long positions and also added 1,183 contracts to their short positions. As of the latest report, leveraged funds are short the British pound by a ratio of 1.54:1, which is down substantially from the previous week of 2.16:1 and almost 50% of the ratio of 2 weeks ago of 2.89:1.

Euro:

For the week, the September euro lost 1.76 cents. The COT report showed that leveraged funds added 323 contracts to their long positions and liquidated 3,125 contracts of their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.84:1, which is up from the previous week of 1.72:1 and the ratio of 2 weeks ago of 1.43:1. Three weeks ago, leveraged funds were net long by a ratio of 1.15:1.

With managed money holding the largest net long position in the euro in quite some time , it is vulnerable to further downside action. The euro is on the cusp of generating a short-term sell signal, and with managed money holding a hefty net long position, selling will accelerate as the euro breaks major support. On August 30, the September euro made a new low for the move at 1.3173, which is its lowest price since June 25 when the euro made a low of 1.3168. We think the path of least resistance is down.

Yen:

For the week, the September yen advanced 51 points. The COT report showed that leveraged funds added 2,939 contracts to their long positions and also added 8,906 contracts to their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 3.19:1, which is down slightly from the previous week of 3.21:1 and the ratio of 2 weeks ago of 3.39:1.

Dollar index:

For the week, the September dollar index advanced 75 points. The COT report showed that leveraged funds liquidated 564 contracts of their long positions and also liquidated 1,514 contracts of their short positions. As of the latest report, leveraged funds are short the dollar index by a ratio of 1.31:1, which is about the same as the previous week of 1.33:1 and the ratio of 2 weeks ago of 1.30:1. We think that funds are on the wrong side of the trade.

COT August 21-August 27 – Year to Date Performance

08/20/2013 – 08/27/2013
Excel Spreadsheet

S&P 500 E mini: On September 27, the September E mini generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, the September S&P 500 E mini lost 30.10 points. The COT report showed that leveraged funds added 42,262 contracts to their long positions and also added 38,919 contracts to their short positions. As of the latest report, leveraged funds are short the E mini by a ratio of 1.56:1, which is down from the previous week of 1.60:1 and the ratio of 2 weeks ago of 1.70:1.

For the past 2 months, the Dow Jones Industrial Average has been underperforming the major indices. This is of great concern because stocks that comprise the Dow 30 are considered safe for widows and orphans and tend to be high dividend payers. In short, the DJIA has been underperforming its competitor indices when the broad market rallies and declines.The tables below tell the story.

Performance  July 1, 2013-July 31, 2013                     
Russell 2000           +6.94%
NASDAQ Comp      +6.56%
S&P 400                  +6.12%
S&P 500                  +4.95%
NY Composite         +4.90%
DJIA                         +3.96% 

Performance   August 1, 2013-August 31, 2013
NASDAQ Comp  -1.01%
NY Composite     -3.01%
S&P 500              -3.13%
Russell 2000       -3.29%
S&P 400              -3.90%
DJIA                    -4.45%

According to the American Association of Individual Investors, the percentage of bullish investors remains high despite the decline in the market, which began on August 2. Interestingly, the percentage of bulls exceeds those who are neutral.