Weekend Wrap for September 22, 2013

The COT Report Period: September 11-September 17.

Soybeans:

For the week, November soybeans lost 66.25 cents, January -61.75. The COT report showed that managed money liquidated 2,474 contracts of their long positions and also liquidated 1,974 contracts of their short positions. Commercial interests liquidated 2,513 contracts of their long positions and added 2,485 contracts to their short positions. As of the latest report, managed money is long by a ratio of 7.83:1, which is up from the previous week of 7.30:1 and the ratio of 2 weeks ago of 7.14:1. The current ratio is the highest in at least a couple of months. Note, that the spread between November and January narrowed 4.50 cents and that November soybeans are trading at a discount to January. On September 20, the November-January bean spread closed at 2.75 cents premium to January, which is the highest premium for the spread going back to August 15. On that day, November beans closed at $12.65 1/2 and on September 20, November beans closed at 13.15 1/4. As we indicated in the report of September 19, we think the first downside target in November beans is the 50 day moving average of $12.87 and the 200 day moving average of 12.75. 

It is likely that November soybeans will generate a short-term sell signal sometime next week, and it could come as early as Monday. With the long to short ratio of managed money at multi-month highs, beans are vulnerable to a sharp downside move. On September 19, total open interest increased by 4,601 contracts while November beans lost 8.25 cents. The preliminary stats for Friday’s trading indicate that open interest increased on the decline, which means that for the past 2 days when beans have fallen 32.50 cents, new longs and new shorts have been entering the market and the shorts are clearly in control. We suspect much of the short selling was done by commercial interests, and that speculators were on the buy side for the most part. The huge net long position of managed money is going to add fuel to downside move, which appears inevitable. Adding to the bearish case, is that on a seasonal basis soybeans tend to decline from mid-September into early to mid October. This seasonal decline is evident in the entire bean complex. Our initial downside target is the 50 day moving average of $12.87 1/2 and the 200 day moving average of 12.75.

The open interest action in soybeans has been vastly different from soybean meal. For example from September 13 through September 19, open interest has increased by 3,935 contracts and soybeans declined 4.05% while soybean meal open interest declined by 4,728 contracts and price declined 5.99%. In short, the open interest action in soybean meal is positive whereas the open interest action in soybeans is negative.

Soybean meal:

For the week, October soybean meal lost $31.20, December -31.20. The COT report showed that managed money liquidated 4,927 contracts of their long positions and added 936 contracts to their short positions. Commercial interests added 7,096 contracts to their long positions and liquidated 2,633 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 5.50:1, which is down from the previous week of 6.28:1, but above the ratio of 2 weeks ago of 3.49:1.

Although soybeans are on the verge of generating a short-term sell signal, soybean meal is going to have to do more work on the downside before generating a sell signal. The spread activity between the October and December contract shows the October contract continuing to sell at a premium to December, which reflects the tightness in meal. On a year-to-date basis, December soybean meal has advanced +12.27% while November soybeans increased by +0.96%. Interestingly, the long to short ratio in soybeans is considerably higher than soybean meal.

Soybean oil:

For the week, October soybean oil lost 25 points, December -22. The COT report showed that managed money liquidated 2,571 contracts of their long positions and added 2,660 contracts to their short positions. Commercial interests added 5,432 contracts to their long positions and liquidated 5,627 contracts of their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.44:1, which is up from the previous week of 1.32:1 and the ratio of 2 weeks ago 1.28:1.

Corn:

For the week, December corn lost 8.00 cents. The COT report showed that managed money added 17,886 contracts to their long positions and added a massive 42,553 contracts to their short positions. Commercial interests added 19,472 contracts to their long positions and liquidated 13,799 contracts of their short positions. As of the latest report, managed money is short corn by a ratio of 1.07:1, which is a reversal from the previous week when they were long by a ratio of 1.04:1, which was a reversal from the ratio of 2 weeks ago when managed money was short by a ratio of 1.09:1.

Chicago wheat:

For the week, December Chicago wheat advanced 4.75 cents. The COT report showed that managed money liquidated 3,005 contracts of their long positions and added 1,903 contracts to their short positions. Commercial interests added 720 contracts to their long positions and liquidated 925 contracts of their short positions. As of the latest report, managed money is short Chicago wheat by a ratio of 1.62:1, which is an increase from the previous week of 1.55:1 and the ratio of 2 weeks ago of 1.46:1.

Kansas City wheat:

For the week, December KC wheat advanced 0.75 cents. The COT report showed that managed money added 120 contracts to their long positions and also added 537 contracts to their short positions. Commercial interests liquidated 1,605 contracts of their long positions and also liquidated 557 contracts of their short positions. As of the latest report, and managed money is long Kansas City wheat by a ratio of 1.52:1, which is slightly below the previous week of 1.55:1 and the ratio of 2 weeks ago of 1.56:1.

Although we are friendly to wheat, 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 September 17, which encompasses 7 COT periods, KC wheat has declined 18.00 cents, (December Chicago wheat declined 24.75 cents in the same time frame) but the net long position of managed money increased from 1.06:1 to 1.52:1. On the other hand, the commercial short ratio has increased from 1.67:1 on July 31 to 2.87:1 on September 17, and the short position has been increasing every week. As a consequence, managed money has been unable to move KC wheat higher after 7 weeks. We tend to think that managed money bulls will be forced to liquidate before the market is ready to turn.

Clients should keep in mind that the sharply lower dollar is going to make American wheat much more competitive on the world market. This should encourage further US wheat exports, which is already moving at the fastest pace during the past several years for this time of year. The dollar appears to be in a protracted bear market, and the 50 day moving average is about to cross below the 200 day moving average. According to the latest USDA report, 57% of the USDA export projection of 1.1 bb is already on the books. We think the biggest barrier to rising wheat prices has been declining corn prices. We think it is inevitable that wheat will generate a short-term buy signal, and when it does, the speculative short position held in Chicago wheat will add significant fuel for an upside move. 

COT Report September 11-September 17

09/10/2013 – 09/17/2013
Excel Spreadsheet

Cotton:

For the week, December cotton advanced 6 points. The COT report showed that managed money added 1,123 contracts to their long positions and liquidated 1,250 contracts of their short positions. Commercial interests added 4,939 contracts to their long positions and also added 7,309 contracts of their short positions. As of the latest report, managed money is long cotton by a ratio of 5.05:1, which is up significantly from the previous week of 4.37:1.

Live cattle:

For the week, October live cattle advanced 70 points, December +60. The COT report showed that managed money added 2,200 contracts to their long positions and also added 12,629 contracts to their short positions. Commercial interests added 2,131 contracts to their long positions and liquidated 3,793 contracts of their short positions. As of the latest report, managed money is long cattle by a ratio of 1.59:1, which is down significantly from the previous week of 2.08:1 and the ratio of 2 weeks ago of 2.75:1. Three weeks ago, the long to short ratio stood at 2.90:1. In short, the long to short ratio has been cut in half during the past 3 weeks. 

Since topping out on August 16, October cattle declined to its low 124.300, and during this time, open interest declined 1,868 contracts. The decline represented a loss of 2.275 cents. The market has rallied for the past 3 days and final open interest stats show increases that have been disproportionately high, meaning there are strong committed buyers and sellers, and the buyers are controlling market action. It is positive to see that managed money has cut its net long position from where it was 3 weeks ago. Cattle remains on a short-term sell signal, but an intermediate term buy signal. It was positive that during the decline, an intermediate term sell signal was not generated.

WTI Crude oil:

For the week, October crude oil lost $3.54, November -2.79, December -2.25. The COT report showed that managed money liquidated 6,012 contracts of their long positions and also liquidated 3,637 contracts of their short positions. Commercial interests added 3,037 contracts to their long positions and also added 5,533 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 5.72:1, which is up slightly from the previous week of 5.45:1, but below the ratio of 2 weeks ago of 6.08:1.

With gasoline and heating oil on a short-term sell signals, it now appears likely that November WTI will generate a short-term sell signal in the early part of this week. Selling pressure may be somewhat muted due to the fact that managed money has been paring back their net long positions for several weeks.

It is important keep in mind that on September 20, the November 2013-February 2014 crude oil spread closed at $3.42, which is the lowest close since August 21 when it closed at $3.24. The previous low occurred on July 30 (3.23). If the spread closes below this level, it will further confirm that crude oil prices are headed south.

Heating oil: On September 20, November heating oil generated a short-term sell signal, but remains on an intermediate term buy signal

For the week, October heating oil lost 11.12 cents, November -10.84, December -10.04. The COT report showed that managed money liquidated 5,876 contracts of their long positions and also liquidated 324 contracts of their short positions. Commercial interests added 7,120 contracts to their long positions and also added 360 contracts to their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.77:1, which, is below the previous week of 3.05:1 and the ratio of 2 weeks ago of 3.19:1.

Like crude oil, the near month premium of November is eroding against the February contract ( and other back months), and closed at 1.21 cents premium to November. This is a marked change from August 29 when November heating oil made its high of $3.1836. On that date the November 2013-February 2014 spread closed at 3.86 cents premium to November. It is important to remember that on a seasonal basis, heating oil tends to top out in September and decline into early December.

Gasoline:

For the week, October gasoline lost 8.54 cents, November -8.95, December – 9.26. The COT report showed that managed money liquidated 13,361 contracts of their long positions and also liquidated 324 contracts of their short positions. Commercial interests added 1,149 contracts to their long positions and liquidated 11,433 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 5.81:1, which is a significant decline from the previous week of 6.94:1 and the ratio of 2 weeks ago of 9.03:1.

Natural gas:

For the week, November natural gas advanced 8 ticks, December +3.0 cents. The COT report showed that managed money added 2,521 contracts to their long positions and liquidated 8,771 contracts of their short positions. Commercial interests liquidated 7,056 contracts of their long positions and liquidated 8 contracts of their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.03:1, which is a reversal from the previous week when managed money was short by a ratio of 1.01:1 and above the ratio of 2 weeks ago when the number of longs and shorts were nearly equal at 1.00:1.

On August 29, natural gas generated a short-term buy signal, and as of September 20 remains on an intermediate term sell signal. On September 19, natural gas made a high of 3.892 basis November after the release of the natural gas storage report, and promptly sold off to close essentially unchanged. The 200 day moving average for November natural gas is $3.880 and the 50 day is $3.650, and the 200 day moving average provided resistance. In order for natural gas to take another leg higher, it must break through resistance  of $3.880.

We have examined spread action for near-term natural gas and it is acting in a bearish fashion. For example, on September 20, the spread between November 2013-February 2014 closed at 26.2 cents premium to February. On that day, November natural gas closed at $3.763. On September 4, the spread between November 2013 and February 2014 stood at 22.4 cents premium to February and November natural gas closed at 3.767, or just about the same close as September 20. In short, the market hasn’t moved much in a 2 week timeframe, yet the contango is widening. This is bearish spread action, and may signal a short-term top. Additionally, with the 50 day moving average significantly below the 200 day moving average, much backing and filling needs to occur in order for the 50 day moving average to rise above the 200 day. This would be confirmation that the intermediate-term trend has turned positive. Major support lies at the $3.600 area, and since natural gas remains on a short-term buy signal, it makes sense to write calls in near dated options out of the money against long futures positions to mitigate any downside risk in the short-term. If natural gas breaks below 3.60, we would recommend liquidating long positions. Of course maintaining longs depends upon each client’s entry price and the amount of dollars at risk if the market breaks down to 3.60.  Remember, spreads often foretell a directional move.

COT Report September 11-September 17

09/10/2013 – 09/17/2013
Excel Spreadsheet

Copper: On September 18, December copper generated a short-term buy signal, which reversed the short-term sell signal of September 16. Copper remains on an intermediate term buy signal.

For the week, December copper advanced 12.05 cents. The COT report showed that managed money liquidated 2,036 contracts of their long positions and added 3,784 contracts to their short positions. Commercial interests added 366 contracts to their long positions and liquidated 4,752 contracts of their short positions. As of the latest report, managed money is long copper by a ratio of 1.14:1, which is slightly above the previous week of 1.07:1, but below the ratio of 2 weeks ago of 1.34:1.

Palladium:

For the week, December palladium advanced $22.85. The COT report showed that managed money added 300 contracts to their long positions and also added 720 contracts to their short positions. Commercial interests liquidated 157 contracts of their long positions and also liquidated 356 of their short positions. As of the latest report, managed money is long palladium by a ratio of 10.65:1, which is down significantly from the previous week of 15.86:1 and the ratio of 2 weeks ago of 15.92:1.

Platinum:

For the week, October platinum advanced $11.90. The COT report showed that managed money liquidated 2,991 contracts of their long positions and added 797 contracts to their short positions. Commercial interests added 256 contracts to their long positions and liquidated 625 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 6.16:1, which is down significantly from the previous week of 7.94:1 and the ratio of 2 weeks ago of 9.34:1.

 Gold: On September 20, December gold generated a short-term sell signal and remains on an intermediate term sell signal.

For the week, December gold advanced $24.10. The COT report showed that managed money liquidated 3,988 contracts of their long positions and added 6,012 contracts to their short positions. Commercial interests added 632 contracts to their long positions and liquidated 5,332 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 2.32:1, which is down significantly from the previous week of 2.82:1 and the ratio of 2 weeks ago of 3.34:1.

Silver:

For the week, December silver advanced 20.7 cents. The COT report showed that managed money liquidated 2,427 contracts of their long positions and added 615 contracts to their short positions. Commercial interests liquidated 510 contracts of their long positions and also liquidated 1,223 contracts of their short positions. As of the latest report, managed money is long silver by a ratio of 2.02:1, which is down from the previous week of 2.35:1 and the ratio of 2 weeks ago of 2.75:1.

COT Report September 11-September 17

09/10/2013 – 09/17/2013
Excel Spreadsheet

Canadian dollar:

For the week, the December Canadian dollar advanced 44 points. The COT report showed that leveraged funds liquidated 1,178 contracts of their long positions and also liquidated 12,069 contracts of their short positions. As of the latest report, leveraged funds are short the Canadian dollar by a ratio of 2.32:1, which is down significantly from the previous week of 2.81:1, but slightly above the ratio of 2 weeks ago of 2.29:1.

Australian dollar: On September 18, the December Australian dollar generated an intermediate term buy signal, which confirmed the short-term buy signal generated on September 5.

For the week, the December Australian dollar advanced 1.59 cents. The COT report showed that leveraged funds added 2,997 contracts to their long positions and liquidated 14,306 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by a ratio of 1.29:1, which is down significantly from the previous week of 1.83:1 and the ratio of 2 weeks ago of 2.15:1.

Swiss franc:

For the week, the December Swiss franc advanced 2.23 cents. The COT report showed that leveraged funds liquidated 3,998 contracts of their long positions and also liquidated 804 contracts of their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 1.57:1, which is down from the previous week of 1.94:1 and the ratio of 2 weeks ago of 1.92:1.

British pound:

For the week, the December British pound advanced 1.41 cents. The COT report showed that leveraged funds added 19,410 contracts to their long positions and liquidated a massive 30,874 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by a ratio of 2.54:1, which is a dramatic reversal from the previous week when they were short by a ratio of 1.06:1 and the ratio of 2 weeks ago when leveraged funds were short by 1.41:1.

The British pound is now showing the highest long to short ratio in several months, and the dramatic increase in long positions coupled with the decline of short positions is a sign the pound has reached a near-term top. The Johnny-come-lately trend followers have jumped on board, which means that a more significant pullback is imminent. Beginning on September 3, through September 20, the December British pound closed higher every day with the exception of September 5, September 12, and September 19 and 20. We are not counting September 20 as a lower close because we do not have final open interest statistics. From September 3 through September 19, open interest increased only 4,391 contracts, which is a fairly tame increase considering that the December pound advanced 5.41 cents in this time frame. However, it is important to take into account that on September 18, the September contract expired and along with it 69,475 contracts. On July 26, OIA announced that the British pound generated a short and intermediate term buy signal and the pound has been on a buy signal ever since.

Euro:

For the week, the December euro advanced 2.14 cents. The COT report showed that leveraged funds added a massive 27,912 contracts to their long positions and liquidated 2,759 contracts of their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.81:1, which is up dramatically from the previous week of 1.18:1 and the ratio of 2 weeks ago of 1.41:1.

Yen:

For the week, the December yen advanced 8 pips. The COT report showed that leveraged funds added 13,301 contracts to their long positions and also added 3,326 contracts of their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 2.68:1, which is down dramatically from the previous week of 4.01:1, and slightly below the ratio of 2 weeks ago of 2.93:1.

Dollar index:

For the week, the December dollar index lost 1.09 points. The COT report showed that leveraged funds added 3,282 contracts to their long positions and liquidated 752 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.03:1, which is down from the previous week of 1.21:1, and dramatically below the ratio of 2 weeks ago of 1.54:1.

COT Report September 11-September 17

09/10/2013 – 09/17/2013
Excel Spreadsheet

S&P 500 E mini:

For the week, the December S&P 500 E mini 20.40 points. The COT report showed that leveraged funds added 36,700 contracts to their long positions and liquidated 5,997 contracts of their short positions. As of the latest report, leveraged funds are short the E mini by a ratio of 1.51:1, which is down from the previous week of 1.61:1 and the ratio of 2 weeks ago of 1.56:1.