Weekend Wrap for September 29, 2013

COT Report Period: Wednesday, September 18-Tuesday, September 24

On September 30, at 12 o’clock Eastern daylight time, the National Agricultural Statistics Service, a division of the USDA will release its grain stocks report.

Soybeans:

For the week, November beans advanced 4.50 cents, January +3.50. The COT report showed that managed money liquidated 2,155 contracts of their long positions and also liquidated 4,245 contracts of their short positions. Commercial interests added 7,518 contracts to their long positions and liquidated 6,746 contracts of their short positions. As of the latest report, managed money is long soybeans by a stratospheric ratio of 9.52:1, which is dramatically above the previous week of 7.83:1 and the ratio of 2 weeks ago of 7.30:1. The current ratio is the highest in at least 4 to 5 months.

We think it is inevitable that soybeans will break to the downside, and with the stratospheric position of manage money, there will be a tremendous amount of fuel to accelerate the move lower. From a fundamental point of view, and exports a bullish scenario is in place after the harvest. Seasonally, soybeans are entering their weak period. It is positively baffling why the long to short ratio in soybeans is nearly twice that of soybean meal when soybean meal has been significantly outperforming soybeans. For example, during the current quarter, November soybeans advanced 5.41%, but December soybean meal has gained 11.84%. After making an interim top at $14.00 on September 13 and December soybean meal topping out on September 13 at $451.20, soybeans declined 5.46% while soybean meal has fallen 6.46%. We been seeing some near-term relative strength in soybeans versus soybean meal, but this does not account for the massive long to short ratio in soybeans versus meal.

Soybean meal:

For the week, October soybean meal gained $6.50, December +6.70, January +5.10. The COT report showed that managed money added 264 contracts to their long positions and also added 1,625 contracts to their short positions. Commercial interests added 5,207 contracts to their long positions and liquidated 3,365 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 4.94:1, which is down from the previous week of 5.50:1 and the ratio of 2 weeks ago of most 6.28:1. Note the long to short ratio of soybean meal is approximately half of soybeans.

Soybean oil:

For the week, October soybean oil declined 58 points, December -53, January -47. The COT report showed that managed money added 1,392 contracts to their long positions and also added 3,208 contracts to their short positions. Commercial interests liquidated 2,149 contracts of their long positions and also liquidated 1,973 contracts of their short positions. As of the latest report, managed money is short soybean oil by a ratio of 1.46:1, which is about the same as the previous week of 1.44:1, but above the ratio of 2 weeks ago of 1.32:1.

Corn:

December corn advanced 3.00 cents, March +2.75. The COT report showed that managed money liquidated 9,112 contracts of their long positions and added 22,119 contracts to their short positions. Commercial interests added 23,739 contracts to their long positions and liquidated 7,195 contracts of their short positions. Note the difference between commercial activity and managed money as one did the opposite of the other. As of the latest report, managed money is short corn by a ratio of 1.20:1, which is significantly above the previous week of 1.07:1 and a dramatic reversal from 2 weeks ago when managed money was long corn by a ratio of 1.04:1. The current ratio is the highest in at least a year.

 Chicago wheat: On September 25, December Chicago wheat generated a short-term buy signal, but remains on an intermediate term sell signal. Chicago wheat may generate an intermediate term buy signal on September 30.

For the week, December Chicago wheat advanced 36.75 cents, March +34.50. The COT report showed that managed money added 6,167 contracts to their long positions and liquidated 11,447 contracts of their short positions. Commercial interests liquidated 5,044 contracts of their long positions and added 13,147 contracts to their short positions. As of the latest report, managed money is short Chicago wheat by a ratio of 1.40:1, which is a reduction from the previous week of 1.62:1 and the ratio of 2 weeks ago of 1.55:1.

Kansas City wheat: On September 27, December Kansas City wheat generated an intermediate term buy signal and had generated a short-term buy signal on September 25.

For the week, December KC wheat advanced 39.00 cents, March +35.75. The COT report showed that managed money added 1,036 contracts to their long positions and liquidated 825 contracts of their short positions. Commercial interests liquidated 3,122 contracts of their long positions and also liquidated 1,585 contracts of their short positions. As of the latest report, managed money is long Kansas City wheat by a ratio of 1.61:1, which is higher than the previous week of 1.52:1 and the ratio of 2 weeks ago of 1.55:1. The current ratio is the highest that we have seen thus far in 2013.

COT Report: September 18-September 24       Year to Date
December Chicago wheat  +2.37%                               -16.78%
December KC wheat           +2.14%                               -16.04%
December bean oil              -0.36%                                -16.88%
December corn                     -1.16%                                -24.30%
November beans                  -2.23%                                 +1.30%
December meal                     -3.35%                               +14.10% 

Cotton:

For the week, December cotton advanced 2.33 cents. The COT report showed that managed money added 1,026 contracts to their long positions and liquidated 707 contracts of their short positions. Commercial interests added 8,042 contracts to their long positions and also added 4,288 contracts to their short positions. Note, the net heavy increase in open interest by commercials versus managed money. According to the latest report, managed money is long cotton by a ratio of 5.56:1, which is above the previous week of 5.05:1 and dramatically above the ratio of 2 weeks ago of 4.37:1.

Live cattle: On September 23, December cattle generated a short-term buy signal, which reversed the September 10 short-term sell signal. December cattle remain on an intermediate term buy signal.

For the week, October live cattle advanced 2.30 cents, December +2.32. The COT reported that managed money added 5,713 contracts to their long positions and liquidated 2,261 contracts of their short positions. Commercial interests added 2,410 contracts to their long positions and also added 6,359 contracts to their short positions. As of the latest report, managed money is long cattle by a ratio of 1.79:1, which is up from the previous week of 1.59:1, but below the ratio of 2 weeks ago of 2.08:1. The current ratio is significantly below the ratio of 3 weeks ago of 2.75:1 and 2.90:1, the major high of 4 weeks ago.

On the continuation chart, the 50 day moving average has crossed above the 150 day average and on the December chart, the 50 day moving average will cross above the 200 day average this week. The market is overbought relative to the 50 day moving average, but based upon the long to short ratio, cattle can continue to move higher without much of a setback. During the 4th and 1st quarters of 2013 and 2014, we think record cattle prices are in store, and the only factor helping to keep prices in check is the U.S. consumer. Additionally, hogs are trading at the upper end of their trading range, and they look to go higher. On September 23, December cattle generated a short-term buy signal, which confirmed the intermediate term buy signal.

On Friday, feeder cattle broke out to new all-time highs, and this move augurs for higher prices fat cattle during the next several months. The previous all-time high for feeder cattle occurred on June 12, 2012, when it made a high of 1.61500 on the continuation chart and on the 27th, the October contract blew right past it to make a high of 1.64900. The robust feeder market is the canary in the coal mine about the coming shortage of fat cattle. Live cattle topped out on January 4, 2013 at 1.34200 and the previous high occurred on March 1, 2012 at 1.31000. Note that the highs in the fat cattle market occurred in the 1st quarter of 2012 and 2013. As the piece below from South Dakota State University states, exports of beef are very healthy, and it indicates that overseas customers willing to pay up for US beef. In short, as consumers tighten their belts, our customers overseas are loosening them a notch. This indicates robust demand going forward despite high prices and the tapped out American consumer.

U.S. Net Beef Exports Grow

“The U.S.’s net beef exports have grown appreciably in the last few months. Net exports (beef exports minus imports) grew to 72.3 million pounds in July 2013. Figure 1 illustrates this as the converse: net imports (beef imports minus beef exports). As shown, net beef imports have been lower than last year on a monthly basis from May through July 2013 (the most recent month for which data are available). From January through July 2013, the U.S. exported 42 million more pounds of beef than it imported. During the same seven months in 2012, the U.S. imported 30 million more pounds of beef than it exported.”

 WTI crude oil: On September 23, November crude oil generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, November crude oil lost $1.88. The COT reported that managed money liquidated 12,146 contracts of their long positions and also liquidated 10,448 contracts of their short positions. Commercial interests added 9,710 contracts to their long positions and also added 15,751 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 6.86:1, which is significantly above the previous week of 5.72:1 and the ratio of 2 weeks ago of 5.45:1. The current ratio is the highest in more than 5 weeks.

As we indicated in last week’s report, if the long November short February spread broke below $3.23, this would be confirmation that crude oil is heading lower. On September 27, the spread closed at $2.41 premium to November, which is the lowest since July 1 when the spread closed at 2.32 and the November contract closed at $96.23. We think any significant move to the upside is over and with the recent rapprochement between Iran and the United States, the psychological dynamic has moved to one where market participants will be anticipating the possibility of Iran selling considerably more oil on the world market. The Syrian situation has been somewhat neutralized, and though the agreement on chemical weapons may fall apart, with Iran less of a threat and Russia committed to some kind of chemical agreement, Syria may recede as a major issue.

After generating a short-term sell signal on September 23, the November contract has been trading sideways to lower and has been unable to mount a rally, which is somewhat unusual after the generation of a sell signal. This underscores the weakness of the commodity, and  liquidation should increase upon a break below $102.00. Because the market has not rallied, it difficult from a risk point of view to initiate bearish positions. One way to address this is to write out of the money calls with strike prices based upon your risk tolerance.

From the September 22 Weekend Wrap:

“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:

For the week, November heating oil lost were 1.85 cents. The COT reported that managed money liquidated 8,330 contracts of their long positions and added 565 contracts to their short positions. Commercial interests liquidated 9,229 contracts of their long positions and also liquidated 10,416 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.22:1, which is down from the previous week of 2.77:1 and the ratio of 2 weeks ago of 3.05:1.

Gasoline: On September 23, November gasoline generated an intermediate term sell signal, which confirmed the short-term sell signal generated on September 10.

For the week, November gasoline lost 72 points. The COT report showed that managed money liquidated 7,691 contracts of their long positions and also liquidated 1,964 contracts of their short positions. Commercial interests liquidated 8,281 contracts of their long positions and also liquidated 13,117 contracts of their short positions. As of the latest report, managed money is long gasoline by a ratio of 6.28:1, which is above the previous week’s ratio of 5.81:1, but below the ratio of 2 weeks ago of 6.94:1.

Natural gas: On September 25, November natural gas generated a short-term sell signal, which reversed the short-term buy signal generated on August 29. Natural gas remains on an intermediate term sell signal.

For the week, November natural gas lost 20.1 cents. The COT report showed that managed money liquidated 5,421 contracts of their long positions and added 6,626 contracts to their short positions. Commercial interests liquidated 4,846 contracts of their long positions and added 2,651 contracts to their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.02:1, which is a complete reversal from the previous week when managed money was long by 1.03:1, which was a reversal from the previous week when managed money was short by a ratio of 1.01:1.

Copper:

For the week, December copper advanced 90 points. The COT report showed that managed money added 2,140 contracts to their long positions and liquidated 6,938 contracts of their short positions. Commercial interests liquidated 2,787 contracts of their long positions and added 2,460 contracts to their short positions. As of the latest report, managed money is long copper by a ratio of 1.22:1, which is above the previous week of 1.14:1 and the ratio of 2 weeks ago of 1.07:1.

Palladium:

For the week, December palladium advanced $9.85. The COT report showed that managed money added 423 contracts to their long positions and liquidated 632 contracts of their short positions. Commercial interests added 277 contracts to their long positions and also added 677 contracts to their short positions. As of the latest report, managed money is long palladium by a ratio of 15.33:1, which is up dramatically from the previous week of 10.65:1, but slightly below the ratio of 2 weeks ago of 15.86:1.

Platinum:

For the week, January platinum lost $16.50. The COT report showed that managed money added 380 contracts to their long positions and also added 354 contracts to their short positions. Commercial interests added 20 contracts to their long positions and liquidated 1786 contracts of their short positions. As of the latest report, managed money is long platinum by a ratio of 5.83:1, which is down from the previous week of 6.16:1 and down dramatically from the ratio of 2 weeks ago of 7.94:1.

Gold:

For the week, December gold advanced $6.70. The COT report showed that managed money added 2,665 contracts to their long positions and liquidated 6,567 contracts of their short positions. Commercial interests liquidated 1,606 contracts of their long positions and added 381 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 2.83:1, which is up from the previous week of 2.32:1 and about the same as the ratio of 2 weeks ago of 2.82:1.

Silver:

For the week, December silver lost 9.6 cents. The COT report showed that managed money liquidated 875 contracts of their long positions and added 640 contracts to their short positions. Commercial interests added 1,064 contracts to their long positions and also added 378 contracts to their short positions. As of the latest report, managed money is long silver by a ratio of 1.85: 1, which is down from the previous week of 2.02:1 and the ratio of 2 weeks ago of 2.35:1.

COT Report: September 18-September 24  and Year to Date Performance

09/17/2013 – 09/24/2013
Excel Spreadsheet

Canadian dollar:

For the week, the December Canadian dollar lost 6 points. The COT report showed that leveraged funds added 15,456 contracts to their long positions and liquidated 6,300 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.06:1, which is down dramatically from the previous week of 2.32:1 and the ratio of 2 weeks ago of 2.81:1. The current ratio is the lowest in several months.

Australian dollar:

For the week, the December Australian dollar lost 82 points. The COT report showed that leveraged funds liquidated 11,537 contracts of their long positions and also liquidated 1,865 contracts of their short positions. According to the latest COT report, leveraged funds are short the Australian dollar by a ratio of 1.81:1, which is a dramatic increase from the previous week when they were short by a ratio of 1.29:1 and about the same as 2 weeks ago of 1.83:1.

Swiss franc:

For the week, the December Swiss franc advanced 54 points. The COT report showed that leveraged funds added 4,893 contracts to their long positions and also added 1,033 contracts to their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 2.00:1, which is up from the previous week of 1.57:1 and about the same as 2 weeks ago of 1.94:1.

British pound:

For the week, the December British pound advanced 1.15 cents. The COT report showed that leveraged funds added 16,278 contracts to their long positions and liquidated 572 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by a ratio of 3.14:1, which is up significantly from the previous week of 2.54:1 and up dramatically from 2 weeks ago when leveraged funds were short by a ratio of 1.06:1. The current ratio is the highest since December 31, 2012 when the long to short ratio made a high of 3.25:1. 

In order to put the current long to short ratio in perspective, we reviewed ratios when the British pound attained the level of above $1.60. During the past year and a half, there have been 3 time frames in which the British pound traded above 1.60: April 2012, September 2012, December 2012 – January 2013. We examined the long to short ratios of the weeks preceding the high of the move, and weeks afterwards. Ratios that were higher than the current one occurred on following COT tabulation dates: May 1, 2012 (3.73:1), May 8, 2012 (4.33:1), May 22, 2012 (4.27:1), May 29, 2012 (3.33:1) October 9, 2012 (3.25:1), October 30, 2012 (3.21:1), December 31, 2012 (3.25:1).

From September 3 through September 17, open interest went from a total of 156,870 contracts to 211,210 and the December British pound advanced by 3.5 cents or 2.24%. From September 17 through September 24 open interest declined from 211,210 to 163,719 contracts and in this time frame, the British pound advanced 97 pips or 3 pips short of 1 cent.The massive decline in open interest was due to the September contract expiring. In the coming weeks, we will be looking at the behavior of open interest versus price  and whether the long to short ratio of managed money continues to rise. The pound is massively overbought relative to its 50 day moving average of 1.5568 and the 20 day moving average of 1.5814. At the very least, we expect a correction before the market attempts to break out into new high ground.

Euro:

For the week, the December euro lost 3 points. The COT report showed that leveraged funds added 29,210 contracts to their long positions and liquidated 9,028 contracts of their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 2.91:1, which is up dramatically from the previous week of 1.81:1 and the ratio of 2 weeks ago of 1.18:1. The current ratio is the highest in several months.

Yen:

For the week, the December yen advanced 108 points. The COT report showed that leveraged funds liquidated 3,759 contracts of their long positions and also liquidated 6,399 contracts of their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 2.79:1, which is up slightly from the previous week of 2.68:1, but down from the ratio of 2 weeks ago of 4.01:1.

Dollar index:

For the week, the December dollar index lost 17 points. The COT report showed that leveraged funds liquidated 6,232 contracts of their long positions and added 5,440 contracts to their short positions. As of the latest report, leveraged funds are short the dollar index by a ratio of 1.64:1, which is up dramatically from the previous week when they were short by 1.03:1 and the ratio of 2 weeks ago of 1.21:1.

COT Report: September 18-September 24  and Year to Date Performance

09/17/2013  9/24/2013
Excel Spreadsheet

S&P 500 E mini:

For the week, the December S&P 500 E mini lost 16.00 points. The COT report showed that leveraged funds liquidated 157,917 contracts of their long positions and also liquidated 172,291 contracts of their short positions. The heavy liquidation was due to the September contract expiring. As of the latest COT report, leveraged funds are short the S&P 500 E mini by a ratio of 1.67:1, which is up from the previous week of 1.51:1 and the ratio of 2 weeks ago of 1.61:1.