WTI and Copper Bought, Gold sold as Risk on Reigns

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, June 2. A week where appetite for risk driven by stock market euphoria leading to hopes of a V-shaped recovery continued to be the dominant force.

The Bloomberg Commodity Index rose 0.7% with gains in energy, metals and grains being off-set by losses in softs and livestock. Speculators only made small changes to their positions with the net-long across 24 major commodity futures increasing by 2% to 545k lots. Buying of WTI crude oil, gas oil, copper and cotton being off-set by selling of gold, soybeans, corn and coffee.

Energy

Buying of WTI crude oil extended into a 9th week with funds adding 17k lots to bring the net-long to 380k lots or 380 million barrels, the highest since July 2018. Short sellers added small length for a second week thereby keeping the long/short ratio steady. The Brent crude oil net-long saw a small reduction as short-sellers added length for the first time since March. Despite dropping by almost 9% the natural gas long was kept close to unchanged with both long and short positions rising.

OPEC and its oil-producing allies agreed on Saturday to extend the group’s historic 9.7 million barrels/day production cut by one month to the end of July. As we highlighted in our latest update the risk of failure, despite concerns about non-compliance from a handful of producers, was limited given the need to support the price while lockdowns are eased and demand recover. A recovery that potentially risks being slower than the market expects due to the risk of second waves.

According to the latest weekly EIA report, demand for distillates in the US, which is mainly diesel, hit a 1999 low some 30% below the five-year average. Gasoline demand meanwhile has recovered but was 1.9 million barrels/day or 25% below the average for this time of year. With the deal having been all but priced in ahead of the meetings the risk to crude oil remains balanced. Speculative momentum may see both WTI and Brent take aim at closing the gaps to $41.05/b and $45.18/b respectively.

However much higher prices at this early stage in the recovery carries the risk of becoming self defeating as it invites back increased production from high cost producers, not least along the US shale patch. The market may soon also begin to focus on rising production after July from core OPEC members while Libya is showing signs of returning production.

Metals

The lack of short-term tactical opportunities together with the rising risk appetite seen across other asset classes, continued to cut interest in gold. Last week speculators cut bullish bets on COMEX gold futures by 8% to 137k lots, a one-year low. This during a time where demand for gold via bullion backed exchange-traded funds registered a new record with total holdings rising above 100 million ounces. Part of this development may be a product specific challenge that the futures contract currently faces.

The transatlantic disconnect that occurred between gold futures traded in New York and spot gold traded in London back in March left many market makers with heavy losses. This after the spot to futures spread, the so-called Exchange for physical or ETF, blew out thereby forcing cut backs and reduced risk appetite among market makers normally assuring a well functioning market place. These developments are likely to have led to some investors and traders instead focusing on bullion-backed ETFs.

The silver net-long held steady at 27k lots with the near 4% rally failing to attract fresh long positions. Potentially due to the fact that silver’s recent outperformance against gold reached its target as highlighted through the gold-silver ratio. Additional gains in silver may now require support from gold which struggled towards the end of week when a stronger than expected US job report sent real yields higher and gold lower.

HG Coppers continued recovery and flirtation with key resistance at $2.50/lb – that got broken on Thursday – finally saw the net switch to a long position for the first time since January. Dictated by the mentioned breakout funds are likely to add additional speculative length with the price now potentially taking aim at $2.60/lb.

Agriculture

The UN FAO’s Global Food Price Index reached the lowest monthly average since December 2018 last month. Covid19-related declines extended to a fourth month with all sub-indices with the exception of sugar seeing declines. A development which is also being replicated by the speculative exposure with hedge funds holding net-short positions in seven out of the ten grains and softs contracts tracked in this report.

Selling of corn continued with the net reaching a one-year high at 282k lots. This despite signs of a recovering price in response to increased ethanol-linked demand, The rising fuel cost theme also supported another week of short-covering in sugar. Hardest hit was Arabica coffee after the recent technical break below key support wiped out the remaining long with a net-short of 7k lots emerging.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Corn Prices Hit A 5 Week High, Will Cotton Prices Break The 70 Level?

I will be recommending a bullish position if prices close above 3.85 while then placing the stop-loss at the contract low which was hit on September 9th at 3.65 as the risk would be $1,000 per contract plus slippage and commission as the chart structure is outstanding due to the low volatility that we have experienced over the last several months.

Corn prices are now trading above their 20 day moving average but slightly below their 100 day which stands at major resistance at 3.91 as the USMCA trade agreement will be passed this week as that is a very bullish fundamental factor coupled with the fact that the Chinese trade agreement has been written in stone as I think the bottom has occurred in the grain market as these are very bullish factors for corn prices which still historically speaking are depressed.

The large money managed funds are heavily short corn while adding another 30,000 contracts last week as they believe lower prices are ahead, however I disagree with that situation so play this to the upside as the risk/reward is in your favor.

TREND: HIGHER–MIXED 

CHART STRUCTURE: EXCELLENT

VOLATILITY: INCREASING

Cotton Futures

Cotton futures in the March contract is currently trading higher by 45 points at 67.25 reversing some of the losses that we witnessed last Friday as prices are still hovering right near a 5 month high.

The large money managed funds are still short this commodity by 3,000 contracts as they still believe lower prices are ahead, however I have been recommending a bullish position from around the 66.60 level and if you took that trade continue to place the stop loss under the November 21st low of 63.70 as an exit strategy as the chart structure will start to improve in next week’s trade therefor the monetary risk will also be reduced.

Cotton prices are trading above their 20 & 100 day moving average telling you that the trend is to the upside with the next major level of resistance around the 68.00 level as I think that could be tested in this week’s trade as optimism that China will become a more active buyer of U.S cotton should be supportive in the coming weeks ahead.

At the current time I have several bullish recommendations as I think the commodity markets in 2020 will have significant rallies from these depressed levels as I do think with the emergence of all these trade deals occurring the bearish situation has ended as the risk/reward is in your favor to the upside.

TREND: HIGHER

CHART STRUCTURE: EXCELLENT

VOLATILITY: INCREASING

This article was written by Michael Seery (CTA—COMMODITY TRADING ADVISOR)  www.seeryfutures.com

Weekly Forecast: Cutton, Sugar, Rice and Orange Juice Futures

Cotton Futures

Cotton futures in the March contract settled last Friday in New York at 66.69 while currently trading at 64.00 down about 270 points for the week as prices have now hit a 5 week low.

I have been recommending a bearish position from around the 65.00 level and if you took that trade continue to place the stop loss at 67.13, however the chart structure will improve in next weeks trade therefor the monetary risk will be lowered.

Cotton prices are trading under their 20-day but still slightly above its 100 day moving average which also stands at major support around the 63.00 level as I think that area will be touched in next week’s trade.

One of the main problems for cotton is the fact that we can’t come up with a trade agreement with China as they are the number one importer of U.S cotton in the world and until that situation is cemented look for lower prices ahead. At the current time my only other soft commodity recommendation is a bullish sugar trade as I do think cotton prices have topped out in the short-term so continue to play this to the downside while placing the proper stop loss making sure that you risk only 2% of your account balance on any given trade.

Sugar Futures

Sugar futures in the March contract settled last Friday in New York at 12.73 a pound while currently trading at 12.74 basically unchanged for the trading week continuing it’s extremely low volatility.

I have been recommending 2 bullish positions with an average price of 12.67 and if you took that trade continue to place the stop loss under the 10-day low which now stands at 12.46 & in Monday’s trade that will be raised to 12.51 as the chart structure is outstanding at the current time due to the fact that prices have been stuck in the mud.

Sugar is still trading slightly above its 20 and 100 day moving average as the trend remains higher as we need some fresh news to dictate short-term price action as the Brazilian Real has hit a 4 year low against the U.S dollar as that has a negative influence on prices. The next major level of resistance stands at the 13.00 area as I will be looking at adding more contracts at that level due to the fact that the stop-loss is so tight therefor the risk/reward is in your favor so stay long.

Orange Juice Futures

Orange juice futures in the January contract settled last Friday at 100.50 while currently trading at 99.00 down about 150 points for the week as prices are still stuck in a tight 4 week consolidation.

I will be recommending a bullish position if prices break the 101.65 level while then placing the stop loss under the contract low which was hit on October 30th at 96.10 as the risk would be around $850 per contract plus slippage and commission.

We are starting to enter the very volatile winter season for orange juice prices as a possible frost could hit the State of Florida sending prices sharply higher as that situation has occurred in the past as I do think we are in a bottoming-out pattern as the downside is limited.

Volatility at the current time remains low as I don’t think that situation is going to last much longer as the weather conditions at the current time remain ideal, but it is a long growing season so look to play this to the upside.

TREND: MIXED

CHART STRUCTURE: EXCELLENT

VOLATILITY: LOW

Rice Futures

Rice futures in the January contract settled last Friday in Chicago at 11.89 while currently trading at 12.23 up about $0.34 for the trading week as prices are right near a 5 week high. I had been recommending a bearish position from around the 11.82 level getting stopped out around 12.10 earlier in the week while at the present time I’m sitting on the sidelines waiting for another trend to develop.

Rice prices are now trading above their 20 and 100 day moving average as the trend has turned higher, however the chart structure is terrible therefor the risk/reward is not in your favor as prices rallied straight up over the last week. The volatility has finally come back to life in this historically volatile commodity as my only grain recommendation is a bearish soybean trade which continues to grind lower on a daily basis.

S&P 500 Futures

The S&P 500 in the December contract settled last Friday in Chicago at 3118 while currently trading at 3111 down about 7 points for the trading week breaking a 4 week winning streak.

I have been recommending a bullish position from around the 3006 level and if you took that trade the stop loss has now been raised to 3074 as the chart structure will also improve in next week’s trade therefor the monetary risk will be reduced.

For the bullish momentum to continue prices have to break the November 19th high of 3132 in my opinion as earnings season has been very solid coupled with the fact that we are entering the holiday markets which generally push prices higher.

Expectations for an outstanding Christmas season is predicted as the U.S economy is by far the strongest in the world with historically low unemployment and an excellent stock market helping fuel the economy so stay long as I still think the 3200 level is realistic come year end.

The S&P 500 is trading far above its 20 & 100 day moving average as this is the strongest trend to the upside out of all commodity sectors as we continually grind higher on a weekly basis despite this recent setback.

TREND: HIGHER

CHART STRUCTURE: IMPROVING

VOLATILITY: LOW

The Article was written by Michael Seery (CTA—COMMODITY TRADING ADVISOR)