Silver Futures Set to Rally

Commitment of Traders Report Points to Higher Silver Prices

Commercial traders building position for silver futures rally.

 

June 26, 2012

This trade setup is merely a random sample of the day’s trades generated by COT Signals. To track our work their and receive all of our nightly trading recommendations, click here.

The commercial traders have nailed the silver market for the last few months. They were the heaviest sellers at the March highs. They sold more than 10,000 contracts through the month of February.

They’ve also been the heaviest buyers through the May – June decline, adding 7,000 contracts in the last month. These additions have pushed their position just above their buying levels in early January.

Their buying has also led to a technical divergence in the ARSI momentum indicator. We can see that the market made a new low on Friday’s trade, down to $26.57. However, the ARSI’s significantly higher reading in light of the market’s new lows provides evidence of a turnaround in the market, rather than continued downside.

We will be buying September silver futures and placing a protective sell stop at the swing low of $26.57.
If you would like to trade commodities with us, please go to Commodity & Derivative Advisors.

 

COT Signals

 

ANDREW WALDOCK

866-990-0777

This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Coffee Futures to Lead Coffee ETF (JO) Higher

Futures Move Farther & Faster than ETF

How to invest in the volatility differential between futures and ETF's.

It is widely accepted that the commodity futures markets move farther and faster than their equity related cousins and I certainly agree with that supposition. We see it all of the time. The leveraged nature of the futures markets and subsequent margin requirements allow smaller players to enter the markets due to the lower capital requirements as well as forcing them to exit for the same reason.

The coffee futures market has fallen by nearly half since the September highs. Over the same period, the Coffee Exchange Traded Fund (JO) has fallen by 40%. The 8% difference is easily attributable to excessive pressure on the short side of the futures market. 

This added pressure is also what will cause the futures market to bounce off its lows far more quickly than the ETF. The bounce will be fueled by massive short covering from Index funds and small speculators as the commercial traders in the coffee futures market have built up a very large long position on the market’s decline.

Clearly, the commercial trader sentiment is that this market has been beaten down below its deliverable price in the cash market. They are using these prices to ensure their production costs moving forward. Our philosophy of following the commercial traders in the commodity markets is based on our beliefs that no one knows a market like the people who whose living is tied to it. We track their actions through the Commitment of Traders Report and put their analysis to work for us at COT Signals.

 

ANDREW WALDOCK

866-990-0777

This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Covering Coffee Futures Short Positions

Commercial Traders Holding Long Coffee Positions

Small Speculators and Funds Covering Short Positions

The coffee market has been one of the weakest markets of 2012 with prices declining more than 25%. Commercial traders were heavy buyers on the market’s decline to the 180-190 area where the market consolidated for months until May’s decline hit all market sectors.
Commercial traders have held fast to their position with very little net change since the middle of March. It appears that they may be getting the bounce they’ve been waiting for.
I expect this is primarily a large speculator and fund driven short covering rally given the magnitude and the timing as the July contract expires. Never the less, it’s perfectly conceivable that we trade back to the bottom side of the resistance between 170-180. Our protective sell stops will be placed at the swing low of 150.10
Trading Signal provided by COT Signals.
Call for Free Trial.  866-990-0777.

ANDREW WALDOCK
866-990-0777
This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Cocoa Futures Headed Lower

Commercial Traders Selling with Seasonal Tendency

Commitment of Traders Report aligns bearish seasonal pattern with commercial selling.

The cocoa market is exhibiting classic commercial trader behavior. Commercials were buyers in April near the $2050 per ton lows and now that the market has come back to test the $2275-$2350 area, commercial traders have turned sellers. Last week’s Commitment of Traders Report shows that commercial traders sold nearly 5,000 contracts, 12.5% of their total position.

They clearly expect the resistance to hold and the market to exhibit its typical seasonal price decline from July, 1st – expiration of the September contract. We will be selling September Cocoa and placing our protective buy stop above the recent swing high of $2271.

ANDREW WALDOCK
866-990-0777
This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Commercial Traders Halt Crude Oil Slide

Commercial Traders Defend $80 per Barrel Support in Crude Oil Futures

Commitment of Traders Report Shows Commercials as Willing Buyers on Crude Oil Decline

The crude oil market has been digesting excess supply due to Iranian oil flowing east, rather than west and the Saudi’s crude oil production filling the westward supply gap. See Global Glut Going Nowhere.
The market finally gave way to fundamentals and fell after spending March and April above $100 per barrel. Like most markets, swings tend to go too far in either direction and that is what we’re seeing now.
Commercial traders have been active buyers below $90 per barrel and I expect this to continue. We will be buying August crude oil futures and placing a protective sell stop below the swing low of  $81.39.
This trade was generated by COT Signals.

 

 ANDREW WALDOCK
866-990-0777
This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Bearish Divergence in Soybean Meal Futures

Commitment of Traders Report Trading Signal

Soybean Meal Futures Divergence

July soybean meal futures have been consolidating near their highs for the last month. Momentum has stalled and positions have unwound towards neutral.

Commercial traders have been taking a bearish tone towards the market that was confirmed by yesterday’s failure. Yesterday’s decline saw the market fail on much lower momentum reading in the ARSI indicator.

We will use this as an opportunity to side with commercial traders and place ourselves on the short side of the market. As always, we will be placing a protective stop at the swing high of 439.9

Commitment of Traders Trading Signals

For point values, margins and market hours go to Futures Market Hours.

 

This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Fear and Inflation

The bailout of Spain has begun and the market’s reaction suggests that it has found little comfort from the 100 billion Euros that have been allotted to backstop their debt. The initial drop in Spanish yields was short lived as the market closed nearly where it had begun the day. Immediately the talk turned to Italy’s ability to maintain serviceable interest rates on their debt. Followed immediately by Ireland leveraging the situation to their advantage by seeking to renegotiate the terms of their bailout to match Spain’s favorable terms. Otherwise, Ireland may simply default. The net result was the continued evacuation of money from the European Union and into the U.S. Dollar and U.S. Treasuries. The flood pushed Treasuries to record low yields.

January 3rd Yield Curve

June 11th Yield Curve

We are at a critical juncture in the decades long Treasury rally and I believe that we are nearing the top. The political unrest overseas has the ability to accentuate the last leg of this move and create a major spike high and the CFTC’s Commitment of Traders (COT) reports show unequivocally that major bets are being placed on both of these outcomes. This creates the setup for a steepening yield curve going forward as short-term rates decline on a flight to safety while long-term rates begin to more accurately reflect the inflationary nature of the monetary policies being enacted by both the European Union and us.

The major market players’ actions have begun to crystallize since the beginning of March. This started the Dollar and Treasury rallies in earnest. We’ve seen a 7% rise in the Dollar and a 200% increase in the commercial traders’ position. Meanwhile, Treasury price rallies of 4.5% in the 10-year Note and 10% in the 30-year Bond have pushed the futures markets to record low yields of 2.107% and 2.608%, respectively. These price rallies have had the full support of commercial traders as they loaded up near the March lows, increasing their positions by 65% in the 10-year Notes and 122% in the 30-year Bonds.

There are two important things to notice in the preceding paragraph. First, is the disparity between the price rallies of the 10-year Note and the 30-year Bond. This provides a feel for how much more volatile the interest rate picture gets as it moves out on the timeline. Secondly, it demonstrates how well the commercial traders forecast price swings in the U.S.interest rate futures. Both of these facts are supported by their winning trading accuracy of 73% in the 10-year Note and 64% in the 30-year Bonds via the COT Signals nightly trading signals.

Market sentiment and the actions of the large Treasury traders changed substantially towards the third week of May. This is when it appeared that the equity sell off might have halted. The tell came when equities continued to slide into June and commercial traders shed less than 20% of their long 10-year positions with the expectations of continued low short-term rates while simultaneously selling off more than half of their 30 year Bond position to match their expectations of inflation in the future.

Successful traders don’t make a living by catching the reversal of a 20-year trend, nor do they ignore the fundamental thesis of the politics of the day. The current picture is quite clear that politics must keep short-term rates near zero as the European banking system absorbs the full brunt of a panicked public. Traders are also keenly aware that what is borrowed today must be paid back in the future. Therefore, traders are using the market’s current volatility to calculate future interest rates that reflect where the global economies will be, rather than where we are.

Crestmont Research has a wonderful site full of scholarly research on both the equity and index markets. Part of their research in the interest rate field shows that the vast majority of times, interest rates will fluctuate by at least 50 basis points over every six month period at some point along the yield curve. We’ve already illustrated the volatility of the 30-year Bond. Putting their research to work for us provides a six-month volatility envelope in the December Bond futures with a high price of 154^20 and a corresponding low yield of 2.251% and a low price of 140^06 and a corresponding high yield of 3.251%. Clearly, commercial traders are signaling their expectations that the low price, high yield scenario is the one that plays out.

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.

Lean Hog Futures Reversal Keyed by Commercial Selling

Futures Trading with the Commitment of Traders Report

Commitment of traders report shows heavy lean hog futures selling.

July lean hogs have rallied more than 13% since the May lows. This has also been a textbook seasonal trade with July hogs rallying into early June and should sell off through the middle of July into expiration. The commercial traders have had their way this market, buying the May lows and now, selling the June highs.
Yesterday’s action was indicative of a technical top as the market posted a new high for the run yet, closed below the previous day’s low.
We’ll tie that into strong commercial selling as the Commitment of Traders report shows that they have shed more than 25,000 contracts in the last three weeks. We are selling July lean hogs and placing a protective buy stop above yesterday’s high at 94.00.

ANDREW WALDOCK
866-990-0777
This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results

Commitment of Traders Plan for Higher Long Term Interest Rates

Commitment of Traders Report  Points to Steeper Yield Curve

Commitment of Traders Report shows simultaneous commercial buying on the short end and selling of long dated Treasury futures.

The weekends big news was focused on Spain and the regulated $125 billion bailout which delivered a brief respite to the embattled physical commodity markets. The sigh of relief is only momentary as physical sellers come back in to beat down the industrial futures markets.
We believe there are a couple of interesting developments headed our way as the market sectors begin to separate and realign their value propositions going forward.
1) The physical commodity markets are indeed softening.
Starting with the New York energy futures we can see that commercial traders that were originally buyers of the sell off in late April and early May have now switched to the sell side. Currently, the only energy market with net commercial trader buying over the last four weeks is crude oil. The natural gas, heating oil and unleaded gasoline markets are all showing negative commercial momentum and the net position in crude oil is anything but decisive.
2) The metal markets, particularly silver,  platinum and copper are attracting significant commercial buying. Each of these markets has seen commercial trader net buying in each of the last four weeks. In fact, platinum has seen commercial buying for the past nine consecutive weeks. Therefore, we expect that the industrial sell off will be the first beneficiary of any bounce in the metals markets.
3) Finally, the interest rate complex is betting heavily on the flight to quality short term rates with significant inflation expected in the 30 year Treasury market.
Commercial traders were net long 680,000 Eurodollar futures contracts at the end of March and currently stand around 1.1 million contracts. This represents a significant bet on short term rates being flooded with cash as investors withdraw funds from risk assets.

  

Meanwhile, Commercial traders are exhibiting the exact opposite behavior in the 30 year Treasuries. Their trading was spot on as they were the largest buyers of Treasuries at the March lows in the interest rate complex. However, their long positions were short lived as they've shed them with a vengeance as yields have collapsed to their current historic lows. Commercial traders have cut their position by half since the March lows and their selling intensified since May 21st as they've gone from a net positions of 85K contracts to 46k contracts in the last two weeks.

 

Therefore, we expect commercial traders are leading us back to fundamental valuations in the commodity markets while forecasting higher interest rates going forward. We will continue to update the Commitment of Traders Report as well as the actual Commitment of Traders Report trading signals as they materialize.

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.