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CFTC Commitment Of Traders Round-Up: March 2020

Analysing the CFTC Commitment of Traders’ data provides insights into when trends in futures contracts listed on various exchanges might be ready to turn, either to the upside or to the downside, due to the activity of important market participants.

In February and at the beginning of March we saw the Russell 2000 finally correcting downwards as we anticipated. The downwards move went as far as 43% for the Russell 2000. Similarly, all major equity indices throughout the world faced a steep sell-off. During that sell-off, Commercials seemed to come back into the market, building up long positions again. They even shifted from being net short to net long. Also, our COT indicator (the lower red line) shows a reading of 89.07, which indicates the extreme positive positioning of Commercials. Also, seasonals (the yellow line) indicate that the middle of March should have been a good buy point. Due to the sharp sell-off, there is always the potential for a second wave or at least a second test of the recent low, but it seems as if the environment for rising stock markets becomes more likely.

Figure 1: Russell 2000

Russell 2000

Cocoa may have also seen its bottom recently. Commercials seized upon the recent sell-off to reduce their net short positions to being almost flat with their positioning. Since Commercials are usually net short in their futures market, this can be seen as a strong sign that the Cocoa price may start a rally soon. In fact, Commercials haven’t been as bullish as they appear to be now since September 2019, when the market took off for a +22% rally.

Figure 2: Cocoa

Cocoa

The Mexican Peso vs the US Dollar seems to have also become more interesting to the Commercial investor. Similar to Cocoa, Commercials seized upon the recent sell-off to get rid of almost all of their net short positions to now be close to flat. Commercials haven’t been as bullish as this in the MXN/USD market since January 2019; we may therefore expect the market to go up in the coming weeks.

Figure 3: MXNUSD

Mexican Peso

An even more bullish position of the Commercials can be observed in the South African Rand vs the US Dollar. Here, Commercials went net long during the recent sell-off. In addition, seasonal indicators point to higher prices in the coming weeks. Therefore, we may want to look for long entries into this market.

Figure 4: SARUSD

South African Rand

Corn also experienced a downwards move during the last few weeks. Commercials appear to have built up net long positions in the market. Again, since Commercials are usually net short in futures market in order to hedge their business risk, being net long is a very bullish signal, which may lead to higher Corn prices soon.

Figure 5: Corn

Corn

As always, I am curious how our analysis will turn out and I’ll be back next month to review the results!

Thomas Kochanek is CEO and Principal of 1512 St. Gallen Capital Management

 

Futures trading is speculative and involves the potential loss of the complete or even more of the investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors.

Neither Thomas Kochanek nor 1512 SG Capital Management AG, are affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted.

The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become out dated and obsolete.

It should be noted that neither Thomas Kochanek nor 1512 SG Capital Management AG have verified the completeness of the information contained herein. Statements of opinion and recommendations will be introduced as such, and generally reflect the judgment and opinions of Thomas Kochanek. These opinions may change at any time without written notice, and 1512 SG Capital Management AG assumes no duty or responsibility to send updates regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice.

Any references to products offered by 1512 SG Capital Management AG are not a solicitation for any investment. This newsletter does not constitute an offer of sales of any securities. Thomas Kochanek and 1512 SG Capital Management AG may or may not have investments in markets herein.

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