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CFTC Commitments Of Traders Round-Up: December 2019

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 December, we were again able to see some interesting developments in diverse markets. One of the markets we’ve been following recently were the stock markets. 

During last month’s report we observed that Commercials were extremely short in equities, and the “seasonal trend suggests a downwards-move until approximately Christmas.” Unfortunately, this anticipation turned out to be incorrect. Instead, equity markets rallied further until the end of the year. However, when looking at the COT reports, we can see  that Commercials were rather unimpressed by the up-move and in fact they increased their short positions, which should still see a market decline as a consequence.

Figure 1: Russell 2000

Russell 2000

Legend: Yellow = seasonal trend, black = OHLC, red = commercials, blue = large speculators, grey = small speculators, light blue = relative commercials vs open interest

Another market we looked at, was the Japanese Yen versus the US Dollar and we expected the Yen to increase. Indeed, the Yen pushed higher at the end of 2019 and continued to do so in early 2020. Unfortunately, Commercials reduced their long positions significantly during this up-move and therefore the push higher was not sustainable; the Yen reversed in the second week of January. 

Figure 2: JPYUSD  

JPYUSD

A more sustainable trend change was observed in the CHF/USD. We also anticipated higher prices in that market during last month’s review and indeed the market reversed towards the upside recently. However, traders on the long-side should become cautious as Commercials seem to have reduced their long positions since the middle of December. This does not necessarily mean that the market moves lower as the speculative money (especially from trend-followers) may come into the market now to push it up further, but still, the current positioning of important traders may lead to a pause of the recent up-move.

Figure 3: CHFUSD

CHFUSD

One interesting observation during last month could be seen in the energy markets, and specifically in Heating Oil. According to the below figure, Commercials have been selling futures contracts since the middle of 2019. The price of Heating Oil saw a strong upwards move in November but Commercials didn’t seem too impressed at all and further increased their short-positions. The outcome was a strong reaction in the market during the second week of January.

Figure 4: Heating Oil

Heating Oil

Looking ahead, the Mexican Peso may be an interesting market for a short-sell. As the figure below shows, Commercials positioning seems to be heavily short in the Peso versus the US Dollar. Therefore, this market may start moving to the downside sometime soon.

Figure 5: MXN/USD

Mexican Peso

Another interesting market going forward might be the Copper market. As can be seen below, the market is in an uptrend that began in June 2019. Commercials however, started getting rid of their heavy long positions since that low back in June. Even more so, the Commercials went from being net long to net short in the Copper market in the end of last year and have stayed in that bearish position since then. We could therefore look for entries on the short-side here.

Figure 6: Copper

Copper
 

As always, I am curious how our analysis will turn 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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