CFTC Commitments Of Traders Round-Up: January 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 January, we were again able to see some interesting developments in diverse markets. We’ve been following the energy markets recently, especially Heating Oil, which we touched on last month.
According to the COT reports, a downwards move could have been anticipated, although the magnitude happened to be very extreme. The interesting observation during recent weeks though was that Commercials started building up long positions in Heating Oil. Furthermore, they went from extremely short positions to net long positions. This, combined with a seasonal tendency to rally in the coming weeks, may help Heating Oil to find a bottom in the near future.
Figure 1: Heating Oil
Another market we’ve been looking at for quite a while now is the equity market, and we might finally have seen the break of the upwards move that’s been going on for so long. The interesting part during this short-term correction is that Commercials haven’t really reversed any of their positions, but rather stayed short. Therefore, we might expect the market to further move to the downside.
Figure 2: Russell 2000
We also looked at the JPY/USD last month and stated “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”. During that reversal however, Commercials came back into the market and built up further long positions. Therefore, we might see another attempt for the Yen to recover.
Figure 3: JPY/USD
We also took a look at the MXN/USD during last month’s report and since then the market has moved side wards while Commercials further increased their short positions. Therefore, we may stick to our assumption from last month that this market may start moving to the downside sometime soon.
Figure 4: MXN/USD
We found some interesting new observations in Gold, Natural Gas, Sugar and Rough Rice.
To begin, Gold has experienced a steep rally since Christmas time last year. This continued until the second week of January, when first signals of weakness could be observed. During the attempt to attack the high of the second week of January, Commercials added to their short positions, which may lead to a short-term correction of the recent incline.
Figure 5: Gold
Natural Gas is another market that caught my eye in recent weeks. Commercials have been heavily long for quite some time and keep on adding to their long positions during every price decline. In the coming weeks, Natural Gas also has a rather strong seasonal tendency to increase, so this, combined with the current COT positioning, may lead to higher prices in Natural Gas in the coming weeks.
Figure 6: Natural Gas
Rough Rice looks like another interesting market. Commercials started building up net short positions in December of last year after being flat for quite some time. At the beginning of 2020 those short positions reached new extreme lows. In addition, the price of Rough Rice already holds against the seasonal trend of declining, therefore, we shouldn’t be surprised if there is a short-term correction in that market.
Figure 7: Rough Rice
A similar picture can be observed in the Sugar market. The only difference is that Commercial positions in Sugar had extreme long readings and net long positions at the beginning of Q4 2019. When the Sugar price took off, Commercials started getting rid of their long positions. More interestingly, they even went to being net short in that market, and during the last two weeks their positions reached a new extreme short reading, which may imply a short-term end of the recent Sugar price rally.
Figure 8: Sugar
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
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