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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

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

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

YPY 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

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

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

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

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

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

 

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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