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CFTC Commitments Of Traders Round-Up: November 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 November, we were again able to see some interesting developments in diverse markets. One of the markets we’ve been following recently is the Lean Hogs market. 

Figure 1 shows that the market has been  in a mid-term down-trend since the end of April. Throughout the price decline, we can observe that Commercial traders have reduced their net short positions to the point where they became  net long in the market at the end of November. This is a strong signal for this market to move to the upside in the coming weeks; I’d therefore like the market to build a floor now to then take opportunities to place a buy. 

Figure 1: Lean Hogs

Lean Hogs

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

Conversely,, the Live Cattle market seems to have reached a short-term top. As figure 2 below shows, Commercials started to increase their net short positions during the price increase that we have been observing  since early October to now have reached a new extreme low. There seems to be a strong seasonal trend that Live Cattle moves to the upside in early December . Looking at the Commercials positions, this could be the last upwards thrust before we start to see a short-term correction.

Figure 2: Live Cattle  

Live Cattle

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

In last month’s report we said that “Commercials have started accumulating short positions in the Dow Jones Industrial Average, the NASDAQ 100 and also the Russell 2000”. We therefore expected those markets to move to the downside, which might have started at the beginning of December. Looking at the charts below suggests that this move may have not reached its end yet as the seasonal trend suggests a downwards-move until approximately Christmas.

Figure 3: DJIA

DJIA

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

Figure 4: NASDAQ 100

NASDAQ

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

Figure 5: Russell 2000

Russell

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

We also expected to see declining prices for Soybeans and Cotton during last month’s review and both expectations worked out quite well. We also said that “only in Cotton, traders may be a bit more cautious as Commercials still keep a net long position, whereas in Soybeans Commercials shifted to being net short again”. The below two figures show how Commercials positioning / anticipations materialised in terms of market prices. Cotton declined by roughly 5% since the middle of October and Soybeans lost about 10%.

Figure 6: Soybeans

Soybeans

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

Figure 7: Cotton

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

Another interesting market where we could expect a trend change of some severity is JPY/USD. Figure 8 shows that Commercial traders consistently reduced their short positions since mid- September. During the decrease of this market in the following weeks, Commercial trades not only went from net short positions to net long positions, but also their long positions reached a new extreme high at the end of November. It seems as if the trend change is already starting and there may be further potential for this move. 

Figure 8: JPY/USD

JPYUSD

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

A similar trend change should also take place in the CHF/USD market. As can be seen in Figure 9, Commercials are extremely long the the CHF/USD, which is in line with the seasonal trend for the coming weeks. Therefore, a move to the upside seems rather likely.

Figure 9 - CHF/USD 

CHFUSD

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

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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