Skip to main content

CFTC Commitments Of Traders Round-Up: October 2019

Analysing the CFTC Commitments 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. 

Unlike September, October produced a few interesting developments in changes in Commercial’s commitments. One interesting market we have been following is the GBP/USD. Despite the Brexit threat, Commercials anticipated that the GBP should be rising against the USD, which it did during the last couple of weeks of the month. The new interesting development in this market, however, is that Commercials seem to have sold their long positions during the rally, which may mean that the recovery of the British Pound Sterling will not have particularly long legs. 

Figure 1: GBP/USD

GBP USD

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

Back in August, we looked at Sugar, finding that Commercials’ positions were extremely long and therefore expected the market to move upwards. Last month, we analysed that the recent Sugar price recovery would have some more potential and, indeed, the price went higher. 

When looking at the Commercials’ positions today, these market participants further increased their commitment during the recent run-up. We could, therefore, probably expect a longer-lasting upwards move in this market.

Figure 2: Sugar

Sugar

A similar development could be observed in the Natural Gas market. Commercials started buying the market heavily throughout October until their positions reached an extreme high on October 25th. In this case, traders did not have to wait too long for the subsequent rally as the market took off immediately at the beginning of November. 

Figure 3: Natural Gas

Natural Gas

In the coming weeks, I find four markets especially interesting; namely, Equities, Soybeans, Cotton and Lean Hogs, and will be monitoring them closely.

In Lean Hogs, Commercials added heavily to the long positions they have held since the beginning of August until they reached a very extreme long position in the middle of September. That may anticipate that these market participants are positioning themselves for a trend change to the upside in this market, and since the seasonal indicator supports this view, we should see higher Lean Hogs prices in the coming weeks.

Figure 4: Lean Hogs

Lean Hogs

The following two figures show the markets of Soybeans and Cotton. Both pictures look very similar; in both markets, we can observe a price recovery in recent weeks. Commercials, however, seem not to “believe” in a sustainable trend change in those market prices as they seized the short-term up-move to reduce their long positions to ultimately new lows in the respective markets. The difference in those two markets is that Commercials still show a net long position reading, whereas in Soybeans Commercials shifted to being net short again.

Figure 5: Soybeans

Soybeans

Figure 6: Cotton

Cotton

Last but not least, the equity markets. Equities globally have been in a strong up-trend. Sometimes it seems as if there is only one direction for equity markets: up. When looking at the Commitment of Traders reports, however, we may have an indication that the up-move might be coming to a short-term end. Commercials have started accumulating short positions in the Dow Jones Industrial Average, the NASDAQ 100 and the Russell 2000, as can be seen in the figures below.

Figure 7: Dow Jones Industrial Average

Dow Jones

Figure 8: NASDAQ 100

Nasdaq

Figure 9: Russell 2000

Russell
 

As always, I’ll be monitoring these markets closely in the coming weeks and months, and reviewing how our analysis turns out. If you have any questions, please do get in touch.

 

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.