We’ve also posted a snapshot of the mechanical program’s soybean meal results. This program is based on the commercial traders’ actions as reported to the Commodity Futures Trading Commission’s(CFTC) weekly Commitment of Traders(COT) report.
I’ve posited several times that the commercial trader group in the Commodity Futures trading Commission’s weekly Commitment of Traders report are the best predictors of medium term moves in the market. Their models are better. Their information is better. Their access is better. These statements apply to everything from their weather models to the latest in artificial intelligence to having ears in all the right places. Before this is dismissed as a cynic “hating” the game, remember that we can put the commercial traders’ actions in the markets to use for our own benefit. That is the basis behind our research at COT Signals.
We discussed the growing imbalance in the unleaded gasoline market last week here at Equities.com. Our primary focus was based on two points. First, the fundamentals in the petroleum sector are bearish. Secondly, the commercial traders as a group have now turned negative on their own product at these prices. These two factors have grown in strength over the last week and Monday’s weakness finally triggered an official COT Sell signal.
Moore Research is the virtual leader in seasonal commodity analysis. Their research shows that 14 out of the last 15 years that May unleaded gasoline futures have rallied between early February and early March. One of the primary reasons for this rally is the beginning of the shift away from winter gasoline blends and the production of summer blends heading into the Memorial Day party time. Their research is based on statistical analysis that describes what, “normal” seasonal market behavior is. However, there is a considerable case to be made that the current situation in the energy complex is anything but, “normal.”
This has been a tremendously active week with big volatility and important market turns. We have to begin with last week’s gold platinum spread. We outlined the case in our Gold, Silver, Platinum and Copper Outlook. This week, April platinum traded down to nearly a $50 per ounce discount to April gold. Currently, this spread has rebounded to approximately a $5 discount. That’s as much as $4,500 profit depending on the entry point.
The crude oil market has declined by approximately 45% since this summer. The massive decline has surpassed most analysts’ expectations including those who advise sovereign nations on international foreign trade issues. The biggest problem most of us face is determining the difference between falling oil prices and gasoline being a good thing at the personal, micro level compared to the damage that falling oil prices have had on equity and currency markets at a macro level. Unfortunately, the answer lies on a continuum rather than an easy black and white answer or a single numerical value. This week, we’ll look at differences in the economic makeup of the major players and determine where they stand in terms of currency and budgetary risks due to oil’s precipitous decline.
This week started off with our Chicago wheat futures analysis for TraderPlanet in which we discussed looking for a selling opportunity near the 50% retracement level at $6.05 just through the resistance at $5.80. Tuesday, the market traded to $6.10 before selling off down to $5.70. Tuesday’s reversal also triggered the entry for our COT Signals Mechanical system.
The wheat trade came straight from our nightly discretionary COT Signals which has a 30-Day Free Trial.
Tuesday we discussed the growing glut in the crude oil futures market because we noticed how actively commercial long hedgers are locking in future supplies. We still see this as a trading opportunity.
Finally, our main piece focused on the Diminishing Effects of Global Quantitative Easing. This is where we left off in Hand Quantitative Easing to Germany. We did not expect Japan and now, China to come in and throw gasoline on the fire the way they have but the fact is, we now have three major regions kicking in QE programs since late September compared to the US enacting three programs over the course of four years.
The crude oil market has been under pressure on all fronts. It’s been pounded by declining global growth numbers and diluted by growing global production. Structurally, this market must work its way lower over time. However, the 5.5% decline over the last week or so may be a bit overdone.