There are several points to be made in regards to the COT. There has been a good deal of forward activity both as outright and EFP which is likely origin selling. However the COT shows commercial long liquidation and hardly any new selling. In my opinion spreads are concealing the true net changes of commercials. After all, with the Real so weak origin selling is a given to me. If we add the total spec net selling we get a sum of 1,041 lots which could be what the commercials actually bought. If we add the total net buys of the specs we derive a sum of 2,650 lots which may be what the commercials sold new. Of course, the individual spec groups could offset each other to some extent but essentially commercials are on the other side of the specs as spread activity is shown separately for these groups but not for commercials. We should also note the activity of managed money.
If we look at the turnover of number of traders we see a reversal occurring. This change of pattern began several reports ago so not because of cold weather news. It is not aggressive and it is not universal in this sector as there are 156 active funds. Itís jus worth noting that some funds are buying new and some are covering shorts. Large traders also bought new and possibly motivated by cold weather as well being the primary reason for the marketís strength.
Spreads have been volatile. On Friday the May20July20, which had closed at -2.00 on the previous day, traded up to -1.50 and ended at -1.95. What is interesting is that there was no resistance which is unusual. Other spreads reacted the same way to some degree. Many traders were on the beginning of a long holiday weekend both in the US, Memorial Day on Monday, and also on Monday itís rhe Spring Bank Holiday in the U.K. Other factors relating to spreads are the 93k or so spread open interest of specs and the generally continuous reduction of warehouse stocks.
All in all the COT on its own is bullish as funds have shown a greater interest in buying. Although there is likely no frost this weekend, the fact that cold weather is beginning so soon is also friendly to the market. More cold weather will arrive in early June. The SepDec is still steady but showing a little fragility and the Sep implied volatility is higher than all other months and the only one above 30%. The market behaves as if it wants to climb higher but it has a great deal of resistance. Trading the strikes with mindfulness of Nagualís and othersí support/resistance points is my strategy. Itís difficult to believe that weíll have a runaway bull market under the current gloomy global environment which incites long liquidation but hopefully the market will surprise us.
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