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Arabica COT Report
Posted by Tango
on June 29, 2019, 6:23 am
This is a quick observation of the activity as shown on the COT report as the market moved almost 11 cents higher. The sellers are in red and the buyers are in blue. The commercials are reliably the usual sellers in a rising market. There wasnít much forward selling indicating a lack of origin. Likely commercials sold delta longs as the market rose. In fact all of the commercial selling was the liquidation of longs. Other profit takers were small and large traders. Managed money were the major contributors to rising prices as they covered shorts. But every sector covered shorts as well to some extent, including index funds. The commercial short covering that we see is probably the leg of a spread. Keeping track of the number of traders in the managed money category, in early May there were 53 funds long and 107 shorts. The longs now are 60 and the shorts are down to 75. Also buying new this period are swap dealers and index funds. Although the index funds change is possibly just a change in delta, the swap dealer change is not. As we know swap dealers represent either end users or institutional entities. Either group is usually in it for the long term but itís likely that this buying is institutional. We can assume that for the remaining week the same pattern continued, some new buying but a lot of short covering and long liquidation.
We can say that the market is rising because cold weather is stirring some fear in the community. Of course, this is the most evident reason and we can make the assumption that a downward correction will pursue if there are no consequences to the cold, as we see year after year. However, a lot of the buying is more of a long term nature. We canít discount Johnís macro suspicions. It seems to me that commodity markets have been firming as we look at the YTD relative performance:
Of course we canít ignore the bearish fundamentals that still prevail. But, imo, macro considerations are the primary drivers. We also have unstable trade relations which are contributing to compromised global economies. For now, our eyes are on the cold weather coming. I know that Alf is watching closely and hopefully he will alert us with all developments.