Blue line = BRLUSD

The market began with weakness and, as the period progressed, several factors began to develop. Possibly the least significant factor is that the Real weakened along with the market. The low of the both markets is on the same day, and both markets strengthened together for the remainder of the period. The long US holiday weekend was approaching and talk of cold weather was being reported, though non threatening. In looking back at the OI for each day, we see that several spec groups were buying new. Commercials also bought as the market dropped in the first part of the week. For the second part, it appears that funds began to cover. Prices blew through 100.00 and proceeded higher, setting a range of 8.45c to a high of 103.15 and closing 5.80c higher for the period. On the following day the market made a new high to begin the holiday weekend. Today, prices began in a weak tone, selling begot selling, pockets of stops were hit and the market closed near the lows.

The COT report covers a two way market resulting in small changes. It is likely that commercials bought the weakness and sold the strength to become net sellers. Swap dealers were buyers a few weeks back and liquidated some during the period. We saw this group, together with large and small traders and even long funds build their long positions for the last few weeks. These same sectors were among today’s sellers. In Robusta, managed money, who behave very differently than in KC, piled on more shorts.

The very least that the COT can show us is that in today’s environment rallies have their limitations. Increasing selling by funds may have bullish consequences but so does the build up of longs by the remainder of the spectrum. As we have seen time and again, rallies cannot sustain themselves, longs compete to sell and there is not enough buying to satisfy the selling. It is likely that funds are now system sellers once again.

The situation may change as cold is again being reported in the next few weeks. But the dynamics of the market as shown on the COT will remain the same for the time being.