COT Report: Futures Traders Continue To Tread Lightly

The following is a recap of The COT Report (Commitment Of Traders) released by the CFTC (Commodity Futures Trading Commission) looking at futures positions of non-commercial holdings as of December 29 (with release of COT report data January 4). Note that the change in COT report data is week-over-week.

10-Year Treasury Note: ‘Will it or wouldn’t it?’ was an active topic of discussion among market participants throughout 2015, particularly the second half. It being the Federal Reserve. Markets were put on edge for months before the central bank finally raised rates in December, and are once again on pins and needles regarding the path going forward.

Who will lead who? Markets or the Fed? For reference, the FOMC’s dot plot expects four quarter-point hikes this year. The futures market begs to disagree. It has only priced in two rate hikes.

As things stand now, the Federal Reserve will probably end up lowering its forecast in line with markets’ subdued optimism, possibly even lower.

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A lot of course will depend on how the U.S. economy fares. Of note, inventory is elevated. The economic recovery is maturing – in its seventh year. And the housing market may be losing momentum.

It is not difficult to come up with a scenario in which the economy looks vulnerable.

That said, with the Fed just having hiked by a quarter point, under some circumstances it makes sense to wonder when it would begin to at least stop reinvesting proceeds from maturing Treasuries and mortgage-backed securities. That would effectively amount to shrinkage of the balance sheet. On the other hand, if wheels come off the economy and with the Fed’s conventional monetary tool box empty, another iteration of unconventional QE is probably not out of the question.

What we can be absolutely sure of is this: Macro data and Federal Reserve’s market commentary will be dissected like maybe in no other time to gauge the pace – or a lack thereof – of tightening.  Good luck!

For now, non-commercials suddenly did a 360 and went net long. Per COT report data, holdings are at a 20-week high.

January 4 COT report data:  Currently net long 43k, up 55.2k.

cot report january 4 10 year us treasury futures net long positions

30-Year Treasury Bond: Major economic releases this week are as follows.

November’s ISM non-manufacturing index comes out on Wednesday. Non-manufacturing has not been faring as bad as manufacturing. Nonetheless, October saw a drop of 3.2 points, to 55.9, a six-month low. Similarly, new orders dropped 4.5 points, to 57.5 – the lowest since February.

The durable goods data for November was published on December 23rd. More detailed estimates, plus non-durable goods data, will be published on Wednesday. On a preliminary basis, orders for non-defense capital goods ex-aircraft were down 0.4 percent month-over-month in November – down year-over-year for 10 consecutive months. Orders peaked at a seasonally adjusted annual rate of $74 billion in September 2014 and had dropped to $69.3 billion by November last year.

Wednesday also brings us FOMC minutes of the December 15-16 meeting. This was a meeting in which the Federal Reserve decided to hike rates for the first time in nine years. It was a unanimous decision, additional color about which would be greatly appreciated by markets, but not sure the minutes will be that forthcoming.

December’s employment report is on tap for Friday. November saw a back-to-back 200,000-plus non-farm jobs. August and September were both sub-200,000. With this, monthly payroll creation has now averaged 210,000 in 2015 – much weaker than 260,000 in 2014.

Similarly, the monthly increase in average hourly earnings of private-sector employees slowed to four cents in November, after a rise of nine cents in October. Year-over-year growth decelerated to 2.3 percent from 2.5 percent in October, which was the highest since July 2009. The last time earnings grew with a three handle was April 2009.

January 4 COT report data:  Currently net short 11, down 7.4k.

cot report january 4 futures positions 30 year us treasury bond

Crude Oil: The EIA report for the week of December 25th contained several negatives for crude oil.

Crude oil imports rose by 566,000 barrels a day, to 7.89 million barrels per day. Two weeks ago, imports of 8.31 mbpd were the highest since 8.36 mbpd in the September 27, 2013 week.

Oil production rose by 23,000 mbpd, to 9.2 mbpd – a four-week high. Production peaked at 9.61 mbpd in the June 5th week.

Stocks were all up, with crude inventory rising 2.6 million barrels, to 487.4 million barrels. The 490.7 million barrels two weeks ago was just a hair’s breadth away from the all-time high of 490.9 million barrels in the April 24th week.

Gasoline stocks rose by 925,000 barrels, to 221.4 million barrels – a 12-week high. This was the seventh straight weekly increase.

Distillate stocks rose by 1.8 million barrels, to 153.1 million barrels – a 15-week high.

The only positive was the increase in refinery utilization to 92.6 percent from 91.3 percent in the prior week – a three-week high. Utilization peaked at 96.1 percent in the August 7th week.

The new variable in the crude oil equation is growing tension between Iran and Saudi Arabia. In normal circumstances, this should have helped. In fact, that is precisely how things unfolded yesterday, but initial strength was sold into. Spot WTI crude oil moved from a 3.6-percent gain to a two-percent loss in a matter of an hour, closing out the session down 0.5 percent.

Non-commercials have been reducing net longs for a while now. According to COT report data, holdings reached a three-year low in the prior week. This week, they added some.

January 4 COT report data:  Currently net long 207.5k, up 5.4k.

cot report january 4 crude oil futures net long positions

E-mini S&P 500: For the first time in five weeks, U.S.-based equity funds attracted inflows in the week ended last Wednesday, amounting to $10 billion (courtesy of Lipper). This was after $30.3 billion left these funds in the prior four weeks.

With this, a total of $8.6 billion has been withdrawn from U.S. stocks since September 30th. This is a good reference point as stocks in general, including the S&P 500 index, bottomed on the 29th of that month.

The lack of flows was evident in how December performed. It was the first back-to-back down Decembers since 1981/’82 for the stock market. A record!

After three years of double-digit gains, the S&P 500 dropped 0.7 percent in 2015. Another record! For the first time in 145 years, a year ending in 5 ended up in the red column. The last time this happened to the stock market was in 1875 – down 3.7 percent (courtesy of @RyanDetrick, another must-follow). The year 1895 came close – up a mere 0.5 percent.

As a matter of fact, 2015 could have very much ended up like 1895. By December 30th, 2015 was up 0.22 percent. The next session – the year’s last –was a volatile session. Down, up and then down on a five-minute chart. At one point during the session – shortly after noon – the S&P 500 was up 0.18 percent for the year. Then gradually it gave up the gains, and then some.

Enough looking through the rearview mirror. On to the windshield.

Once again, @RyanDetrick points out that the S&P 500 has not been down the first day of the year three straight years since 1999-2001. The index was lower the past two years – down 0.89 percent and 0.03 percent, respectively. Yesterday, stocks were taken to the woodshed, with the S&P 500 down 1.5 percent.

The index has been trapped within a descending channel for a couple of months now.  The upper end of the channel lies at 2090, which was not even tested last week, although it came close. With the drop yesterday, support at both 2040 and 2020 has been lost.

If there is any consolation in yesterday’s price action, it is that 1990, a must-hold, was tested and held. This is where the low end of that channel lies as well. Remains to be seen if stock market bulls can build on this. They seem to be swimming upstream.

January 4 COT report data:  Currently net short 97.2k, up 1.9k.

cot report january 4 sp 500 futures net short positions

Euro: Weekly momentum indicators that were in the process of unwinding oversold conditions are beginning to weaken before even reaching the median.

The currency rallied hard on December 3rd, responding to the ECB’s decision that was perceived as a disappointment. That momentum did not last long, as the 200-day moving average came in the way.

Last Thursday, the Euro literally closed on its 50-day moving average, which it lost yesterday, albeit ever so slightly.  The currency is below shorter-term moving averages, and there is now a bearish daily MACD crossover on the chart for the Euro.

COT report data indicates that non-commercials slightly reduced net shorts, but continue to lean heavily bearish.

January 4 COT report data:  Currently net short 160.6k, down 497.

cot report january 4 euro futures net short positions

Gold: Spot gold prices posted a third straight year of losses, and ended 2015 with mixed signals. Sort of.

Gold lost support at $1,080/ounce in the middle of November, and has more or less gone sideways since.


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