Treasury and Precious Metals Overbought

08/27/2019 11:44 am EST

Focus: CURRENCIES

Andy Waldock

Founder, Commodity & Derivative Advisors

Several key markets still have heavily long commercial positions, reports Andy Waldock.

The Commercial position in the Treasury complex and many key markets including precious metals, remain overbought (See table below).

Let’s take it sector by sector:

Softs

Our comments remain the same from last week. Commercial traders set another net long record position in the cotton market. Now, the speculators are threatening their net short record position. Processors continue to lock in future supplies at trade war fear prices.

Cotton: Commercial traders set a record net long position while defending the December contract’s low at 57.26. The weekly signal piggyback’s the daily email’s buy signal issued on Aug. 9.

 Orange Juice: Sticking with the softs, the commercial traders in the orange juice market are very near their net long record position. Historically, when the commercial position is net long 6k+ contracts, the market has rallied substantially. This was responsible for the brief pop in March, ahead of trade war saber-rattling. The last two examples were June of 2017 and March of 2015. Resistance at $105 currently binds the November contract, which is supported by commercial buying at last week’s low of $98.45. This market’s decline should now be viewed as a buying opportunity.

Cot Table

Treasuries

We’re facing a similar situation in the Treasury complex. Commercial traders were net buyers across the yield curve as prices have risen and yields have fallen. Once again, commercial traders chasing the market are infrequent. Their purchases indicate that they expect the rally to continue. Perhaps, to new lows in yields.

Grains

Corn has now fallen to oversold levels and is $1 per bushel below the June high. This decline has brought the speculative position back down to neutral territory. The decline has also brought commercial interest back to the buy-side. While this is usually the beginning of a seasonally bearish period for corn, I’m unwilling to initiate new short positions at the current level of $3.67 per bushel.

Energy

Natural Gas: Commercial traders, continue to buy in earnest. They did not set another new high for the last year, but their purchases were once again quite a bit beyond their normal behavior. This situation is similar to the natural gas trade. We typically look for short sales heading into Labor Day weekend. However, the strength and persistence of the commercial purchases, combined with the currently depressed prices, will keep me on the sideline and out of the seasonal short position.

Unleaded Gasoline: The RBOB contract is gathering a commercial bid in line with its expected climb higher over the next couple of weeks. We’ll be tracking this market closely for a Daily COT buy signal.

Currencies

Japanese yen: The recent rally continues to attract a significant amount of commercial selling. Friday’s rally took us out of our current short yen position. However, the rally was significant enough to put us back on the lookout to establish a new short position. The last couple of short trades have worked out quite well.

British Pound: The British pound is finally making a move higher. We’ve been following the market lower for quite some time. We got an early jump on the trade mid-month in our Daily COT Signals. Now, the weekly signals have flashed a corresponding buy signal based on the continued purchases of the commercial traders who’ve found value in the Pound below $1.23.

Here is what Andy had to say about seasonality and the COT Report at the recent TradersEXPO New York. 

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