What Commodity Markets Did Watson Buy Last Week?

• Based on the latest CFTC Commitments of Traders report (legacy, futures only) numbers, the noncommercial side continues to sell the commodity complex. 

• As of the week ending Tuesday, March 4, only three commodity markets (of the 25 I was tracking) showed fund buying interest for the week. 

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• Of these, the one that stood out to me was feeder cattle due to the commercial selling also seen last week. 

After my son Ben had compiled and posted the latest CFTC Commitments of Traders (legacy, futures only) numbers to our website last Friday, something peculiar jumped out at me. I’ll give you a moment to look at some of the markets. 

Did you see it?

Of the 25 markets we have listed (leaving out the switch from net-short to net-long in S&P 500 futures), only 3 markets showed noncommercial buying the week ending Tuesday, March 4:

• The VIX (Volatility Index): The net-short futures position decreased
• Silver: The net-long futures position increased
• and Feeder Cattle: The net-long futures position increased

Let’s talk briefly about these three markets. 

The VIX (VIH25). I’ll start with this one though I can’t explain it. Why would the investment side of the market be short volatility futures given the road the US decided to go down last November? That’s like shorting a weather derivative market – cocoa as an example – as the key growing area of the world suffers under adverse weather conditions. My Blink reaction^[i] is the short-futures position is actually a hedge by investors, though listed under “noncommercial”. Does this make sense? No, not even to me. But if we keep in mind the CFTC isn’t overly clear on its classification of trade groups, particularly in the legacy/futures only report, it could hold true. 

 

The futures position in silver is interesting to me. If we look at the weekly changes in the net-long futures position for gold we see Watson decreased its holdings the past four weeks. At the same time, the net-long futures position in silver has been relatively stable with last week’s increase of 454 contracts due to a decrease of 5,154 long and a decrease of 5,608 short futures contracts. Keep in mind that a net-increase created by a decrease in both futures positions is not as bullish as one driven by new buying interest. Technically (for what that’s worth these days), May silver (SIK25) continues to consolidate on its weekly charts between its previous 4-week high of $34.56 and 4-week low of $31.365. All while April gold continues to hold within sight of its all-time high of $2,974, despite the continued “noncommercial” selling activity. 

Which brings us to feeder cattle. Of these three markets, this is the one that stood out to me the most Friday afternoon. Why? As I talked about in Weekly Analysis over the weekend, while Watson was buying feeder futures the commercial side was selling. The April-May futures spread closed at (-$0.05) last Friday, as compared to the previous Friday’s settlement of $1.875 indicating the commercial side was using the noncommercial-led rally as a selling opportunity. However, the previous 5-year high weekly close for last week was (-$1.10) meaning that despite the commercial pressure, the nearby futures spread – and therefore short-term fundamental situation – was still bullish. Given this, we can’t say feeder cattle are building a Rubber Band Disposition^[ii], at least not yet. If the activity continues this week, things could be different by the time we get to Friday’s close. For the record, May (GFK25) feeders^[iii] hit a new contract high of $278.675 last week before closing at $278.20, up $7.075 for the week. 

^[i] Based on the theory Malcolm Gladwell discussed in his book Blink. Our initial thought is usually correct, before we spend time talking ourselves out of it. 

^[ii] When the commercial and noncommercial sides are moving in opposite directions, stretching a market’s structure like a rubber band. Eventually the rubber band breaks, snapping back to its base, which in the case of markets is its fundamentals.

^[iii] We need to keep in mind the Goldman Roll also came to an end last week. Theoretically this means that long April feeder futures would’ve been rolled to the May contract.