COMMODITIES 6 minutes to read

COT: Stretched positioning raising reversal risks

Ole Hansen

Head of Commodity Strategy

Summary:  Hedge funds cut bullish bets on commodities by 18% to 457k lots. While gold, silver, copper and grains were sold as the dollar rose, the oil long expanded further in response to the US decision not to extend waivers to the ban on Iranian oil.


Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

To download your copy of the Commitment of Traders: Commodity report for the week ending April 23, click here.

The Brent and WTI combined long reached 711k lots, the highest since October 9 last year. Some 117k lots have been added since Brent broke above $70/b and despite supportive fundamentals, a short-term deterioration in the technical outlook following Friday’s ugly close could now leave some recently established longs at risk. Also noting a very elevated long/short ratio in RBOB Gasoline at 35. 
Gold’s net-short expanded further to reach 22k lots, the highest since November 27. The slump below support at $1,275/oz last Tuesday attracted additional momentum sellers before the strong recovery into the weekend. At this stage it would probably require a continued rally back above $1,300 before short positions capitulate once again. 

Copper traders reacted to the stronger dollar by once again reversing their net positions to a short of 7k lots, the most bearish in nine weeks.
The record short across the three major crops of corn, wheat and soybeans expanded further to reach 520k lots. Most dramatic is the 322k lots record short in corn followed by 130k lots in soybeans, also a record. With such an elevated and one-sided position these shorts will increasingly be exposed to any short-term change in the technical and/or fundamental outlook.
The livestock sector has been left exposed to long liquidation after recent weeks of strong buying. Sharp reversals in the prices of live cattle and lean hogs helped drive a 7% five-day slump in the Bloomberg Livestock index last week.
What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.
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