According to the latest COT report the money managers continued to buy oil, but their activity significantly decreased in comparison with the previous two weeks. Over the week their net-long in oil (NYMEX) grew only by 8,988 (+2.4%) contracts amounting to 379,927 lots.
The market liquidity slightly increased by 1.7% remaining at the level close to the multi-year high.
The weak dollar, the popular belief in that OPEC will cut the oil production, as well as fears associated with the possibility that the US will impose new sanctions against Iran, firmly support the oil market.
At the same time, we cannot ignore that the market is approaching an overbought status.
Firstly. The period of seasonal increase of the money managers' net long position in oil is approaching the stage of plateau, and it's already at the level of multi-year highs.
Secondly. The relative size of the net position (ratio between the net position and the open interest) has also almost reached multi-year highs.
Over the week the money managers were actively closing previously sold gold contracts, as well as buying the new ones. As a result their net long position rose by 12,388 (+20,8%) contracts reaching 72,067 lots.
The market liquidity sharply decreased by 17.8%, approaching the level of three-year lows.
Of course, the purchases on the part of the money managers positively characterize the market. However, the position of the money managers in gold cannot be called confidently positive, it is rather neutral-positive. Besides, the sharp liquidity outflow is alarming. In my opinion, the sideways trend is likely to develop in the gold market after the price reach the level of $1260.
The money managers were buying silver for the fifth consecutive week. Over the period from the beginning of the year till January 31, the money managers increased their net long position in silver to 23.866 contracts, or by 61%. Moreover, their buying activity increases almost every week.
The liquidity has also been continuously increasing since the beginning of the year, and now has almost reached the three-year average.
Judging from the money managers' actions and the liquidity dynamics this market remains positive.
The money managers sold 17.437 corn contracts over the week, bringing their net position to a neutral state. At that, the amount of the sold contracts is 225.655, while the amount of the bought contracts is 229.116.
Over the week the open interest insignificantly decreased by 1.9%.
Simultaneously holding a massive number of purchased and sold corn contracts, the money managers are probably gearing up to a period of volatility and uncertainty in the market.
The money managers were selling wheat again, and more actively than a week earlier. During the reporting period their net short position in this market rose by 10,388 (+11.7%) contracts amounting to 99,087 sold wheat contracts.
The market liquidity remains significantly above the year-and-a-half average, thus, supporting the market.
Despite all attempts of the wheat market to push off from the bottom, the money managers' actions do not indicate significant growth of its bullish potential. I believe that March wheat futures will trade in a range of $4.15-4.40 in the coming weeks.
Over the mentioned period the money managers reduced their net long in soybeans by 13.4%, but still keep objectively a lot of purchased contracts.
The market liquidity almost did not change.
The price rally, based on expectations of reduced harvest in Argentina because of the floods, has not developed, and the money managers will probably continue to reduce their net long position in the future, which at least will create pressure on the price.
Putting It All Together
So, the oil market is still characterized by the purchases on the part of the money managers, as well as the record levels of liquidity. At that, a number of the above mentioned factors suggest that the market is overbought.
On the last week, the money managers were buying gold, but the market liquidity fell to the three-year lows. In my opinion, we cannot assert that this market is becoming bullish. On the other hand, sideways trend is likely to develop after reaching the price of $1260.
The money managers' actions indicate that the silver market remains positive. I believe, in the medium term the growth to $20 is likely.
In the short term, the money managers' neutral position in corn indicates a high probability of sideways trend formation in this market.
The money managers are not afraid to actively sell wheat at the current price level, which indicates a low bullish market potential.
The money managers are actively selling soybeans, suggesting a weak development perspective of the price rally, associated with the expected weather problems in Argentina This market is also not predisposed to growth.
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.