COT: Commodities correction spurs muted selling response

COT: Commodities correction spurs muted selling response

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Key points:

  • Commitment of Traders report highlighting futures positions and changes made by speculators across forex and commodities during the week to 30 April
  • Emerging profit taking on dollar long positions ahead three-day slump
  • Buying of grains offsetting reductions elsewhere, most notably in metals and softs

COT on forex

Weeks of dollar strength that recently lifted the non-commercial dollar long position against eight IMM futures to near a five-year high showed signs of running out of momentum during the reporting period to 30 April. Despite gaining 0.5% on the week, traders opted – wisely as it turned out – to reduce their dollar long exposure, overall resulting in a 10% reduction to USD 29.4 billion, primarily driven by broad short covering, led by CAD, JPY and AUD.

6olh_cot1
Non-commercial IMM futures positions versus the dollar in week to April 30

COT on Commodities

In the latest Commitment of Traders (COT) report, covering the week ending 30 April, several notable trends emerged amidst market fluctuations. This week was characterized by a 1.1% setback in the Bloomberg Commodity (BCOM) total return index, marking a contrast to the robust 10% surge in prices witnessed since late February. The downturn was widespread, with the exception of industrial metals, which saw a modest uptick of 1.9%. On an individual contract basis, we find that 21 out of the 26 commodity futures tracked in the update experienced downward movement, with the most notable exceptions being platinum, copper, and wheat. Managed money accounts such as hedge funds and CTAs responded relatively muted to these developments with net selling of metals and softs being offset by strong short-covering demand for grains while the energy sector saw a mixed response.

Brief commodity correction running out of steam
The mentioned correction in the Bloomberg Commodity TR index which tracks the performance of 24 major commodity futures evenly split across energy, metals and agriculture, has so far been relatively shallow, having bounced after only managing a 38.2 Fibo retracement of the 10% run-up from late February until early last week. A correction of this, so far, limited magnitude is categorized as a weak correction within a strong uptrend. It is also worth noting that the index on Friday saw the 50-day simple moving average trade above the 200-day, potentially a sign of growing positive momentum. Finally, it’s worth pointing out that the recent correction has been cushioned by a recovering grains sector, and it highlights the merits of holding a broad exposure to commodities, where prices are dictated by multiple factors from supply and demand developments, macroeconomic data, central bank decisions, geo-political events, weather developments, and not least momentum and its impact on speculators behavior.

6olh_cot2
Managed money long, short and net positions in the week to April 30. Selling of crude oil, gas oil, platinum, sugar and cotton being offset by demand for natgas, copper, and all grains
6olh_cot2a
Combined net position held by managed money accounts in energy (+590k contracts), metals (+250k) and agriculture (-216l)
6olh_cot3
Energy: Crude oil’s continued correction yielded a mixed response with WTI selling being driven by fresh short positions and Brent buying being supported by fresh longs entering at lower levels. Elsewhere, fuel products and natural gas saw net selling.
6olh_cot4
Metals: Resilient gold bulls cut their extended net longs by 5% only to 167k contracts, as the metal continued to find support well above levels that otherwise could trigger accelerated long liquidation. Additional copper strength yielded increases in both long and short positions, potentially signaling a short-term top in the market.
6olh_cot5
Grains: Corn and wheat buying extended to a second week, reducing the net short which includes soybeans by 24% to 415k contracts, a three-month low.
6olh_cot6
In softs, the sugar net long cut to neutral and lowest since August 2022. Cocoa’s extreme volatility continues to force traders to abandon the market, including hedge funds who cut their net long to a 14-month low. An elevated coffee long was maintained despite an unfolding correction.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:

  • 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

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.

Quarterly Outlook

01 /

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.