Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    



1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.


 **NOTE** Due to the shortened holiday week last week, the data below represents positioning reported by the CFTC on Friday, December 26th (reflecting data through Tuesday, December 23rd)

  • The COTTON, WHEAT, AND COCOA markets experienced the most BULLISH relative positioning changes week-over-week
  • The ORANGE JUICE, LIVE CATTLE, AND LEAN HOGS markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 sentiment


2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The LEAN HOGS, SUGAR, AND RBOB GASOLINE markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, LIVE CATTLE, AND NATURAL GAS markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis


3. Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.


**Note** While the spread between front month prices and contracts expiring 1-year down the road in Brent and WTI crude oil continues widening, we believe the contango in the futures curve is at minimum in part to the fact that markets aren’t being made, and are not nearly as liquid 1-year out. Liquid, more active front-month contracts can respond to the heightened amount of volatility in a shorter time period. The pattern of the back end of the futures curve adjusting more slowly to cash market prices is common at the big inflection points. When oil prices were up ~+12% in the middle of the year 2014, the curve was in backwardation.    

  • The BRENT CRUDE OIL, WTI CRUDE OIL, AND NATURAL GAS markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - spot 1 Yr basis differential


4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.


Commodities Weekly Sentiment Tracker - chart4 open interest


Ben Ryan


Retail Callouts (1/5): Idea List, Retail Trading Focus, TGT, AMZN, NKE

Takeaway: Going into preannouncement season, XRT at all-time high, peak multiple, trough short int, trough vol (conviction). Be careful what you own.



Retail Callouts (1/5): Idea List, Retail Trading Focus, TGT, AMZN, NKE - 1 5 chart1

The only change this week is that we removed AMZN from our Short Bench. We're in the middle of our research process for our e-commerce Black Book, which will be released on Thursday January 22. We'll likely come out with a more conclusive opinion on AMZN -- which could just as easily be positive as negative. We'd rather take it off our list now, and then add back in the appropriate place when our research is done. 





This chart of the XRT is so telling to us.

  1. Price is at all time high.
  2. Earnings and margins are all time high.
  3. Multiple is at all time high.
  4. Short interest (the white line in the chart below) is at 5-year low – in line w levels 9 months before the ’08 meltdown. (We know it's risky to gauge sentiment based on short interest in an ETF, but the sequential slowdown is notable).
  5. Volume is near all-time lows (volume = conviction. i.e. conviction in owning the group has never been worse).


We question how people could objectively  own names like KSS, M, FL, TGT, GPS, etc…etc…etc… with this kind of setup?

Retail Callouts (1/5): Idea List, Retail Trading Focus, TGT, AMZN, NKE - 1 5 chart2a

Source: Factset 




TGT - Canada Exit Rumors


Takeaway: A lot of media outlets have picked up the idea that Cornell is set to shut down Canada in 2015. We have a hard time seeing that as an option so early into the new CEO's tenure. Even so, we'd argue that Canada speculation was the primary catalyst behind the run from $58 to $75.  15 months ago TGT execs. laid out the 2017 financial targets which called for Canada to generate $6bil in revenue and $0.80 in earnings power. We're a long way from that now. The bigger question for us is, "what led Target into Canada in the first place?" The answer isn't that business prospects in the US were just so dang good. We get the easy comp argument through 2Q because of the 2013 data breach, but TGT is one of the most expensive names in retail relative to its underlying growth. Based on our 2016 earnings number of $3.75, TGT is trading at 17x earnings (ex. Canada) and 20x earnings of the combined entity. We have a hard time reconciling that type of valuation.





DKS, BBBY, GME, PIR - Pier 1, Dick’s Are Among Retail LBO Picks: Real M&A



AMZN - Amazon Sellers Sold Record-Setting More Than 2 Billion Items Worldwide in 2014



Japan Retailers See Mixed Dec. Sales



WTSL - Wet Seal Receives Default Notice From Creditor



NKE - Nike Golf Patent: Recycled Golf Ball




#Deflation’s Dominoes

Client Talking Points


Both Euros and Oil (they’re trading together vs. USD) are signaling immediate-term TRADE oversold this morning, but both remain very #deflationary and (ex-DAX), European Equity markets do not like it – Greece and Russia -2.5%, and ex-Germany, most major European stock markets continue to signal bearish TREND (FTSE, CAC, MIB, IBEX).


WTIC Oil is making fresh 6 month lows as it tests this exhaustion zone $51.76-52.61 that we’ve been monitoring; to get a real bounce, you need a real USD selloff, and you have some big U.S. economic data points this week on that front with ISM Services tomorrow, Fed Minutes Wednesday, and Jobs repot Friday.


The best way to play global #GrowthSlowing + #Deflation remains the Long Bond; 2.11% was a nice -14 basis points drop last week and the Yield Spread (10yr minus 2yr) compressed another -6 basis points to 145, in line with the rate of change in the December U.S. economic data (ISM and PMI, which both slowed).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.


As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.


Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deflation. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road


Same Global Macro story we ended 2014 on, with both Greek and Russian stocks -2.5% leading losers



Talent is cheap; dedication is expensive. It will cost you your life.

-Irving Stone


The White House (1600 Pennsylvania Ave.) is appraised at 1 Billion Dollars.

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CHART OF THE DAY: The Capitulation Risk of Consensus Macro

CHART OF THE DAY: The Capitulation Risk of Consensus Macro - 01.05.14 Chart


"I still think the Best Macro Idea (low-volatility, higher relative return) in positioning for our non-consensus posterior of global #GrowthSlowing + #Deflation is long the Long Bond (TLT)," wrote CEO Keith McCullough in today's Morning Newsletter.

My Slowing Posterior

“Ye shall know them by their posteriors.”

-The Theory That Would Not Die


For those of you who know me well, I’m not getting any younger today. And for those of you who will play men’s league hockey against me on Thursday night, you’ll note that my posterior continues to slow too.


What’s fascinating about language is that things like words can mean very different things. A “posterior” can be “A) a person’s buttocks, B) further back in position, or C) coming after in time as in subsequent to, or following”… (Wikipedia)


In Bayesian stats (probability-speak), there’s the “prior” and the “posterior.” In our profession, everyone has a prior (subjective forecast of the future), but few have accurate macro posteriors. That’s mainly because consensus tends to chase their behind.


My Slowing Posterior - 40


Back to the Global Macro Grind


Rutgers professor Glenn Shafer says that “much that has been written about the history of probability has been distorted by the English-centric point of view” (The Theory That Would Not Die, pg 129). Since most things have a bias, it’s hard to disagree with that.


It’s even harder to disagree that both #OldWall Street and the financial media that panders to its posteriors don’t have a perma-growth and inflation point of view. After all, central planning Policies To Inflate should give us asset price inflation, forever, right?


Not so much. In rate of change terms, market expectations both inflate and deflate. That is #history. And whoever wants to suggest “it’s different this time” can do so at the risk of other people’s moneys…


In what was supposed to be a “quiet week” to end 2014, the posterior of #deflation continued to manifest across Global Macro:


  1. US Dollar was up another +1.2% week-over-week as the Euro was burned -1.5% by more Draghi QE jawboning
  2. CRB Commodities Index (19 Commodities) didn’t enjoy that, closing the yr on its lows, and -2.7% wk-over-wk
  3. Oil (WTI) dropped for the 6th straight week, -3.9% wk-over-wk, crashing to $52.61/barrel
  4. Russian and Greek stocks led Global Equity #deflation, down -4.6% and -2% wk-over-wk (vs. SP500 -1.5%)
  5. Oh, and the former inflation expectations #Bubble known as Bitcoin, ended the yr on its lows, < 278


Germany’s 5yr Breakeven rate dropped -14 basis points last week to, get this, -0.07%. To put that in context, Japanese and American 5yr Breakevens are +0.35% and +1.24%. That’s just a flat out nasty #deflation signal to the world. Respect it.


All the while, the perma-bulls on US economic growth still think that the prior Q3 US GDP is going to provide for a posterior of USA “de-coupling” from global #GrowthSlowing + #Deflation risk…


*(i.e. the same risks that unglued US Commodity, Energy, and Junk Bond investors for the last 3-6 months)


The only problem with that “US is a closed economy” bull case for US economic growth is the current data. In rate of change terms, the data for December slowed versus both November and the Q314 data that growth bulls are anchoring on:


  1. ISM (USA) for DEC slowed from 58.7 NOV to 55.5
  2. PMI (Markit) for DEC slowed from 54.8 NOV to 53.9


The reason why our posteriors focus on rate of change is quite simply because the #history of market prices do. When growth and inflation are slowing, at the same time, 10yr US Treasury Yields fall and the Long Bond rises. On DEC data, that’s what happened last wk:


  1. US 10 yr Treasury Yield dropped a big -14 basis points wk-over-wk to 2.11%
  2. US Yield Spread (10yr minus 2yr) compressed another 6 basis points on the wk to 145bps


Yet Consensus Macro (net long/short positioning in CFTC non-commercial futures/options contracts) stayed with:


  1. LONG US Equity Beta (SP500 Index + Emini) net LONG position of +108,167 contracts (vs. 3mth avg of +28,575)
  2. SHORT US Treasuries (10yr) with a massive net SHORT position of -277,477 contracts (vs. 3mth avg of -121,963)


In other words, since consensus has a posterior of the prior (consensus thinks US growth is as good as it was in Q3), they think stocks get “multiple expansion” (from 19x ttm SP500 and 55x Russell) alongside rising bond yields and rate hikes.


I still think the Best Macro Idea (low-volatility, higher relative return) in positioning for our non-consensus posterior of global #GrowthSlowing + #Deflation is long the Long Bond (TLT).


That’s not to say I won’t cover my posterior (best short ideas) on pullbacks like we had last week, and signal buy in our best US domestic consumption long ideas (RH, HOLX, WWAV, etc.). In Real-Time Alerts, ye shall know my positioning by my #timestamps!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.09-2.20%

SPX 2052-2090

VIX 15.91-19.94

USD 90.29-91.57

EUR/USD 1.19-1.21

Oil (WTI) 51.76-55.12


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


My Slowing Posterior - 01.05.14 Chart

January 5, 2015

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