The Commitments of Traders report from last Friday showed a significant shift in the positions of the large speculator category of trader in the Chicago wheat futures market (CBT.W), indicating their net positions in the market have gone from being net short to net long. They're joining the commercial hedger category of trader on the short side, leaving the short side of the market in the hands of the small traders.
Monday's reaction to the news of this shift was interesting - with most of the supposedly smart money lining up on the bullish side of the ledger, you'd think that would be a bullish sign. But It might be bullish sign of a different sort, if yesterday's market action is any indication. Futures trading on the wheat market fell a 'very big' 5.8% to close at $8.43’4, down 52¢ per bushel on the day. This followed a 'big' decline on Friday, with the market down 3.1% on the day (28.5¢).
Q: How has wheat futures performed in the past when it has seen a 'very big' one day decline after a COT report that shows that large speculators have shifted their net positions in the market from being mostly long to mostly short?
A: According to the seven previous occurrences of this event, EventEdge indicates that CBT.W has shown a very strong bearish edge that peaks 33 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Monday, June 30, 2008) is Friday, August 15, 2008. CBT.W declines in 100% of the cases (7 of 7) by an average of 6.0% relative to the close on the event date. The overall return of the seven cases is -6.0%, which, based on the close of CBT.W on the event date ($8.43'4), provides a target price of $7.92'7.
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Gibbons Burke is editor of MarketHistory.com.
