Spread report

January 2nd 2017

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List of opportunities

FUTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Orange juice: OJH17 short . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Live cattle: LEJ17 short . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Platinum: PLJ17 long . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Cotton: CTH17 short . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

INTERDELIVERY SPREADS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Live cattle: LEV17-LEQ17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Cotton: CTK17-CTH17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Crude oil: CLM17-CLK17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

INTERMARKET SPREADS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Platinum Palladium: 2*PLJ17-PAH17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

1
 FUTURES Ticker OJH17
Expected outlook short
Orange juice: OJH17 short Expiration month March 2017
Technical analysis slightly favorable Initial margin $2 430 (IB)
Price of orange juice reached historical high few Point value $150
weeks ago. After a year-long uptrend the price Nearest resistances 200c, 220c (OJH17)
climbed up to 220 cents (chart 1). Nearest supports 185c, 170c (OJH17)
However the price had refused to rise further in
november and has failed to create a higher high Table 1: Specification of the educational opportunity
since then. The price eventually dropped to 190
cents at the end of the year. This level can be con-
sidered a relatively strong S/R zone. Therefore its
possible the price will bounce from these levels and
test resistance at 200-205 cents (charts 3 a 4).
We can notice a hint of a forming head and shoul-
ders pattern in the front contracts chart (Jan-
uary). If the pattern eventually materializes, the
price should turn at the resistance and head back
down. Breakdown below 190 cents would be a very
strong signal of possible upcoming longer term de-
cline (chart 5).

COT analysis favorable

Both groups of market participants indicate heav-
ily overbough market. Positions of large specula-
tors are not as extremely net long as they were last
Chart 1: Historical price of the continuous contract: high-
summer. Nevertheless their position can be con-
lighted level around 220 cents.
sidered escalated. COT index hovers around 0.8.
So there is a large space for its decline and thus
for decline in price (chart 6).
Overbought condition of the market is much more
apparent in group of hedgers. COT index dropped
to a 6-year low in December. Similar setup in the
past almost exactly matched local price highs. And
so there is a high probability of further decline in
price of orange juice (chart 7).
Detailed seasonality slightly unfavorable
Contracts price declined during January:
in 1 of the last 5 years (20%);
in 7 of the last 15 years (47%).
Contracts price declined during February:
in 3 of the last 5 years (60%);
in 7 of the last 15 years (47%).
5/15-year seasonality slightly favorable Chart 2: Historical price of the continuous contract: high-
The mean curves are in decline for upcoming 3 lighted level around 220 cents, trendline represents
weeks. Then we can see a turning point and rising supports.
trend till expiration of the contract (grafy 9 and 10).

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Chart 3: Historical price of the continuous contract: arrow
Chart 6: COT positions index of the large speculators: arrow
points to the break of uptrend.
points to the current value of the index.

Chart 4: Historical price of the continuous contract: high-

lighted S/R zone around 190 cents. Chart 7: COT positions index of the hedgers: arrow points to
the current value of the index.

Chart 5: Price of future contract OJF17: head and shoulders

pattern + possible price movement. Chart 8: Detailed seasonality analysis.

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 Chart 9: 5/15-year seasonality analysis.

Chart 10: 5/15-year seasonality analysis with variance in

price for the specified periods.

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 Live cattle: LEJ17 short
Technical analysis slightly favorable
The price of commodity has been moving in a nar-
row rising channel for three months. It broke sev-
eral resistance levels and reached 120 cents at one
point (charts 11 13).
However in the midterm, the price is moving in
downward channel. Its currently at the upper side
of the channel, which acts as a resistance (chart
14). There are two strong barriers - 120 cents level
and the trend line. Its therefore possible that the
uptrend will cease, and the price will bounce back
from the barrier and continue to move down within
the channel.
Chart 11: Historical price of the continuous contract: high-
COT analysis slightly favorable lighted S/R zone around 120c.
COT index of large speculators is at extremely high
level. Last time we saw a similarly escalated mar-
ket was about two years ago. On the other hand,
hedgers are heavily selling. Their COT index is
near lows from the last year and half (charts 16
and 17).
A similar situation can be seen in the traders in-
dex. Although were still some distance from the
most extreme levels, the market is very much over-
bought (charts ref leTIsl and ref leTIhl).
We expect a short term decline of the commodity.
However bear in mind that ouverbought markets
can become even more overbought. Similar situa-
tion happened in 2014.
Detailed seasonality neutral
Contracts price declined during January:
in 3 of the last 5 years (60%);
in 8 of the last 15 years (53%).
Contracts price declined during February: Chart 12: Historical price of the continuous contract: high-
in 1 of the last 5 years (20%); lighted downward price channel.
in 6 of the last 15 years (40%).
5/15-year seasonality slightly favorable
We can see a downward tendency of the contracts
price in the upcoming 2 weeks. However there is
no noticeable trend since then and curves move
sideways (charts 20 and 21)

Ticker LEJ17
Expected outlook short
Expiration month April 2017
Initial margin $2 200 (IB)
Point value $400
Nearest resistance 120c, 130c (front)
Nearest support 110c, 100c (front)

Table 2: Specification of the educational opportunity

Chart 13: Historical price of the continuous contract: high-

lighted rising price channel.

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Chart 14: Historical price of the continuous contract: high-
Chart 17: COT positions index of the hedgers: arrow points
lighted downward price channel.
to the current value of the index.

Chart 15: Historical price of the continuous contract: high-

Chart 18: COT traders index of the large speculators: arrow
lighted uptrend.
points to the current value of the index.

Chart 16: COT positions index of the large speculators: arrow Chart 19: COT traders index of the hedgers: arrow points to
points to the current value of the index. the current value of the index.

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 Chart 20: 5/15-year seasonality analysis. Chart 22: Detailed seasonality analysis.

Chart 21: 5/15-year seasonality analysis with visualization

of price variances for the period.

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 Platinum: PLJ17 long
Technical analysis favorable
Nothing really happened in the platinum market
during holidays. The price is still moving in falling
wedge formation, which is becoming quite narrow.
Break either way is just a matter of time (chart 25).
In addition to that, there is a very strong support
at $900 (chart 26). The price obviously has a prob-
lem breaking this support. So if we take these two
facts into account, likelihood of turnaround of the
trend is quite high.
However dont forget the long-term downtrend
platinum is currently in. But since the resistance
on the trend line is far away, there is a sufficient
room for short-term uptrend (charts 23 and 24). Chart 23: Historical price of the continuous contract: high-
lighted long-term downtrend + support at $800.
COT analysis slightly favorable
COT index of large speculators remains close to
the lows over the past 10 years. The index curve
was turning around in 2012 on values similar to
the current ones. This group therefore indicates
low platinum price and a considerable probability
of rising price in the near term (figure 27).
COT index of hedgers indicates rather neutral sit-
uation. By looking at the last three years, its value
is approximately in the middle between the min-
imum (about -0.80) and maximum (about -0.55)
(chart 28).
But when we look at just the past year, the COT in-
dex is suddenly relatively high. It rose over -0.65.
The price usually began to rise in similar setups in
the past six months (chart 29).
Detailed seasonality favorable
Contracts price rose during January:
in 4 of the last 5 years (80%);
Chart 24: Historical price of the continuous contract: trend-
in 13 of the last 15 years (87%).
line represents resistance.
Contracts price rose during February:
in 3 of the last 5 years (60%);
in 10 of the last 15 years (67%).

5/15-year seasonality favorable

Both mean curves clearly show rising trend over
the next three months (charts 32 and 33).

Ticker PLJ17
Expected outlook long
Expiration month April 2017
Initial margin $3 000 (IB)
Point value $50
Nearest resistance $950, $1 000 (front)
Nearest support $900, $800 (front)

Table 3: Specification of the educational opportunity

Chart 25: Historical price of the continuous contract: high-

lighted falling wedge.

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Chart 26: Historical price of the continuous contract: high-
Chart 29: CCOT positions index of the hedgers: arrow points
lighted level at $900.
to the current value of the index.

Chart 27: COT positions index of the large speculators: arrow Chart 30: COT traders index of the large speculators: arrow
points to the current value of the index. points to the current value of the index.

Chart 28: COT positions index of the hedgers: arrow points Chart 31: COT positions index of the hedgers: arrow points
to the current value of the index. to the current value of the index.

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 Chart 32: 5/15-year seasonality analysis. Chart 34: Detailed seasonality analysis.

Chart 33: 5/15-year seasonality analysis with visualization

of price variances for the period.

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 Cotton: CTH17 short
Technical analysis slightly unfavorable
The price of cotton is unable to escape from the
rising channel mentioned in previous reports. Its
also holding close to the magic level of 70 cents,
which is obviously a strong S/R zone. Itll be
important to watch which direction the markets
gonna break (charts 37 38).
If the price fails to decline, its next stop will be
80 cents. It would be probably even stronger re-
sistance from the historical perspective than 70c
(chart 35).
COT analysis favorable
Sentiment in the cotton market hasnt changed. Chart 35: Historical price of the continuous contract: high-
COT still indicates extremely overbought market, lighted S/R zone at 80 cents.
thereby we could expect future decline and return
to the long-term downtrend.
Group of large speculators is extremely net long.
Their COT index is back above 0.8 again, so its re-
ally not far away from local maximum (chart 39).
On the contrary, hedgers are extremely net short.
Their COT index dropped below -0.7 and similar
setup in the past usually matched price peaks
(chart 40).
Net concentration index is also interesting. Its on
several years minimum. This indicators local min-
ima also reliably matched price lows in the past
(chart 43).

Detailed seasonality slightly unfavorable

Contracts price decline during January:
in 2 of the last 5 years (40%);
in 8 of the last 15 years (53%).
Contracts price decline during February:
in 2 of the last 5 years (40%); Chart 36: Historical price of the continuous contract: high-
in 5 of the last 15 years (33%). lighted S/R zone at 70 cents.

5/15-year seasonality slightly unfavorable

Seasonality is unfavorable in this case especially
for 15-year average. It has a rising tendency until
expiration. The 5-year curve is moving to the side
(charts 44 and 45). However take note that this
analysis is highly distorted by the abnormal rise of
CTH11 contract.

Ticker CTH17
Expected outlook short
Expiration month March 2017
Initial margin $1 950 (IB)
Point value $500
Nearest resistance 75c, 78c (front)
Nearest support 70c, 68c (front)

Table 4: Specification of the educational opportunity

Chart 37: Historical price of the continuous contract: high-

lighted price channel.

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Chart 38: Historical price of the continuous contract: high-
Chart 41: COT traders index of the large speculators: arrow
lighted falling wedge pattern.
points to the current value of the index.

Chart 39: COT positions index of the large speculators: arrow Chart 42: COT traders index of the hedgers: arrow points to
points to the current value of the index. the current value of the index.

Chart 40: COT positions index of the hedgers: arrow points Chart 43: Net concentration index: arrow points to the current
to the current value of the index. value of the index.

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 Chart 44: 5/15-year seasonality analysis. Chart 46: Detailed seasonality analysis.

Chart 45: 5/15-year seasonality analysis with visualization

of price variances for the period.

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 INTERDELIVERY SPREADS
Live cattle: LEV17-LEQ17
Technical analysis unfavorable
The spread is in clear downtrend. However its
not far from the resistance trendline. If the price
breaks it to the upside, it would be a positive sig-
nal for future growth (chart 47).
Technical analysis of the underlying commodity
is quite favorable for bear spreads. Its upcom-
ing price action will be crucial. Thats because
the price is at double resistance, namely the 120c
level and the trendline that determines interme-
diate downtrend. For our spread would be sup-
portive if the underlying fails to break those resis- Chart 47: Price chart of the spread: trendline represents re-
tances. sistance.
For detailed technical analysis of the underlying,
see Futures: LEJ17.
COT analysis favorable
Commitment of Traders is supportive for bear
spreads in cattle. The market is clearly overbought
and at least short correction is highly probable.
But keep in mind that we can see one last push to
the upside and rebalancing could occur later. The
spread would probably continue to trend down in
this case (charts 48 51).
For detailed COT analysis, see Futures: LEJ17.

Detailed seasonality favorable

Spreads price rose during January:
in 4 of the last 5 years (80%);
in 13 of the last 15 years (87%).
Spreads price rose during February:
in 3 of the last 5 years (60%);
in 11 of the last 15 years (73%). Chart 48: COT positions index of the large speculators: arrow
points to the current value of the index.
5/15-year seasonality favorable
Mean curves clearly show a rising tendency of the
spread until April. Price variances are of special
interest. They are quite narrow and rise together
with the mean curves. Thats a positive signal and
underscores high reliability of seasonality in this
case (charts 52 and 53).

Ticker LEV17-LEQ17
Point value $400
Initial margin $530 (IB)
Nearest resistance 0.0c, 0.6c
Nearest support -0.5c

Table 5: Specification of the educational opportunity

Chart 49: COT positions index of the hedgers: arrow points

to the current value of the index.

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 Chart 53: 5/15-year seasonality analysis with visualization
Chart 50: COT traders index of the large speculators: arrow
of price variances for the period.
points to the current value of the index.

Chart 54: Detailed seasonality analysis.

Chart 51: COT traders index of the hedgers: arrow points to
the current value of the index.

Chart 52: 5/15-year seasonality analysis.

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 Cotton: CTK17-CTH17
Technical analysis slightly unfavorable
0.2 level looks like to be a really strong support.
The spread failed to stay below this level and it will
be undoubtedly tough barrier in the future (charts
55 and 56).
Technical analysis of the underlying is quite unfa-
vorable for bear spreads. Thats because cotton is
moving precisely in a rising channel. If it fails to
break it downwards, next stop for the price of cot-
ton could be 80c.
For detailed technical analysis of the underlying,
see Futures: CTH17.
Term structure analysis slightly favorable Chart 55: Price chart of the spread: highlighted S/R zone
Despite contango histogram showing frequent around 0.2c.
backwardation, contango still prevails. Cotton
market is therefore slightly favorable for bear
spreads in general (charts 57 58).
Current contango readings are not extremely high.
That makes quite a room for its expansion which
would boost bear spreads.
COT analysis favorable
COT is very positive for bear spreads in cotton.
Both group of market participants clearly indicate
the price is too high. Future decline is therefore
not out of the question (charts 59 and 60).
However take note the market can stay in over-
bought condition for weeks. COT index could os-
cillate at hugh levels and the price go sideways or
higher.
For detailed COT analysis of the underlying, see
Futures: CTH17.
Detailed seasonality neutral
Spreads price rose during January: Chart 56: Price chart of the spread: arrow points to the break
in 2 of the last 5 years (40%); of uptrend.
in 12 of the last 15 years (80%).
Spreads price rose during February:
in 1 of the last 5 years (20%);
in 5 of the last 15 years (33%).
5/15-year seasonality favorable
Both mean curves rise in the upcoming weeks.
Even variances rise together with means, which is
a positive signal (charts 64 and 65).

Ticker CTK17-CTH17
Point value $500
Initial margin $720 (IB)
Nearest resistance 0.5c, 0.7c
Nearest support 0.2c, 0.0c

Table 6: Specification of the educational opportunity

Chart 57: Histogram of contango between the first and sec-

ond expiration month for the last 3 years.

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Chart 58: Histogram of contango between the second and
third expiration month for the last 3 years.
Chart 61: COT traders index of the large speculators with
spreads price: arrow points to the current value
of the index.

Chart 59: COT positions index of the large speculators with

spreads price: arrow points to the current value of
the index. Chart 62: COT traders index of the hedgers with spreads
price: arrow points to the current value of the in-
dex.

Chart 60: COT positions index of the hedgers with spreads

price: arrow points to the current value of the index. Chart 63: Detailed seasonality analysis.

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 Chart 64: 5/15-year seasonality analysis.

Chart 65: 5/15-year seasonality analysis with visualization

of price variances for the period.

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 Crude oil: CLM17-CLK17 Ticker CLM17-CLK17
Technical analysis slightly unfavorable Point value $1 000
The spread is in uptrend since midyear of 2016. Initial margin $170 (IB)
Its currently testing the resistance at $0.40 - Nearest resistance $0.45
$0.45. Most likely scenario is that price will break Nearest support $0.25, $0.20
out and rise further (charts 66 and 67).
A risk for this base case is continued uptrend in Table 7: Specification of the educational opportunity
crude oil. The price of underlying recently breaked
through strong resist at $50 and rising wedge for-
mation. If price stays its course, $60 is not out of
the question (charts 68 71).
Rising price of underlying would be negative for the
spread. However US physical market seems to be
well supplied, rig count is rising, which will sup-
port bear spreads in crude.
Term structure analysis favorable
Crude oil is a great market for bear spreads. The
reason is very frequent contango, which can be
seen in contango histogram. Its current values
is far from extreme and therefore has a lot of room
for expansion (charts 72, 73 and 74).
COT analysis favorable
Positions of large speculators are pointing to over-
bought conditions. Their COT index reached the
highest level in tha last two and half years. The
same situation is in their traders index.
This is supportive for bear spreads. When we con-
nect similar state of the market with price, it nearly
perfectly match local price maxima (charts 75 Chart 66: Price chart of the spread: highlighted resistance at
$0.40.
78).
But dont forget the oil is in long term uptrend.
COT can signal just a short correction.
Detailed seasonality favorable
Spreads price rose during January:
in 4 of the last 5 years (80%);
in 13 of the last 15 years (87%).
Spreads price rose during February:
in 3 of the last 5 years (60%);
in 6 of the last 15 years (40%).
5/15-year seasonality favorable
Both mean curves are strongly rising till mid
February (charts 80 and 81). There is also a sea-
sonal signal in period between Aug 31st 2016 Apr
1st 2017.

Seasonal signal has the following parameters:

hist. return Max drawdown Ret/DD

5 years $812 $469 1.73
15 years $633 $1190 0.53

Chart 67: Price chart of the spread: trendline represents sup-

ports.

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Chart 68: Historical price of the continuous contract: high- Chart 71: Historical price of the continuous contract: high-
lighted S/R zone at $60. lighted rising channel.

Chart 69: Historical price of the continuous contract: high- Chart 72: Histogram of contango between the first and sec-
lighted S/R zone at $60. ond expiration month for the last 3 years.

Chart 70: Historical price of the continuous contract: high- Chart 73: Histogram of contango between the second and
lighted rising wedge. third expiration month for the last 3 years.

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Chart 74: Histogram of contango between the third and
fourth expiration month for the last 3 years. Chart 77: COT positions index of the large speculators with
spreads price: arrow points to the current value of
the index.

Chart 75: COT positions index of the large speculators with

futures price: arrow points to the current value of
the index. Chart 78: COT traders index of the large speculators with
spreads price: arrow points to the current value
of the index.

Chart 76: COT traders index of the large speculators with fu-
tures price: arrow points to the current value of the
index. Chart 79: Detailed seasonality analysis.

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Chart 80: 5/15-year seasonality analysis and seasonal sig-
nal.

Chart 81: 5/15-year seasonality analysis with visualization

of price variances for the period.

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 INTERMARKET SPREADS
Platinum Palladium: 2*PLJ17-PAH17
Technical analysis slightly unfavorable
The spread is in downtrend for half a year. Novem-
ber was especially brutal for it. However its trying
to turn around since then, making higher lows.
Technical analysis of platinum is quite supportive
for the spread. For detailed technical analysis of
platinum, see Futures: PLJ17.
Price action in palladium is not so supportive. Its
price is in clear uptrend for nearly a year. It seems
to be in a rising channel since the start of 2016.
On the other hand, there is a strong resistance in
$700 - $750 area. Its quite probable itll reach Chart 82: Price chart of the spread: declining trendline con-
these prices once again. For the spread will be cru- firms downtrend.
cial if palladium fails to break above $750 (charts
83 85).
Platinum/palladium ratio is also of interest. Its
value is currently at 15-year low (charts 86 and
87)!

COT analysis favorable

COT positions are highlighting oversold conditions
in platinum and overbought in palladium. And
thats a good environment for the spread.
COT for platinum is pointing to future price
growth. For detailed COT analysis of platinum, see
Futures: PLJ17.
Situation in palladium is different. Large specula-
tors are heavily net long and hedgers net short.
Detailed seasonality favorable
Spreads price rose during January:
in 4 of the last 5 years (80%);
in 11 of the last 15 years (73%).
Chart 83: Historical price of the continuous palladium con-
Spreads price rose during February: tract: blue area highlights S/R zone around $700.
in 3 of the last 5 years (60%);
in 10 of the last 15 years (67%).

5/15-year seasonality favorable

Both mean curves are rising in the following pe-
riod. The 5-year curve uptrend ends after about
a month. The 15-year rise ends in late February
(charts 91 and 92).

Ticker 2*PLJ17-PAH17
Equity spread 100*PLJ17-100*PAH17
Initial margin $5 520 (IB)
Nearest resistance $30k, $38k
Nearest support $20k, $14k

Table 8: Specification of the educational opportunity

Chart 84: Historical price of the continuous palladium con-

tract: highlighted uptrend.

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Chart 85: Historical price of the continuous palladium con-
Chart 88: COT positions index of the large speculators with
tract: blue area highlights resistance at $720.
price of palladium: arrow points to the current
value of the index.

Chart 86: Price ratio of platinum/palladium. Chart 89: COT positions index of the hedgers with price of
palladium: arrow points to the current value of the
index.

Chart 87: Price ratio of platinum/palladium.

Chart 90: Detailed seasonality analysis.

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 Chart 91: 5/15-year seasonality analysis.

Chart 92: 5/15-year seasonality analysis with visualization

of price variances for the period.

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