Every March, I actively trade agricultural commodity markets.
The USDA’s March Planting Intentions and Stocks report arrives at the end of next month (it’ll be posted here).
It’s important because it gives us a good sense of what farmers will plant this year and how much inventory they have in their grain silos.
As the month starts, I look to the Commitment of Traders report from the Commodity Futures Trading Commission (CFTC). This report arrives each Friday and gives us a sense of where hedge funds sit with their positions in the futures market.
Want to know where hedge funds sit with their positions on wheat and corn? The CoT report will tell you. Want to understand what funds are doing with the dollar or gold? That report tells you.
The agency collects the data at the start of the week… and releases it on Friday.
This past Friday, however, the CFTC released data from February 3.
Wait… that’s three weeks ago? What happened?
No One’s Talking About This?
Google “CFTC Cyberattack.”
You’ll get a whopping five news results – and then a bunch of gibberish about the CFTC’s commitment to cybersecurity.
In January, a Russian-linked hacking group attacked ION Group’s Cleared Derivatives division in London. This has affected the ability of the CFTC to gather data for its weekly Commitment of Traders report.
Why does this matter?
Well, anywhere between 70% to 90% of volume in key futures markets is measured in this report. This has left traders worldwide in the dark about what hedge funds are doing.
Bloomberg, one of the few places reporting this event, said that natural gas traders in Singapore are struggling to take positions.
The issue was addressed on Feb. 10, 2023, by Commissioner Christy Goldsmith Romero at the FIA & SIFMA Asset Management Derivatives Forum.
Said the commissioner, “Last week, a third-party service provider, ION Markets, suffered a cyber attack that compromised a number of brokers in the derivatives markets. For days, the attack disrupted trade-matching and margin processes at approximately 42 firms, according to news reports. This type of disruption can also impact exchanges… A ransomware group known as LockBit claimed responsibility for the ION attack, which I will not confirm. Fortunately, the damage appears to have been contained.”
The damage may be contained, but traders are now in the dark. Bloomberg reported that trading shops had to process deals manually like they were operating in some sweatshop in the 1980s.
We’re talking about hundreds of billions of dollars each day.
Momentum Turning Negative, Now What?
Last week, our momentum reading went negative for the first time since mid-December. In addition, we just had the worst weekly selloff since the end of the year.
While ETF outflows confirm movement out of junk bond ETFs and the SPDR S&P 500 ETF (SPY), we do not know what hedge funds did last week. And that’s going to create a problem.
We won’t know the results for another three weeks. Last week’s report has been delayed until mid-March.
We are completely in the dark… but momentum says we want to stay on the sidelines in cash. Probably a good idea for right now.
I thought I was going crazy for a month with how long it took for this market to turn sideways. It was a hacking event – that barely made the headlines – that created this situation.
To your wealth,
Market Momentum is Red
Momentum remains red right now, and we’re currently hedged with the Proshares S&P 500 Short ETF (SPY) for the Tactical Wealth Investor. We’ll be adding to our income portfolio this week with one of the highest-quality private equity names in the world. I assure you, the odds of you have heard of this name is less than 2%. But we’re talking about an inflation-killing name that pays north of 9% and has its hands in some of the most productive parts of the U.S. economy.