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Yesterday, total open interest action relative to price advances in soybeans and soybean oil was negative, and continues the bearish pattern despite the recent rally.

On December 2, February gold has made a new contract low of 1049.40, January platinum a new contract low of $829.30. January natural gas also has made a new contract low of $2.154.

Corn:

March corn advanced 1.50 cents on volume of 220,901 contracts. Total open interest increased by 7,113, which relative to volume is approximately 10% above average. The December, May and July 2016 contracts lost a total of 5,480 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in the three delivery months and increase total open interest above average. Yesterday, it appears there was a battle between buyers and sellers and buyers were able to edged the market slightly higher.

As this report is being compiled on December 2, the March contract is trading 2.75 cents lower and has made a daily low at 3.70 1/4, which takes out yesterday’s print of 3.71. March corn remains on short and intermediate term sell signals. We have no recommendation.

Soybeans: On December 1, January and March soybeans generated short-term buy signals, but remain on intermediate term sell signals.

January soybeans advanced 8.25 cents on volume of 198,640 contracts. Volume increased from November 30 when the January contract gained 8.00 cents on volume of 181,694 contracts and total open interest declined by 4,663. On December 1, total open interest declined again, this time by 2,590 contracts, which relative to volume is approximately 40% below average, but an open interest decline on yesterday’s price advance continues the bearish open interest action that we have been seeing since November 25. The January contract lost 7,158 of open interest, May 2016 -182.

On November 25, January soybeans gained 11.50 cents on volume of 175,079 contracts and total open interest declined by 1,571. On November 27, the January contract lost 2.25 cents and total open interest increased by 4,330. We view the current rally as a garden-variety rally in a bear market, and strongly advise clients against initiating bullish positions.

Now that the January contract is on a short-term buy signal, we should see the typical 1-3 day pullback and the real test will be after the pullback: whether the January contract can take out the high that is being made in the current rally, which for December 2 is 8.94. This takes out yesterday’s print of 8.91 3/4.

Soybean oil:

January soybean oil advanced 66 points on volume of 145,599 contracts. Volume was the strongest since November 25 when the January contract gained 62 points on volume of 175,551 contracts. On December 1, total open interest declined by a substantial 3,402 contracts, which relative to volume is approximately 10% below average, but an open interest decline on yesterday’s strong advance is negative. The March contract lost 5,879 of open interest, December 2015 -1,543, and there were not enough open interest increases in the forward months to offset the decline in the two delivery months.

This follows a negative reading on November 30 when the January contract gained 34 points on volume of 109,696 contracts and total open interest declined by 397. In summary, the January contract has advanced 1.00 cent during the past two days and total open interest has declined by 3,799, which means shorts sellers covering positions were powering the market higher, not new buying.

However, the market continues its advance on December 2 trading 69 points above yesterday’s close and has made a new high for the move of 30.80, which takes out the August 12 print of 30.74. On November 27, OIA announced that January and March soybean oil generated short and intermediate term buy signals. Unfortunately, the negative open interest action curbs our enthusiasm and if total open interest increases substantially on today’s advance, a top or temporary top in soybean oil may be in place because it indicates that Johnny-come-lately’s are piling into the market at the top end of the range. We have no recommendation.

Cotton: March cotton will generate a short-term buy signal on December 2 if the daily low remains above OIA’s key pivot point for December 2 of 63.11.

WTI crude oil:

January WTI crude oil gained 20 cents on volume of 656,516 contracts. Total open interest increased by 9,663 contracts, which relative to volume is approximately 40% below average, and a battle occurred between buyers and sellers and buyers were able to edged the market slightly higher. However, on December 2, the oil market is telling a different story and trading sharply lower, down $1.45 or -3.46% and has made a new low for the move of 40.25, which is above the contract low of 39.97 made on August 24.

The Energy Information Administration announced on December 2 that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week. At 489.4 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 0.1 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 3.1 million barrels last week and are in the upper half of the average range for this time of year. Propane/propylene inventories fell 2.1 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 1.8 million barrels last week.

Dollar index:

The December dollar index lost 37 points on volume of 30,631 contracts. Total open interest declined by 373 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on December 2, the December contract is trading 32.5 points higher and has made a new high for the move of 100.545, which takes out the previous high print of 100.360 made on November 30.

Tomorrow the ECB will announce its quantitative easing program, and after the announcement, we would not be surprised to see the dollar index selloff sharply after it makes a another new high for the move. On October 23, OIA announced that the December dollar index generated a short-term buy signal and an intermediate term buy signal on October 26. We have no recommendation.

S&P 500 E-mini:

The December S&P 500 E-mini advanced 20.25 points on volume of 1,512,901 contracts. Volume exceeded that of November 30 when the December contract lost 10.25 points on volume of 1,402,749 contracts and total open interest increased by 8,121 contracts. On December 1, total open interest increased by 10,125 contracts, which relative to volume is approximately 60% below average.

In summary, volume was unimpressive and the total open interest increase was substantially below average. Additionally, the December contract followed the pattern of making a fractional new high (2101.50) for the move up 3.50 points from the previous high of 2098.25 made on November 25. We are reprinting the extract from the November 25 report when we first brought the pattern of fractional new highs to the attention of clients. This pattern continues on December 2 with the December S&P 500 E-mini making a new high for the move of 2105.00, which is just 3.50 points above yesterday’s print.

From November 26 through December 2, fractional new highs have been no more 3.75 points above the previous high. This tells us the market is running out of steam and as this report is being compiled on December 2, the December contract is trading 7.25 points lower, and has made a daily low of 2091.50, which is above OIA’s pivot point of 2089.00 for the resumption of the uptrend. For the uptrend to continue, the daily low must be above the pivot point.

Yesterday, we recommended the initiation of short call positions in the December 2015 S&P 500 E-mini  with strikes selected based your individual risk tolerance.There was plenty of opportunity to initiate short calls at the upper end of the trading range, however clients should be aware it is likely that there will be one final thrust upward due to the announcement tomorrow by the ECB and the employment report on Friday. This conceivably could take out today’s high by 3.00-5.75 points, and send the December contract close to the November 3 high of 2110.25. The benefit of shorting calls in the December contract at the upper end of the trading range is that time decay on the option is a counter acting force against moves higher.

From the November 25 report on the December S&P 500 E mini:

“Since November 19, the E-mini has been making fractional highs, but has not been able to take out the November 3 print of 2110.25. For example, on November 19, the December contract made a high of 2089.25, which was 6.75 points above the November 18 high of 2082.50. The November 20 high of 2094.50 was 5.25 points above the 2089.25 high of November 19. The high of November 26 of 2098.25 was 3.75 points above the 2094.50 of November 20.”