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On December 3, the dollar index is trading sharply lower along with the S&P 500 E-mini making new lows for the move. The euro is crushing the shorts trading over 3.00 cents higher on the day. The current COT report showed managed money short by a ratio of 4.68:1, the highest in several months. Also, the March 10 year treasury note is trading sharply lower, down 0.89%, which means that yields are driving higher, and this will further dampen enthusiasm for equities.

Corn:

March corn lost 3.50 cents on volume of 183,863 contracts. Volume fell from December 1 when the March contract gained 1.50 cents on volume of 220,901 contracts and total open interest increased by 7,113. On December 2, total open interest increased by 5,808 contracts, which relative to volume is approximately 10% above average. The December 2015  and September 2016 contracts lost a total of 3,398 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in the two delivery months and increase total open interest above average.

As this report is being compiled on December 3, the March contract is trading 6.75 cents higher or + 1.82%, and we think the rally is due to the very sharply lower dollar index and that March wheat is trading 16.25 cents higher, or +3.48%. March corn remains on short and intermediate term sell signals.

Soybeans:

January soybeans lost 3.00 cents on volume of 214,578 contracts. Total open interest declined by 2,831 contracts, which relative to volume is approximately 45% below average. The January contract accounted for loss of 7,741 of open interest. As this report is being compiled on December 3, the January contract has made a daily high of 8.94 3/4, which matches yesterday’s print.

After generating a short-term buy signal on December 1, soybeans are overdue for the usual pullback, which should last from 1-3 days. Do not enter long positions at current levels. We think this is a rally in the bear market, and that managed short sellers who are short by a ratio of 1.90:1  will likely be the catalyst for the move higher, not new buying.

Soybean oil:

January soybean oil advanced 49 points on heavy volume of 186,329 contracts. Volume exceeded that of December 1 when the January contract gained 66 points on volume of 145,599 contracts and total open interest declined by 3,402. Additionally, volume was the strongest since November 24 when 209,596 contracts were traded and the January contract closed at 28.59.

On December 2, total open interest declined for the third day in a row, this time by 4,301 contracts, which relative to volume is approximately 10% below average, but since November 30, January soybean oil has advanced 1.49 cents while total open interest has declined each day for cumulative loss of 8,100 contracts.

On November 27, OIA announced that January and March soybean oil generated short and intermediate term buy signals, and the market has not had its usual 1 to 3 day pullback and instead has rocketed higher. As this report is being compiled on December 3, the January contract is trading 60 points higher and has made a daily high of 31.25, which is the highest print since 31.18 made on August 10. OIA recommends a stand aside posture.

Cotton: On December 2, March cotton generated short and intermediate term buy signals.

March cotton lost 4 points on volume of 20,264 contracts. However, total open interest exploded higher by 2,603 contracts, which relative to volume is approximately 405% above average meaning a battle ensued between buyers and sellers and sellers were able to edge the market slightly lower. As this report is being compiled on December 3, March cotton is trading 63 points higher and has made a daily high of 64.30, which takes out yesterday’s print of 63.93. We have no recommendation.

WTI crude oil:

January WTI crude oil lost $1.91 on volume of 897,849 contracts. Volume was the strongest since November 23 when WTI lost 15 cents on volume of 849,749 contracts and total open interest declined by 2,190. On December 2, total open interest exploded higher, by 33,158 contracts, which relative to volume is approximately 20% above average, which is a very large number for crude oil. The January contract gained 8,897 of open interest.

Based upon the increase of volume and the substantial increase of open interest, we surmise that the Johnny-come-lately crowd was getting bearish at the low end of the trading range, which we see all too often (the euro is a current example).

As this report is being compiled on December 3, the January contract is trading sharply higher, up by $1.80 or +4.38%, and we attribute the strong moved to the sharply lower dollar index and perhaps perceptions that OPEC is not going to be as hawkish on production. We have no recommendation.

Dollar index:

The December dollar index advanced 18 points on volume of 43,844 contracts. Total open interest declined by 1,091 contracts, which relative to volume is average. The December contract lost 2,550 of open interest, and approaches first notice day during the next several days. Also we believe that market participants were moving to the sidelines in advance of today’s ECB meeting.

As this report is being compiled on December 3, the December dollar index is trading sharply lower, down 1.950 or -1.95% and has made a daily low of 97.950. In yesterday’s report, we said that the dollar index would likely make a new high for the move before trading sharply lower, and on December 3, the December dollar index did make another new high of 100.600, which takes out yesterday’s high for the move of 100.545. For the December contract to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for December 3 of 97.867. We have no recommendation.

From the December 1 report on the dollar index:

“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.”

Euro: The December euro will generate a short-term buy signal if the daily low is above OIA’s key pivot point for December 3 of 1.0941.

Australian dollar:

The December Australian dollar lost 30 pips on volume of 89,866 contracts. Volume declined substantially from December 1 when the December contract gained 1.02 cents on volume of 119,099 contracts and total open interest declined by 532 contracts. As this report is being compiled on December 3, the December contract is trading 33 pips higher and has made a daily high of 73.47, which takes out yesterday’s print of 73.40 and is the high of the move thus far. On November 25, OIA announced the December and March Australian dollar generated short and intermediate term buy signals. We have no recommendation.

S&P 500 E-mini:

The December S&P 500 E-mini lost 18.50 points on heavier than normal volume of 1,760,127 contracts. Total open interest increased just 2,897 contracts. Recently, on price declines, total open interest increases had been minor. For example on November 30 when the December contract lost 10.25 points, total open interest increased only 8,121 contracts, which is substantially below average. In our view, this indicates that market participants are not yet bearish on the E-mini.Yesterday, the December contract made a new high for the move of 2105.00 in the early going and then proceeded to sell off and make a daily low of 2075.00.

As this report is being compiled on December 3, the December contract is trading sharply lower, down 21.50 points or -1.3% and has made a daily low of 2056.00. For the December contract to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for December 3 of 2065.00.

In yesterday’s report, we said for the advanced to resume, the December contract had to make a daily low above OIA’s pivot point of 2089.00 and at the time the report was being written, the daily low had not penetrated the pivot point. This  occurred after we published the report. OIA has been warning clients about the fractional new highs that were being made and this was a sign of internal weakness.

In the report of November 30, we recommended shorting out of the money calls in the December contract, and this trade is already a substantial winner with timing that was almost perfect.

From the December 1 report on the S&P 500 E-mini:

“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.”

From the November 30 report on the S&P 500 E-mini:

“For the December contract to continue its advance, the low of the day must be above OIA’s key pivot point for December 1 of 2088.00. At this juncture, we think this is highly unlikely, and that clients should look to initiate short call positions in the December 2015 E-mini. Strikes should be based upon your risk tolerance.”