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Corn:

December corn advanced 0.50 cents on volume of 263,207 contracts. Total open interest declined by 3,290, which relative to volume is approximately 45% below average. The December contract lost 2,654 of open interest, March 2016 -4060. As this report is being compiled on October 5, the December contract is trading 2.50 higher on low volume. Though December corn is trading above OIA’s pivot point, the market needs a catalyst to send it significantly higher, but for now is trading in the sideways pattern. For the December contract to generate a short-term sell signal, the high of the day must bow be below OIA’s key pivot point for October 5 of 3.78. We have no recommendation.

Soybeans:

November soybeans lost 3.00 cents on volume of 279,735 contracts. Total open interest increased by 774 contracts, which relative to volume is approximately 85% below average, but an open interest increase on Friday’s decline is bearish. Additionally, the November contract lost 2,910 of open interest and March and May 2016 contracts lost a total of 2,008, 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. This confirms the bearish set-up.

As this report is being compiled on October 5, the November contract is trading 8.75 cents higher and has made a daily high of 8.85, which is above Friday’s print of 8.82, but substantially below the print of 8.99 1/4 made on October 1. For November soybeans to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for October 5 of 8.85. The downtrend will resume if the November contract makes a daily high below OIA’s key pivot point for October 5 of 8.69 1/4. We have no recommendation.

Soybean oil: December soybean oil will generate a short-term buy signal on October 5 if the low of the day remains above OIA’s key pivot point for October 5 of 27.55. The December contract will not generate an intermediate term buy signal on October 5.

December soybean oil advanced 74 points on volume of 150,418 contracts. Total open interest increased by a robust 5,836 contracts, which relative to volume is approximately 30% above average meaning aggressive new buyers were entering the market in large numbers and pushing prices higher (28.16). The October contract lost 1,039 of open interest, January 2016 -201, 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 substantially. Friday’s action was very positive, especially since managed money remains net short and will provide fuel for a continued upside move until they are blown out of the market.

In the October 4 Weekend Wrap we told clients that soybean oil was close to generating a short-term buy signal, and as this report is being compiled on October 5, the December contract is trading 61 points higher and has made a new high for the move of 28.81, and a daily low of 27.91, which is above OIA’s key pivot point for October 5 of 27.55.

The December contract will generate a short-term buy signal on October 5 provided today’s low is above the pivot point. After the generation of the buy signal, the market should pullback for 1-3 days beginning tomorrow before resuming its uptrend. Although, it appears that soybean oil is headed higher due to the bullish fundamental situation in palm oil, the fact remains that soybean oil is not going very far unless soybeans generate a short-term buy signal. Therefore, we are not recommending bullish positions. Actually, once short-sellers have been blown out, soybean oil may be a good candidate for a conservative bearish position, but at this juncture clients should stand aside.

Sugar:

March sugar advanced 27 points on surprisingly light volume of 131,414 contracts.Volume traded on October 2 was the lowest since the rally began on September 24. This may indicate that potential market participants are becoming leery of trading the market at such lofty levels.

On October 2, total open interest was disappointing as well by increasing only 1,320 contracts, which relative to volume is approximately 50% below average. However, the March contract lost 3,317 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in March and increase total open interest.

As this report is being compiled on October 5, March contract is trading higher again, up by 10 points and has made a new high for the move of 13.64, which takes out the July 17 high of 13.62. On September 28, OIA announced that March sugar generated a short-term buy signal and an intermediate term buy signal on October 1. We have cautioned clients to stand aside until such time as sugar has corrected. Do not chase the market higher.

Coffee: December coffee will generate a short-term buy signal on October 5. December coffee remains on an intermediate term sell signal.

December coffee advanced 3.55 cents on volume of 27,723 contracts. Total open interest declined by 150 contracts, which relative to volume is approximately 70% below average and a total open interest decline on Fridays price advance is negative. The December contract lost 663 of open interest. The coffee market is loaded with speculative short-sellers, and this explains the open interest decline in Friday’s trading.

As this report is being compiled on October 5, the December contract is trading 3.90 higher and has made a daily high of 1.2965, which is the highest print since 1.3320 made on August 21. Now that December coffee is on a short-term buy signal, the market should undergo a pullback lasting 1-3 days and this is the opportunity to enter light bullish positions. We want to caution clients that for the past three times that coffee has generated a short-term buy signal, the signal has reversed within several days. However, we tend to think that the current signal may be sustainable and the reason: it appears the Brazilian currency has stabilized at least for now. The fundamentals for coffee are constructive, but not wildly bullish at this juncture.

WTI crude oil:

November WTI crude oil advanced 80 cents on heavy volume of 834,803 contracts. Volume was slightly below that of October 1 when the November contract lost 35 cents and total open interest increased by 3,644 on volume of 847,078 contracts. On October 2, total open interest increased by a sizable 24,237 contracts, which relative to volume is approximately 10% above average meaning aggressive new buyers were entering the market in large numbers and driving prices higher (45.81), which is below the October 1 print of 47.10.

As this report is being compiled on October 5, the November contract is trading $1.00 higher and has made a daily high of 46.94, which is below the October 1 print of 47.10. Though total open interest action has been constructive for the most part recently, the market has been unable to make a daily low above OIA’s pivot point, which for October 5 is $46.23. For the rally to resume, the November contract must make a daily low above the pivot point. A sell signal will be generated if the November contract makes a daily high below OIA’s key pivot point for October 5 of $43.93. We have no recommendation.

Dollar index:

The December dollar index lost 35.9 points on heavy volume of 50,790 contracts. Total open interest declined by a sizable 1,729 contracts, which relative to volume is approximately 20% above average meaning liquidation with substantial on Friday’s decline.

As this report is being compiled on October 5, the December contract is trading 24.8 points higher and has made a daily high of 96.295. For the December dollar index to resume its advance, the daily low must be above OIA’s pivot point of 96.300 and a short-term sell signal will be generated if the daily high is below OIA’s key pivot point for October 5 of 95.520. We have no recommendation.

Euro:

The December euro advanced 45 pips on volume of 297,444 contracts. Total open interest increased by 3,042 contracts, which relative to volume is approximately 50% below average, but the open interest increase in Friday’s trading is positive, and discourages us from recommending bearish positions even though the December euro generated a short-term sell signal on September 22.

As this report is being compiled on October 5, the December contract is trading 43 pips lower after making a daily high of 1.1301, which is below Friday’s print of 1.1331. The downtrend will resume if the December contract makes a daily high below OIA’s pivot point for October 5 of 1.1211 and will generate a short-term buy signal (unlikely) if the daily low is above OIA’s key pivot point for October 5 of 1.1343.

Canadian dollar: The December Canadian dollar will generate a short-term buy signal provided the daily low remains above OIA’s key pivot point for October 5 of 75.81. The December Canadian dollar remains on an intermediate term sell signal.

The December Canadian dollar advanced 39 pips on volume of 55,515 contracts. Total open interest declined by 2,776 contracts, which relative to volume is approximately 100% above average meaning liquidation was extremely heavy on the advance. On October 1, the December Canadian dollar advanced 53 pips on volume of 73,777 contracts and total open interest declined by a massive 7,647 contracts, which relative to volume is approximately 300% above average meaning liquidation was off the charts heavy on the advance.

We view the generation of a short-term buy signal as a typical short covering rally that occurs in currencies from time to time. According to the most recent COT report, which we provided in the October 4 Weekend Wrap, leverage funds are short the Canadian dollar by a ratio of 3.72:1, which means that once short-sellers have been blown out, the Canadian dollar will provide an excellent opportunity to initiate bearish positions. Unlike the euro which has positive open interest action on price advances, the open interest action in the Canadian dollar on gains has been decidedly bearish.  The market is being powered by distressed short-sellers, not by new buying.

Gold:

December gold advanced $22.90 on volume of 199,291 contracts. Total open interest increased by 2,490 contracts, which relative to volume is approximately 45% below average, and the total open interest increase is definitely a disappointment considering the magnitude of the advance on October 2. As this report is being compiled on October 5, the December contract is trading $1.50 lower on the day. December gold remains on short and intermediate term sell signals. We have no recommendation.

Silver: On October 5, December silver will generate an intermediate term buy signal after generating a short-term buy signal on September 21.

December silver advanced by a strong 75.2 cents on heavy volume of 78,901 contracts. However, total open interest action was a complete disappointment with a gain of only 145 contracts. This is a very poor performance considering the magnitude of the advance on October 2. As this report is being compiled on October 5, the December contract is rocketing higher again, up by 25.3 cents and has made a new high for the move of $15.730, which is the highest print since 15.770 made on August 21.

Though silver has moved sharply higher during the past two days, we recommend a stand aside posture because the market is massively overbought, and gold and platinum remain on short and intermediate term sell signals. We think the risk to long positions would be substantial, especially if the major US equity indices were to roll over.

S&P 500 E-mini:

The S&P 500 E-mini advanced 26.25 points on volume of 2,473,657 contracts. Total open interest increased by 33,569, which relative to volume is approximately 40% below average, but the open interest increase on Friday continued the positive open interest action of October 1.

As this report is being compiled on October 5, the December E-mini is trading 30.75 points higher and has made a daily high of 1974.50, which is the highest print since 1983.00 made on September 18. In the October 1 report, we advised to liquidate the long option straddle that we had recommended two weeks prior.

Our reasoning was that the rally would continue and that the lows have been seen at least in the short term. For the December S&P 500 E-mini contract to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for October 5 of 1956.70, which means that the earliest a short-term buy signal could be generated would be tomorrow.

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

“On October 2, close out the long at the money option straddle in the November and December S&P 500 E-mini because we think the trend has changed on October 2. The purpose of the straddle was to profit from asymmetric downside and we think the risk of this occurring is over for now.”

“The E-mini had every reason to make new lows for the move on October 2 due to the big surprise on the employment report, but has trading robustly higher. Clients should keep in mind that the low for the move of 1831.00 occurred on August 24, and the closest the E-mini has come to breaking that occurred on September 29 (1861.00). Additionally, from a seasonal point of view, equity prices should strengthen as we move deeper into the fourth quarter. In summary, we think the downside has been played out for now.”