For Bloomberg access:{OIAR<GO>}

On October 6, we are seeing a rally in many commodities, including petroleum, metals and grains. The dollar is trading sharply lower and this is giving commodities a bid.

Corn:

December corn advanced 4.25 cents on light volume of 163,530 contracts. Volume was the weakest since September 24 when the December contract lost 1.75 on volume of 148,121 contracts and total open interest increased by 3,469. On October 5, total open interest declined by 4,399 contracts, which relative to volume is average.The December contract lost 4,710 of open interest.

The low volume and total open interest decline on yesterday’s advance is negative, however as this report is being compiled on October 6, the December contract is trading 4.50 higher and has made a new high for the move of 3.98 1/2, which decisively takes out the previous high of 3.95 made on September 15 and is the highest print since 3.99 1/4 made on August 11. As of October 6, the December contract is trading 11.12% above its August 12 contract low of 3.57 1/2.

It will be important for open interest to increase on today’s rally and for volume to increase as well. December Chicago wheat is rallying on October 6, trading 9.50 higher and this is likely helping corn.For the December contract to generate an intermediate term buy signal, the low of the day must be above OIA’s key pivot point for October 6 of 3.96 3/8 on September 14, OIA announced that December corn generated a short-term buy signal. We have no recommendation.

Soybeans:

November soybeans advanced 10.00 on volume of 189,054 contracts. Volume fell sharply from October 2 when the November contract lost 3.00 on volume of 279,735 contracts and total open interest increased by 774. On October 5, total open interest increased by 4,709 contracts, which relative to volume is average. The November contract lost 5,686 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in November and increase total open interest.While this is positive, the low-volume on the advance is a countervailing negative to the open interest increase. In summary, market participation on the rally was disappointing.

As this report is being compiled on October 6, the November contract is trading 7.25 higher and has made a daily high is 8.95 1/2, which is the highest print since 8.99 1/4 made on October 1. In order 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 6 of 8.85 1/2 and the downtrend will resume if November soybeans makes a daily high below OIA’s pivot point for October 6 of 8.69 1/2. We have no recommendation.

Soybean oil: On October 5, December soybean oil generated a short-term buy signal, but remains on an intermediate term sell signal.

December soybean oil advanced 60 points on volume of 139,151 contracts. Volume fell from October 2 when the December contract gained 74 points on volume of 150,418 contracts and total open interest increased by 5,836. On October 5, total open interest increased by 3,555 contracts, which relative to volume is average. However, the October contract lost 464 of open interest and the July 2016 through September 2016 contracts lost a total of 631, which means there were sufficient open interest increases in the forward months to offset the decline in these delivery months and yet total open interest increased by an average amount. This is a positive performance.

As this report is being compiled on October 6, the December contract is trading 29 points higher and has made a new high for the move of 29.06, which takes out yesterday’s print of 28.81. As we said in yesterday’s report, now that soybean oil has generated a short-term buy signal, the market should have a pullback lasting 1-3 days, however we do not think soybean oil will continue to have upward momentum unless soybeans generate a short-term buy signal. Until this occurs, stand aside.

Sugar:

March sugar advanced 11 points on light volume of 104,881 contracts. Volume was the lowest since September 24 when the rally in sugar began.  On October 5, total open interest declined by 2,056 contracts, which relative to volume is approximately 20% below average, but a total open interest decline on yesterday’s advance is negative. This confirms that short sellers continue to power the market higher.

The low-volume and open interest decline in yesterday’s trading is a cautionary sign that the market is likely stalling at current levels. As this report is being compiled on October 6, the March contract is made a daily high of 13.67 which matches yesterday’s print and is trading 6 points lower on the day. On September 28, OIA announced that March sugar generated a short-term buy signal and an intermediate term buy signal on October 1. Stand aside. The market is massively overbought. Stand aside

Coffee: On October 5, December coffee generated a short-term buy signal, but remains on an intermediate term sell signal.

December coffee advanced 3.25 cents on volume of 30,902 contracts. Total open interest declined by a massive 2,971 contracts, which relative to volume is approximately 300% above average meaning liquidation was massive on yesterday’s advance. This follows the total open interest decline of 150 contracts on October 2 when the December contract advanced 3.55 cents on volume of 27,723 contracts.

In short, massive short covering has been powering prices higher, not new buying. This makes coffee vulnerable to a sharp setback, which should occur now that coffee is on a short-term buy signal. As this report is being compiled on October 6, the December contract is trading 90 points higher and has made a daily high of 1.2905, which is below yesterday’s print of 1.2965, the high for the move thus far.Wait for a pullback before considering bullish coffee positions.

WTI crude oil:

November WTI crude oil advanced 72 cents on volume of 614,901 contracts. Total open interest increased by 6,868 contracts, which relative to volume is approximately 50% below average, but yesterday’s total open interest increase on the price advance continues the bullish open interest action of the past week. As this report is being compiled on October 6, the November contract is rocketing higher, up $1.98 and has made a daily high of 48.63, which is the highest print since $48.96 made on September 3.

It appears that November WTI has formed the base, which extends from September 2 when it made a low of $43.89 and penetrated this on September 24 printing $43.71 and a subsequent test on October 2 at $43.97. Despite the firm tone of the market, the November contract has been unable to make a low above OIA’s pivot point for October 6 of $46.29, which would confirm the resumption of the uptrend. 

The rally on October 6 has been attributed to heightening Middle East tensions and the threat that Saudi Arabia may become more involved in the war in Syria. The real test for the market will be tomorrow and whether the November contract can maintain a daily low above the pivot point.

Also, it appears likely that the November Brent crude oil contract may generate a short-term buy signal tomorrow. For this to occur, the low of the day must be above OIA’s key pivot point for October 6 of $49.92. If Brent crude oil is able to generate a short-term buy signal, the chances are good a new rally in the petroleum complex is underway.

Dollar index:

The December dollar index advanced 27.3 points on volume of 24,227 contracts. Total open interest declined by 452 contracts, which relative to volume is approximately 25% below average, but an open interest decline on yesterday’s advance is negative. As this report is being compiled on October 6, the December contract is trading 59.1 points lower and has made a daily low of 95.535, which is slightly below yesterday’s print of 95.550.

For the dollar index to resume its rally, it must make a daily low above OIA’s key pivot point for October 6 of 96.306 and the downtrend will resume (and a short-term sell signal generated) if the daily high in the December contract is below OIA’s key pivot point for October 6 of 95.521. We have no recommendation.

Euro:

The December euro lost 49 pips on light volume of 168,103 contracts. Total open interest declined by 1,118 contracts, which relative to volume is approximately 60% below average, and an open interest decline on yesterday’s lower prices is bullishly congruent.

As this report is being compiled on October 6, the December contract is trading 78 pips above yesterday’s close and has made a daily high of 1.1287, which is below yesterday’s print of 1.1301. Although we do not think it is likely, a short-term buy signal will be generated if the December contract makes a daily low above OIA’s key pivot point for October 6 of 1.1341 and the downtrend will resume if the December contract makes a daily high below OIA’s pivot point for October 6 of 1.1210.

We have been reluctant to recommend bearish positions because the euro’s open interest action relative to price advances and declines is bullish despite it being on a short-term sell signal. The December euro remains on an intermediate term buy signal.

Canadian dollar: On October 5, the December Canadian dollar generated a short-term buy signal, but remains on an intermediate term sell signal.

The December Canadian dollar advanced 64 pips on volume of 51,583 contracts. Total open interest declined by 800 contracts, which relative to volume is approximately 40% below average, but yesterday’s open interest decline on the strong price advance confirms the bearish set up for the Canadian dollar despite it generating a short-term buy signal on October 5.

For the past three days beginning on October 1, the December Canadian dollar has rallied 1.48 cents and the cumulative total open interest decline for the three day period is 11,223 contracts.

As this report is being compiled on October 6, the December contract is trading 16 pips higher and has made a new high for the move of 76.68, which takes out yesterday’s print of 76.52. We view the current rally as a rally in a bear market, being powered by short-sellers desperate to get out of positions. We will be looking for a spot to initiate bearish positions once it appears that short-sellers have been sufficiently blown out.

Australian dollar:

The December Australian dollar is getting close to generating a short-term buy signal and will do so if the daily low is above OIA’s key pivot point for October 6 of 70.80.

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

December silver advanced 44.5 cents on heavy volume of 68,253 contracts. Volume declined from October 2 when the December contract gained 75.2 cents on volume of 78,901 contracts and total open interest increased just 145. On October 5, total open interest declined by a large 2,654 contracts, which relative to volume is approximately 25% above average meaning liquidation was extremely heavy on the strong advance.

For the past two days beginning on October 2, the December contract has advanced $1.197 while total open interest has declined by 2,509 contracts. This confirms that short-sellers are powering silver higher, not new buyers.

As this report is being compiled on October 6, the December contract is trading higher again, this time by 22.2 cents and has made a daily high of 16.090, which is the highest print since $16.045 made on June 29, 2015. The silver market is massively overbought and overdue for a very sharp correction, which we expect shortly.

In order for silver to continue its advance new buyers must be willing to step up and pay ever higher prices and with silver trading at three months highs, we think this is unlikely at this juncture. Keep in mind that according to the most recent COT report, manage money remains net long silver and thus far the massive two day rally has blown out more short-sellers, not substantially increased the number of new buyers.

S&P 500 E-mini: The December S&P 500 E-mini will generate a short-term buy signal on October 6 if the daily low is above OIA’s key pivot point for October 6 of 1958.00. It will remain on an intermediate term sell signal.

The S&P 500 E-mini advanced by a strong 31.75 points on unimpressive volume of 1,679,013 contracts. Volume declined substantially from October 2 when the December contract gained 26.25 points on volume of 2,473,657 contracts and total open interest increased by 33,569. On October 5, total open interest declined by 983, which is a major disappointment for bulls and this along with lackluster volume may indicate the market could be stalling at current levels.

As this report is being compiled on October 6, the December contract is trading 5.25 points lower and has made a daily high of 1982.25, which is slightly above yesterday’s print of 1980.00. At this juncture, it appears likely that the December E-mini will generate a short-term buy signal provided it remains above OIA’s key pivot point for October 6 of 1958.00. We have no recommendation.