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Corn: On September 14, December corn generated a short-term buy signal, but remains on an intermediate term sell signal.

December corn advanced 6.50 cents on disappointing volume of 280,523 contracts. Volume was substantially below that of September 11 when the December contract gained 12.75 cents on volume of 446,760 contracts and total open interest declined by 1,878. Additionally, volume was substantially below the average daily volume for August. The low-volume of September 14 is a measurement of the degree of participation and enthusiasm.

On September 14, total open interest declined again, this time by 4,810 contracts, which relative the volume is approximately 25% below average, and open interest declines were across the board with September losing 401, December -10,530 and March -718.

In summary, for the past two sessions, December corn has advanced 19.25 cents while total open interest is declined by 6,688. This is very negative, and confirms that former longs (probably many with losses) were liquidating and short-sellers, who were powering the market higher were liquidating as well.

As this report is being compiled on September 15, the December contract is beginning its correction and trading 3.00 cents below yesterday’s close after making a high of 3.95, which is 1.00 cent above yesterday’s high. We want to emphasize that even though open interest action during the initial stages of the rally have been negative, this does not preclude the possibility that corn will resume its uptrend after pulling back. The corn market is loaded with short-sellers carrying losses and longs holding losses from substantially higher levels. What we want to see on the pullback is further open interest declines, not increases as prices correct lower.

Chicago wheat:

December Chicago wheat advanced 16.25 cents on disappointing volume of 104,402 contracts. Volume was only slightly above that of September 11 when the December contract advanced 7.00 cents on volume of 104,178 contracts. In other words on September 14 when the market advanced more than twice the amount recorded on September 11, volume increased fractionally. This is very negative.

On September 14, total open interest declined by 4,454 contracts, which relative to volume is approximately 70% above average, meaning that liquidation was extremely heavy on the strong advance. There were open interest declines in the September 2015 through September 2016 contracts. As this report is being compiled on September 15, the December contract is trading 6.75 cents lower. December wheat remains on a short and intermediate term sell signal.

Cocoa:

December cocoa advanced $32.00 on light volume of 19,627 contracts. Volume was lowest traded since August 31 when 16,508 contracts changed hands and the December contract  closed at $3099. On September 14, total open interest increased by a massive 1,281 contracts, which relative to volume is approximately 160% above average meaning aggressive new buyers were entering the market and driving prices higher ($3,288), which is below the high of the move of 3,295 made on September 10.

From September 8, when December cocoa generated short and intermediate term by signals through September 14, total open interest has increased every day, which brings the cumulative increase to 9,478 contracts while December cocoa has advanced $118.00. As this report is being compiled on September 15, December cocoa’s trading on the lows of the day after making a daily high of 3,287. In the September 11 report, we pointed out,  cocoa has experienced only one day of corrective action after generating a short-term buy signal on September 8. We expect to see more of a pullback, and strongly recommend that clients remain on the sidelines until this occurs.

Dollar index:

December dollar index gained 3.3 ticks on light volume of 20,827 contracts. Total open interest declined by a massive 1,452, which relative to volume is approximately 185% above average meaning that liquidation was extremely heavy on the nearly unchanged close. As this report is being compiled on September 15, the December contract is trading 31.8 points higher and remains on short and intermediate term sell signals. We have no recommendation.

Euro:

December euro lost 21 pips on volume of 165,668 contracts. Total open interest declined by 1,771 contracts, which relative to volume is approximately 45% below average. As this report is being compiled on September 15, the December euro is trading 35 pips lower after making a daily high of 1.1348, which is below yesterday’s print of 1.1391, the high for the move. The December euro remains on short and intermediate term buy signals. We have no recommendation.

British pound:

The December British pound gained 8 pips on light volume of 59,569 contracts. Total open interest declined by 2,199 contracts, which relative to volume is approximately 25% above average meaning liquidation was substantial on the modest gain. Yesterday, the December contract made a high of 1.5463, which is below the high for the move of 1.5477 made on September 10.

As this report is being compiled on September 15, the December contract is trading 85 pips lower and has made a daily low of 1.5334, which is below yesterday’s print of 1.5365. For the rally to continue, which we think is highly doubtful, the low of the day must be above OIA’s pivot point for September 15 of 1.5485. For the decline to resume, the high of the day must be below OIA’s pivot point for September 15 of 1.5359, which we think is likely. Due to the upcoming decision by the Federal Reserve on Thursday, we are recommending a stand aside posture.

WTI crude oil:

October WTI crude oil lost 63 cents on volume of 724,066 contracts. Total open interest declined by 6,905 contracts, which relative to volume is approximately 50% below average. The October contract lost 39,964 of open interest. As this report is being compiled on September 15, the October contract is trading 65 cents above yesterday’s close and has made a daily high of $45.03, which is fractionally above yesterday’s print of 44.97, but below the September 11 print of 45.88.

For the October contract to resume its uptrend, the daily low must be above OIA’s pivot point for September 15 of 45.36. For a sell signal to be generated, the high of the day must be below OIA’s key pivot point for September 15 of 43.26. At this juncture, there seems to be little appetite on the part of market participants for higher WTI prices. On September 3 October and November WTI generated short-term buy signals, but remain on intermediate term sell signals. We have no recommendation

Brent crude oil:

November Brent crude oil lost $1.69 on volume of 711,774 contracts. Total open interest declined by a substantial 23,476 contracts, which relative to volume is approximately 15% above average meaning liquidation was substantial on the hefty decline. The October contract lost 36,223 of open interest. As this report is being compiled on September 15, the November contract is trading 36 cents above yesterday’s close and has made a daily high of 47.95, which is below OIA’s pivot point of 48.60 for September 15 for the resumption of the downtrend. November Brent crude oil remains on short and intermediate term sell signals.

S&P 500 E-mini:

December S&P 500 E mini lost 6.25 points on volume of 2,468,159 contracts. Total open interest declined just 1,956. As this report is being compiled on September 15, the December contract is trading 22.50 points higher on the day and has made a daily high of 1968.50, which is the highest print since 1982.75 made on September 9. Additionally, since making its low of 1890.25 on September 1, the December E-mini has been making an irregular series of higher lows and higher highs, and we see no reason why this will not continue through at least tomorrow.

Volatility continues to be squeezed out of the market as prices advance and this is positive for our recommended position of Long At The Money options straddle in the October 2015 contract. Regardless of the decision by the Federal Reserve Board on Thursday, if the market makes a sizable move up or down, clients can profit handsomely with very little risk.

As we said in yesterday’s report, due to the short dated option term, this is not a position to be held for more than a couple of days as the time decay of the option premium begins to accelerate the closer it gets to expiration. The market is not expecting a rate increase and if there is a surprise hike in interest rates, the downside could be substantial, which would benefit the straddle.

On the other hand, if the Federal Reserve continues with its current policy, the market should have discounted this already. This may cause the market to rally, but not sufficiently in a compressed timeframe to make money. Reduced volatility and time decay is the primary way to lose money in the option straddle. For subscribers to OIA Direct, please call with any question.