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This report will be truncated due to the upcoming announcement by the Federal Reserve at 2:00 p.m. We anticipate that many of the topics normally discussed will be need to be modified after the release of the announcement. Also, due to the expiration of the September contract, the huge total open interest declines for the euro and, British pound cannot be evaluated properly.

Corn:

December corn lost 4.50 cents on light volume of 187,752 contracts. Total open interest declined by 4,841 contracts, which relative to volume is average. The December contract lost 9,562 of open interest. This is the first positive day of price and open interest action since December corn generated a short-term buy signal on the September 14.

As this report is being compiled on September 17, December corn is trading 4.50 cents lower and has made a daily low at 3.80 1/4. Today, September 17 is the third day of the pullback, and this should be the extent of the move. If December corn trades lower tomorrow without rallying to close higher, this will be the first indication that the short term buy signal generated on September 14 may be false. Another indication would be if the daily high is below OIA’s pivot point for September 17 of 3.77 1/4. A short-term sell signal will be generated if the daily high is below OIA’s key pivot point for September 17 of 3.72 3/8.

Cocoa:

December cocoa advanced $29.00 on volume of 29,037 contracts. Total open interest increased for the eighth day in a row, this time by 3,199 contracts, which relative to volume is approximately 340% above average meaning aggressive new buyers were entering the market and driving prices higher ($3,285).

From September 8, when December cocoa generated short and intermediate term by signals through September 16, total open interest has increased every day, which brings the cumulative increase to 14,151 contracts while December cocoa has advanced $99.00.

As this report is being compiled on September 17, December cocoa is trading near the highs of the day and has made a daily high of 3,288, which is above yesterday’s print of 3,285.  Since generating short and intermediate by signals on September 8, December cocoa has had two days of corrective activity, and we continue to be concerned that corrective activity was accompanied by open interest increases, not decreases. The open interest increases during the past several days have been huge, and we are leery about being on the long side of cocoa but this juncture. Maintain a sideline stance.

Dollar index:

The December dollar index lost 23.9 points on volume of 27,010 contracts. Total open interest increased by 562 contracts, which relative to volume is approximately 20% below average, but an open interest increase on yesterday’s price decline is bearish. The December dollar index remains on short and intermediate term sell signals.

Euro:

The December euro advanced 4 pips on volume of 178,680 contracts. Total open interest declined by 65,448. As this report is being compiled on September 17, the December contract is trading 20 pips higher on the day and has made a daily high of 1.1355, which is above yesterday’s print of 1.1339. The December euro remains on short and intermediate term buy signals.

British pound:

The December British pound advanced 1.57 cents on volume of 103,932 contracts. Total open interest declined by 59,236. As this report is being compiled on September 17, the December contract is trading 38 pips higher and has made a daily high of 1.5547. The December British pound remains on short and intermediate term sell signals.

WTI crude oil:

October WTI crude oil advanced $2.56 on very heavy volume of 1,006,567 contracts. Volume exceeded that of September 10 when the October contract gained $1.77 on volume of 960,852 contracts and total open interest increased by 111. On September 16, total open interest increased by a very disappointing 1,601 contracts. The October contract lost 14,588 of open interest, which means there was barely enough open interest increases in the forward months to offset the decline in the October contract and increase total open interest slightly.

Yesterday, we commented on the poor quality of open interest action relative to price advances and declines and yesterday’s massive advance accompanied by a fractional increase of total open interest confirms. Clients should consider writing out of the money calls in the November contract on rallies, but should wait until after the release of the Federal Reserve announcement and the vote in Congress to lift the ban on crude oil exports. October WTI generated a short-term buy signal on September 3, but remains on an intermediate term sell signal.

Brent crude oil:

November Brent crude oil advanced $2.00 on unimpressive volume of 749,566 contracts. Volume was only slightly above that of September 14 when the November contract lost $1.69 on volume of 711,774 contracts and total open interest declined by 23,476. On September 16, total open interest increased by just 4,395 contracts, which is a dismal showing for in advance of the magnitude seen on September 16. This confirms the unwillingness of market participants to make commitments at ever higher prices. The November contract gained 2,136 of open interest.

As this report is being compiled on September 17, the November contract is trading $1.31 below yesterday’s close while October WTI is 56 cents lower on the day. The spread between Brent and WTI has narrowed to approximately $2.00, and we believe this has been caused by the upcoming vote in Congress to allow exports of US crude. Although, WTI has been on a short-term buy signal for approximately two weeks, Brent has been unable to accomplish this. In our view, this reveals weakness in the complex.

Silver:

December silver advanced a strong 56.9 cents on volume of 52,815 contracts. Total open interest declined by a massive 3,619 contracts, which relative to volume is approximately 160% above average meaning liquidation was extremely heavy on the very large advance. This confirms the internal weakness of silver, and for the December contract to generate short-term buy signal, the low of the day must be above OIA’s key pivot point for September 17 of $15.044. Stand aside.

Gold:

December gold advanced $16.40 on light volume of 138,641 contracts. Total open interest increased by 956 contracts, which relative to volume is approximately 65% below average. The performance of gold yesterday was abysmal from a volume and open interest point of view. December gold remains on short and intermediate term sell signals and for a short-term buy signal to occur, the low of the day must be above OIA’s key pivot point for September 17 of $1130.10. Stand aside.

10 Year Treasury Note:

The December 10 year note lost 6 points on volume of 1,045,403 contracts. Total open interest declined by 31,832 contracts, which relative the volume is approximately 10% above average meaning liquidation was heavier than normal. It appears likely that the 10 year note will generate a short-term sell signal on September 17, but this is up in the air until the Federal Reserve makes its announcement on interest rates.

S&P 500 E-mini:

The December S&P 500 E-mini advanced 18.00 points on volume of 2,242,209 contracts. Total open interest increased by 112,194 contracts (large open interest increases and decreases occur as the September contract nears expiration).

Yesterday, the December contract made a high of 1989.00 and as this report is being compiled on September 17 has made another new high for the move of 1990.50, which is the highest print since 2021.50 made on August 21, before the market meltdown occurred.

Volatility continues to decline as E mini prices advance and this is positive for our recommended position: Long At The Money options straddle in the October 2015 contract. As we have said previously, regardless of the decision by the Federal Reserve Board on Thursday, if the market makes a sizable move up or down, clients can profit with little risk.

We want to emphasize that 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. If there is a surprise hike in interest rates, the downside could be substantial, and this would substantially benefit the straddle.

If the Federal Reserve continues with its ZIRP policy, the market has probably discounted this already, and there may a relief rally, but this may not be sufficient in a short time frame to make money. Reduced volatility and time decay is the primary way to lose money in the option straddle and a tepid rally does not benefit the straddle. For subscribers to OIA Direct, please call with any question.