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Corn:

December corn lost 6.25 cents on light volume of 148,261 contracts. Volume declined from September 16 when the December contract lost 4.50 cents on volume of 187,752 contracts and total open interest declined by 4,841 contracts. Also, volume was the lowest since September 4 when 169,292 contracts were traded and the December contract closed at 3.63 .On September 17, total open interest declined by 2,710, which relative to volume is approximately 25% below average. The December contract lost 3,978 of open interest.

As this report is being compiled on September 18, the December contract is trading unchanged after making a low of 3.76 1/2, which is the lowest print since 3.64 1/2 made on September 11. It was positive that volume shrank on yesterday’s decline and that open interest decreased as well. As we said in yesterday’s report, if the short-term buy signal is not false, corn must begin to rally now that it has had its usual three day pullback.

The pivot point to watch on is 3.77 1/4, and if the December contract makes a daily high below this, a short term sell signal reversing the short-term buy signal would be likely. The rally would resume if the December contract makes a daily low above OIA’s pivot point for September 18 of 3.81 3/4. A confirmed short term sell signal would occur if the daily high is below OIA’s key pivot point of 3.72 1/2.

Cocoa:

December cocoa advanced $15.00 on heavy volume of 33,411 contracts. Volume was the strongest since September 9 when 31,631 contracts were traded and the December contract closed at 3,270. On September 17, total open interest increased by an astounding 11,607 contracts, which is approximately one third of the total volume traded on September 17. This follows 8 previous consecutive days of total open interest increases.

From September 8, when December cocoa generated short and intermediate term buy signals through September 17, total open interest has increased every day, which brings the cumulative increase to 25,758 contracts while December cocoa has advanced $114.00.

As this report is being compiled on September 18, December cocoa has broken out to a new high (3,341) and has made a new closing high of 3,311, up $29.00. Since generating short and intermediate by signals on September 8, December cocoa has had only two days of corrective activity, and we have been concerned about the steady open interest increases without more corrective activity.

The COT report will be released this afternoon and we will have stats on commercial and manage money participation. At this juncture, we cannot recommend bullish positions, though the market is very much in a bullish set up and looks to move higher. 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 still think a large correction is likely. Maintain a sideline stance.

Dollar index: This will be our last report on the dollar index until we report a signal change, see a trading opportunity or spot unusual activity. The December dollar index remains on short and intermediate term sell signals.

The December dollar index lost a sizable 86.9 points on volume of 49,158 contracts. Total open interest increased by a substantial 1,458 contracts, which relative to volume is approximately 10% above average, meaning that aggressive new short-sellers were entering the market and driving prices lower. As this report is being compiled on September 18, the December contract is trading 17.3 points higher after making a daily low of 94.195, which is the lowest print since 94.045 made on August 26. We have no recommendation.

Euro:

The December euro advanced 1.19 cents on volume of 273,743 contracts. Total open interest increased by 5,650, which relative to volume is approximately 20% below average, but yesterday’s total open interest increase is positive for the euro, especially since managed money is substantially net short.

The COT report released this afternoon will give us more information on the set up of manage money going forward next week. As this report is being compiled on September 18, the December contract is trading 30 pips lower after making a new high for the move of 1.1476, which is the highest print since 1.1580 made on August 26. On August 13, OIA announced that the December euro generated a short-term buy signal and an intermediate term buy signal on August 21. We have no recommendation.

British pound: On September 17, the December British pound generated a short-term buy signal, which reversed the short-term sell signal of August 19. The December pound remains on an intermediate term sell signal.

The December British pound advanced 1.27 cents on volume of 93,039 contracts. Total open interest increased by 1,415 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on September 18, the December pound is trading 47 pips lower, which is typical after the generation of a short-term buy signal. The pound should have 1-2 days of additional corrective activity before resuming the uptrend. On September 18, the December pound has made a new high for the move of 1.5650, which is the highest print since 1.5708 made on August 26. We have no recommendation.

Swiss franc: For the December Swiss franc to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for September 18 of 1.0440.

The December Swiss franc advanced 1.05 cents on volume of 19,983 contracts. Total open interest increased by 435 contracts, which relative to volume is approximately 20% below average, but it should be noted that managed money is substantially net short the Swiss franc. As this report is being compiled on September 18, the December contract is trading 26 pips lower after making a new high for the move of 1.0527, which is the highest print since 1.0550 made on August 27. We have no recommendation.

Gold: For December gold to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for September 18 of $1130.90.

December gold lost $2.00 on volume of 154,967 contracts. Total open interest declined just 174 contracts. As this report is being compiled on September 18, the December contract is trading sharply higher, up $20.20 and has made a new high for the move of 1141.50, which is the highest print since $1141.90 made on September 2.

Though gold has been inching its way higher, open interest action has left much to be desired and volume has been disappointing as well. For example, on September 18, even though gold is trading sharply higher, volume traded is only slightly above 130,000 contracts for the December contract which is the lead month. This is not to say that sentiment will not change, but at this juncture there seems to be little enthusiasm for gold. We have no recommendation.

WTI crude oil: November WTI crude oil will generate a short-term sell signal if the daily high is below OIA’s key pivot point for September 18 of $44.15. This would reverse the short-term buy signal of September 3.

October WTI crude oil lost 25 cents on volume of 869,744 contracts. Total open interest declined by a massive 58,035 contracts, which relative to volume is approximately 160% above average meaning that liquidation was extremely heavy on the modest decline. The October contract lost 53,589 of open interest, which means there were additional open interest losses in the forward months to increase total open interest.

For the past couple of days, we have been discussing the poor open interest action relative to price advances and declines and also the fact that Brent crude has been unable to generate a short-term buy signal. Though heating oil generated a short-term buy signal on September 3, it appears likely this signal will be reversed next week. Also, gasoline remains on short and intermediate term sell signals. In summary, there is little to support higher WTI prices on a sustainable basis. As this report is being compiled on September 18, the November contract is trading $1.66 lower on the day. We have no recommendation.

From the September 16 report on WTI crude oil:

“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.”

S&P 500 E-mini:

The December S&P 500 E-mini lost 10.75 points on heavy volume of 2,861,683 contracts. Total open interest increased by 72,856 contracts, which relative to volume is average, but is a large number nonetheless because open interest increases/decreases of an average amount are rare.

As this report is being compiled on September 18, the December contract is trading 29.75 points lower and near the lows of the day. Prior to yesterday’s Federal Reserve announcement, we recommended long at the money straddles in the October 2015 contract. The basis of the trade was if the Federal Reserve Board announced a rate hike, the market would have a very sharp decline. Though the announcement maintained the zero interest rate policy, yesterday’s lower close and today’s subsequent downside action indicates that more downside is likely next week.

As we have pointed out in prior reports, the straddle is a low risk trade, however, decreased volatility and time decay begin to reduce the option premium. Therefore, this is not a position to be held for more than a couple of days.

From the September 15 report on the S&P 500 E-mini:

“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 current 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 also a tepid rally does not benefit the straddle. For subscribers to OIA Direct, please call with any question.”