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Corn:

December corn lost 2.50 cents on volume of 194,170 contracts. Volume increased substantially from September 17 when the December contract lost 6.25 cents on volume of 148,261 contracts and total open interest declined by 2,710. On September 18, total open interest increased by 2,068 contracts, which relative to volume is approximately 50% below average. The March 2016 contract lost 261 of open interest, July 2016 -197.

As this report is being compiled on September 21, the December contract is trading sharply higher, up 6.00 cents after making a daily low of 3.75, which is slightly below Friday’s print of 3.76 1/2. If December corn can close higher in today’s trading and if open interest increases, the market may test the September 15 high for the move of 3.95. On September 14, OIA announced that December corn generated a short-term buy signal, and at the time we stated that corn should undergo a pullback lasting 1-3 days, but should resume its uptrend if the buy signal was intact.

We cautioned that the buy signal could be false and have given strict parameters for determining whether the signal was going to reverse. To recapitulate: the first indication that December corn is about to reverse the buy signal will be if the December contract makes a daily high below OIA’s pivot point for September 21 of 3.77 3/8. A short-term sell signal will occur if the daily high is below OIA’s key pivot point for September 21 of 3.72 1/2. December corn will resume its uptrend if it is able to make a daily low above OIA’s pivot point for September 21 of 3.81 3/4.

Cocoa:

December cocoa advanced $29.00 on volume of 26,790 contracts. Total open interest increased for the 10th consecutive day, this time by 2,736 contracts, which relative to volume is approximately 300% above average. As this report is being compiled on September 21, the December contract is trading unchanged on the day.

From September 8, when December cocoa generated short and intermediate term buy signals through September 18, total open interest has increased every day, which brings the cumulative increase to 28,494 contracts while December cocoa has advanced $143.00.

OIA was astounded by the COT stats released on Friday that showed managed money has been trimming their long positions despite the strong advance in cocoa. This explains why cocoa has had only two minor setbacks despite the move that has taken it to within $35.00 of contract highs made on July 15.

On September 8, OIA announced that December cocoa generated short and intermediate term by signals, and we have advised a stand aside posture while waiting for the market to correct, and unfortunately has not accommodated us. At this juncture, we are reluctant to recommend futures positions and if clients want to participate in cocoa, we recommend the use of options. We continue to think that cocoa will pullback, but this may be caused by a slide in the global equity markets.

Dollar index:

The December dollar index is trading sharply higher on September 21, up 97.9 points. The December dollar index will generate a short-term buy signal is the daily low is above OIA’s key pivot point for September 21 of 96.175. OIA will provide an analysis of today’s trading in tomorrow’s report.

Euro:

The December euro lost 45 pips on volume of 234,105 contracts. Total open interest declined by 4,470 contracts, which relative to volume is approximately 20% below average. The December contract made a high of 1.1476, which is the highest print since 1.1580 made on August 26. As this report is being compiled on September 21, the December euro is trading sharply lower, down 1.43 cents after making a daily high of 1.1347. The December euro is getting close to generating a short-term sell signal and this will occur if the daily high is below OIA’s key pivot point for September 21 of 1.1237.

British pound:

The December British pound lost 63 pips on volume of 94,928 contracts. Total open interest increased by a substantial 5,816 contracts, which relative to volume is approximately 140% above average meaning aggressive short-sellers were entering the market in large numbers and driving prices lower (1.5507). As this report is being compiled on September 21, the December contract is trading 45 pips lower and has made a daily low of 1.5474.

On September 17, OIA announced that the December pound generated a short-term buy signal and at the time we stated that the pound should pullback from 1-3 days before resuming the uptrend. The pullback on September 21 is the second one since the short-term buy signal. At this juncture, we have no recommendation.

From the September 17 report on the British pound:

“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.”

WTI crude oil:

November WTI crude oil lost $2.18 on relatively light volume of 724,089 contracts. To put the volume on September 18 in perspective consider that on September 17 when WTI lost 25 cents, volume traded was 869,744 contracts and total open interest declined by a massive 58,035. In summary, the decline on September 18 was approximately three times the decline on September 17, yet volume fell sharply from September 17. This informs us that market participants are not being panicked by lower prices.

On September 18, total open interest declined by a substantial 17,630 contracts, which relative to volume is average. During the past two days, November WTI has fallen $2.43 while total open interest has declined by 75,665 contracts indicating that liquidation has been massive.

As this report is being compiled on September 21, the November contract is trading 1.45 higher on the day, but is trading below Friday’s print of 47.34. The US Congress will be voting on whether to lift the ban on crude oil exports, and we expect this to pass however the president will likely veto it. Conceivably, WTI will get a bounce out of it, but we tend to think it will be temporary.

Shortly, WTI will be entering a period of seasonal weakness, and the first sign of this will be the generation of a short-term sell signal, which would reverse the short-term buy signal of September 3. A short-term sell signal will occur if the daily high is below OIA’s key pivot point for September 21 of $43.62. The rally will resume if the November contract makes a daily low above OIA’s pivot point for September 21 of 46.20. We have no recommendation at this juncture.

Gold:

December gold advanced $20.80 on volume of 162,923 contracts. Total open interest increased by a massive 7,092 contracts, which relative to volume is approximately 75% above average meaning aggressive new buyers were entering the market and driving December gold to a new high for the move (1141.50), which is the highest print since $1141.90 made on September 2.

The open interest action relative to the price advance is the most positive we have seen lately. As this report is being compiled on September 21, the December contract is trading $6.20 lower and has made a daily low of 1128.70, which is below OIA’s key pivot point for the generation of a buy signal of $1130.90. For a buy signal to occur, the low of the day must be above the pivot point.

Silver:

December silver advanced 17.9 cents on volume of 48,153 contracts. Total open interest increased by 1,837 contracts, which relative to volume is approximately 25% above average meaning aggressive new buyers were entering the silver market and driving prices higher ($15.435), which is the highest print since $15.440 made on August 24.

The total open interest increase on Friday is the first we’ve seen on a price advance in quite awhile and coupled with the likelihood of a buy signal may indicate that silver is going to lead the precious metals complex higher.

It appears likely that December silver will generate a short-term buy signal on September 21 because the low of the day (15.080), is above OIA’s key pivot point for September 21 of 15.075. On August 25, OIA announced that December silver generated a short-term sell signal, and  has remained on an intermediate term sell signal.

10 Year Treasury Note:

The December 10 year treasury note advanced 21.5 points on volume of 1,114,949 contracts. Total open interest declined by 11,694 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on September 21, the December note is trading 18.5 points lower. It appears that the December 10 year note is on the verge of generating a short-term sell signal. This will occur if the daily high is below OIA’s key pivot point for September 21 of 127-215.

S&P 500 E-mini:

The S&P 500 E-mini lost 26.75 points on volume of 2,511,643 contracts. Total open interest increased by a sizable 57,056 contracts, which relative to volume is approximately 10% below average, but Friday’s open interest increase is substantial nonetheless. This follows the large open interest increase on September 17 of 72,856 contracts when the December contract lost 10.75 points. This clearly indicates that new short-sellers are entering the market even though prices are trading at the lower end of the range.

As this report is being compiled on September 21, the December contract is trading 1.75 points higher after making a daily high of 1969.00, which is below Friday’s print of 1983.00. The market looks very weak and rallies do not last more than a day or two. We think lower prices are ahead. Prior to the Federal Reserve meeting last Thursday, we recommended the initiation of long option straddles in the October contract.

We have cautioned that time decay and reduced volatility is the primary to lose money in the straddle At this juncture, we do not think reduced volatility is going to be a problem because we think lower prices will increase volatility, but time decay will increasingly eat away at the option premium. One way to mitigate this is to initiate an at the money option straddle in the November contract and closeout the option straddle in the October contract.