For Bloomberg access:{OIAR<GO>}

Corn:

December corn advanced by 7.25 cents on volume of 212,196 contracts. Volume was the highest since September 14 when the December contract gained 6.50 cents on volume of 280,523 contracts and total open interest declined by 4,810. On September 21, total open interest increased by an astounding 16,498 contracts, which relative to volume is approximately 210% above average meaning huge numbers of new aggressive buyers were entering the market and driving prices higher (3.85 1/2), which is the highest print since 3.85 1/2 made on September 17. Yesterday, December Chicago wheat advanced 10.00 cents, but total open interest increased just 311 contracts

Yesterday’s total open interest increase was the largest since September 10 when the December contract gained 5.75 cents on volume of 220,888 contracts and total open interest increased by 17,192. As this report is being compiled on September 22, the December contract is trading 4.25 cents lower and has not taken out yesterday’s high. The dollar index is trading sharply higher and equities are trading sharply lower and most markets are trading lower on the day.

The open interest increase in yesterday’s trading is very positive development, and we should see corn test the high for the move of 3.95 made on September 15. For December corn to resume its advance, it must make a daily low above OIA’s key pivot point for September 22 of 3.82. The first indication that corn may be the reversing the buy signal would be a close below 3.77 5/8, and then a daily high below this number. We tend to think this will not happen, but there is global macro risk that may take everything lower.

Cocoa:

December cocoa closed unchanged on volume of 17,719 contracts. Total open interest increased for the 11th consecutive day, this time by 542 contracts, which relative to volume is approximately 10% above average. The March contract lost 1,306 of open interest. From September 8, when December cocoa generated short and intermediate term buy signals through September 21, total open interest has increased every day, which brings the cumulative increase to 29,036 contracts while December cocoa has advanced $143.00.

As this report is being compiled on September 22, December cocoa is trading $5.00 lower. It appears that global macro risk is increasing, and if there is a washout in the global markets, it is highly likely that cocoa will be taken down with it. As we pointed out in yesterday’s report, we recommend trading cocoa via options and not futures. We think a stand aside posture makes the most sense at this juncture.

Dollar index:

The December dollar index advanced by a very large 1.038 points on volume of 36,630 contracts. Total open interest increased by a massive 2,523 contracts, which relative to volume is approximately 160% above average meaning aggressive new buyers were entering the market in large numbers and driving prices higher (96.135). This was one of the most positive performances during the past couple of weeks.

As this report is being compiled on September 22, the dollar index is trading sharply higher again, up by 51.6 points. It appears that the dollar index is going to generate a short-term buy signal, probably tomorrow and the key pivot point for September 22 is 96.191, which means that the December contract must make a daily low above this number. The low on September 22 has been 95.910. The pivot will change somewhat on September 23, but this provides a frame of reference for tomorrow’s trading. We have no recommendation.

Euro: The December euro will likely generate a short term sell signal on September 22. 

The December euro lost 1.62 cents on surprisingly light volume of 200,693 contracts. Total open interest declined by 1,888 contracts, which relative to volume is approximately 45% below average. As this report is being compiled on September 22, the December contract is trading 69 pips lower and has made a daily high is 1.1223, which is below OIA’s key pivot point for September 22 of 1.1232 for the generation of a short-term sell signal. The euro should have a 1 to 3 day counter trend rally after the generation of the sell signal, which means the euro should begin to rally tomorrow. We have no recommendation.

British pound:

The December British pound lost 47 pips on volume of 61,284 contracts. Total open interest increased for the second day in a row on a price decline, this time by 2,134 contracts, which relative to volume is approximately 20% above average meaning that aggressive new short-sellers were entering the market and driving prices lower (1.5474).

As this report is being compiled on September 22, the December pound is trading sharply lower, down 1.39 cents and has made a daily low of 1.5334. On September 17, the December contract generated a short-term buy signal, and today is the third day of the typical correction, which occurs after the buy signal.

If the buy signal was not false, September 22 should be the final day of the pullback. A short-term sell signal will be generated if the daily high is below OIA’s key pivot point for September 22 of 1.5366, and the rally will resume if the daily low is above OIA’s key pivot point for September 22 of 1.5499. We have no recommendation.

WTI crude oil:

November WTI crude oil advanced $1.96 on surprisingly light volume of 608,874 contracts. Remarkably, volume was the weakest since August 4 when WTI advanced 57 cents on volume of 576,638 contracts and total open interest increased by 2,869. On September 21, total open interest declined by a hefty 10,490 contracts, which relative to volume is approximately 25% below average, but a total open interest decline when the November contract rallied strongly, is very negative. Couple this with the dramatically reduced volume on the advance and a picture continues to emerge of a weakening WTI market.

As this report is being compiled on September 22, the November contract is trading $1.32 lower and has made a daily low of 45.37, which is above yesterday’s print of 45.03. The November contract will generate a short term sell signal if the daily high is below OIA’s key pivot point for September 22 of $43.71. The rally will resume, if the November contract makes a daily low above OIA’s pivot for September 22 of 46.25, which we view as unlikely. We do think that WTI will get a bounce if Congress votes to end the ban on crude oil exports, but see this as temporary and will be a terrific opportunity to consider light bearish positions.

Gold:

December gold lost $5.00 on light volume of 98,548 contracts. Total open interest declined by a substantial 3,654 contracts, which relative to volume is approximately 25% above average meaning liquidation with substantial on the minor decline. As this report is being compiled on September 22, the December contract is trading $7.90 lower and has made a daily low of 1120.50, which is the lowest print since 1114.70 made on September 17. The performance of gold has been disappointing to say the least and though it has rallied, the December contract has been unable to generate a short-term buy signal even though silver generated a short-term buy signal yesterday. We recommend a stand aside posture.

Silver: On September 21, December silver generated a short-term buy signal, but remains on an intermediate term sell signal.

December silver advanced 5.8 cents on very light volume of 23,827 contracts. Total open interest declined just 97 contracts. As this report is being compiled on September 22, the December contract is trading sharply lower, down 46.6 cents and has made a daily low of 14.695, which is above OIA’s key pivot point ($14.657) for September 22 for the generation of a sell signal. We consider the buy signal to be weak and would not be surprised if this is reversed, especially with shaky global markets, which makes precious metals vulnerable to further downside. We have no recommendation.

S&P 500 E-mini:

The S&P 500 E-mini gained 12.50 points on volume of 1,518,478 contracts. Due to the expiration of the September contract, total open interest declined by a massive 907,149 contracts. As this report is being compiled on September 22, the December contract is trading sharply lower, down 43.75 points and is trading on the lows of the day.

Last week, prior to the announcement by the Federal Reserve regarding interest rates, we recommended the initiation of long options straddles in the October contract, and though a rate hike was not announced, the market has been trading sharply lower ever since, which has greatly benefited the straddle.

Yesterday, we said that volatility would likely rise because we think prices are headed lower, and on September 22, the VIX futures contract is trading up 12.33%, which offsets time decay that is occurring in the October contract. As we said in yesterday’s report, in order to mitigate risk of time decay in the October contract, clients should close out the position and re-institute it in November, or December contract if they prefer a longer dated option

It appears highly likely that a test of the August 25 low of 1831.00 is on the horizon, which is not far from the October 2014 low of 1813.00. If the December contract breaks through the October 2014 low, an avalanche of selling could occur.

From the September 18 report on the S&P 500 E-mini:

“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.”