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Corn:

December corn lost 4.00 cents on volume of 178,239 contracts. Total open interest increased by a massive 9,650, which relative to volume is approximately 120% above average meaning that aggressive new short-sellers were entering the market and driving prices lower (3.77 1/4). There were open interest increases in the December 2015 through September 2016 contracts. We consider this action to be negative, especially since total open interest increased by 16,498 contracts the day before. It would have been normal market behavior to see an open interest decline on lower prices after a large open interest increase on higher prices the day before.

As this report is being compiled on September 23, the December contract is trading 1.50 higher and has made a daily high of 3.84 1/2, which matches yesterday’s high. December Chicago wheat contract is trading sharply higher, up 11.75 cents, or +2.37% versus corn +0.39%. In summary, the advance in wheat is not helping corn and this is another negative.

December Chicago wheat will generate a short-term buy signal if the daily low is above OIA’s key pivot point for September 23 of $5.00 and the low thus far on September 23 has been 4.93 3/4.

In order for corn to resume its advance, it must make a daily low above OIA’s pivot point of 3.82 1/8. The first sign of trouble would be a close below 3.77 3/4, then a daily high below that pivot point. A short-term sell signal would be generated if the daily high in the December contract is below OIA’s key pivot point for September 23 of 3.72 7/8.

As we have said before, the risk to all commodity markets is shaky global economies and markets that are very fragile. Additionally, the dollar index is going to generate a short term buy signal on September 23 and a continued advance will depress commodity prices further

Cocoa:

December cocoa gained $1.00 on volume of 27,542 contracts. Total open interest increased for the 12th consecutive day, this time by 1,723 contracts, which relative to volume is approximately 120% above average meaning that a battle ensued between buyers and sellers and buyers were able to move the market fractionally higher. The March contract lost 131 of open interest.

It should be noted that for the past two days, total open interest has increased by 2,265 contracts and the December contract has only advanced $1.00. This may indicate that the market is stalling at current levels. From September 8, when December cocoa generated short and intermediate term buy signals through September 22, total open interest has increased every day, which brings the cumulative increase to 30,759 contracts while December cocoa has advanced $144.00.

As this report is being compiled on September 23, December cocoa is trading $8.00 lower. As we said in yesterday’s report, it appears that global macro risk is increasing, and there is a likelihood of a washout in the global markets is on the horizon and all markets will likely trade sharply lower including cocoa. Although, we think clients should stand aside in the market, if trading cocoa, options should be used not futures.

Dollar index: The December dollar index will generate a short-term buy signal on September 23, but remains on an intermediate term sell signal.

The December dollar index advanced 41.2 points on volume of 30,417 contracts. Surprisingly, total open interest declined by a massive 1,270 contracts, which relative to volume is approximately 55% above average meaning liquidation was extremely heavy on yesterday’s strong advance. As this report is being compiled on September 23, the December contract is trading 5.1 points lower and has made a daily low of 96.265, which is above OIA’s key pivot point for September 23, which means the December dollar index will generate a short-term buy signal on September 23. The December dollar index has been on short and intermediate term sell signals since August 13 and August 21 respectively. We have no recommendation.

Euro: On September 22, the December euro generated a short-term sell signal, which reverses the short-term buy signal of August 13. The December euro remains on an intermediate term buy signal.

The December euro lost 59 pips on volume of 198,670 contracts. Total open interest increased by 2,645 contracts, which relative to volume is approximately 40% below average, but yesterday’s open interest increase on the price decline indicates that new short-sellers are entering the market and were able to drive the December contract to a new low for the move of 1.1128, which is the lowest print since 1.1108 made on September 4.

As this report is being compiled on September 23, the euro is experiencing its first day of a counter trend rally, which usually occurs after the generation of a sell signal. Conceivably, the market can rally for another two days before resuming its downtrend. We tend to think that the sell signal will not be reversed any time soon, especially since the British pound is going to generate a short-term sell signal on September 23, which reverses the short-term buy signal of September 17. In short, currencies that comprise the dollar index should trade lower against the dollar. Wait for more of a rally before considering bearish positions.

British pound: The December British pound will generate a short-term sell signal on September 23, which reverses the September 17 short-term buy signal. The December pound remains on an intermediate term sell signal.

The December British pound lost 1.38 cents on volume of 85,545 contracts. Total open interest declined by a massive 5,366 contracts, which relative to volume is approximately 140% above average meaning liquidation was extremely heavy on the decline. On September 18 and 21, the pound declined on both days and open interest increased on each day. This was perhaps the first indication that the pound was about to reverse the short-term buy signal of September 17.

As this report is being compiled on September 23, the December pound is trading sharply lower again, this time by 1.14 cents and has made a daily low of 1.5214, which is the lowest print since 1.5136 made on September 8. We have no recommendation.

WTI crude oil:

November WTI crude oil lost 60 cents on volume of 602,645 contracts. Total open interest declined by a sizable 12,178 contracts, which relative to volume is approximately 20% below average, but this continues the pattern of liquidation that has been in evidence since September 17. The October contract lost 16,456 contracts of open interest.

From September 17 through September 22, total open interest has declined by 98,333 contracts while WTI has lost $1.07 in this time frame. As this report is being compiled on September 23, the November contract is trading $1.82 lower after making a daily high of 47.15 after the release of the EIA storage report, and has made a daily low of 44.43, which takes out the September 21 low of 45.03, and the September 18 print of 44.59.

With the November contract likely to close below OIA’s pivot point for September 23 of 45.29, this is the first indication that a short term sell signal is imminent. If tomorrow the daily high is below this pivot point, the sell signal becomes inevitable. For a short-term signal to be generated, the high of the day must be below OIA’s key pivot point for September 23 of $43.82.

From the September 18 report on WTI crude oil:

“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.”

The Energy Information administration announced on September 23 that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.9 million barrels from the previous week. At 454.0 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 1.4 million barrels last week, and are in the upper half of the average range. Finished gasoline inventories stayed same while blending components inventories increased last week. Distillate fuel inventories decreased by 2.1 million barrels last week but are in the middle of the average range for this time of year. Propane/propylene inventories fell 0.6 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 2.9 million barrels last week.

Copper: December copper will generate a short-term sell signal on September 23, which reverses the September 9 short-term buy signal. December copper remains on an intermediate term sell signal.

December copper lost 9.10 cents on heavy volume of 82,683 contracts. Total open interest increased by 2,280 contracts, which relative to volume is average, but yesterday’s total open interest increase is bearish for copper prices, and though December copper is trading near unchanged on September 23, it will generate a short-term sell signal. This is coming at a time when managed money assumed a net long position by 1.03:1 for the first time in over several weeks according to last Friday’s COT report.

S&P 500 E-mini:

The S&P 500 E-mini lost 31.00 points on volume of 1,988,275 contracts. Total open interest increased by 13,567 contracts, which relative to volume is approximately 65% below average, but an open interest increase on yesterday’s price decline is bearish. This confirms the continuing bearish open interest action relative to price advances and declines of the past several weeks. As this report is being compiled on September 23, the December contract is trading 7.00 points lower and has made a daily low of 1910.50, which takes out yesterday’s low of 1917.75.

Prior to the announcement by the Federal Reserve regarding interest rates, we recommended the initiation of long options straddles in the October contract, and the market has been trading lower ever since. This has benefited the straddle, but what we are looking for is a major washout, which we think is imminent.

Volatility continues to be elevated, which also benefits the straddle. We think this will increase as prices continue to move lower. This offsets some of time decay that is occurring in the October contract. To reiterate: if clients are concerned about time decay in the October contract, they should switch into November, or December if they prefer a longer dated option.