For Bloomberg access:{OIAR<GO>}

Corn:

December corn advanced 2.75 cents on volume of 162,546 contracts. Total open interest increased by a sizable 5,517, which relative to volume is approximately 20% above average. The December through May 2016 contracts gained open interest while the July 2016 contract lost 2,022 of open interest, which means there were sufficient open interest increases in other delivery months to increase total open interest above average. Performance on September 23 was positive.

As this report is being compiled on September 24, the December contract is trading 2.75 cents lower and has made a daily high of 3.84, which is below 3.84 1/2, the high print on September 21 and 22. Ever since generating a short-term buy signal on September 14, once corn had its usual correction, the market has been unable to mount the momentum to test the high of 3.95 made on September 15.

The strength of the buy signal is in great part determined by how much and how quickly the market bounces back after it has the usual 1-3 day correction. In this case, through September 24, eight trading days have elapsed since corn made its high for the move and yet the market still does not have the strength to make higher highs.

There appears to be a great deal of indecision by market participants about the direction of corn as evidenced by the consolidation pattern of the past several days. For December corn to resume its advance, it must make a daily low above OIA’s pivot of 3.82 1/8. A short-term sell signal, reversing the short-term buy signal would occur if the daily high is below OIA’s key pivot point of 3.72 7/8.

The early signs that December corn is likely to generate a short-term sell signal would be if the December contract closed below OIA’s pivot point of 3.77 3/4, then made a daily high below this pivot. As we have said before, we think there is massive global risk for all markets and if the dollar index continues its ascent, these two factors will act to depress commodity prices.

Chicago wheat:

December Chicago wheat advanced strongly by 12.00 cents on volume of 114,096 contracts. The total open interest stats were a major disappointment with an increase of just 43 contracts. Although there were open interest increases in the December 2015  and March 2016 contracts, this was offset by losses in the May and July 2016 contracts of 2,129.

When December Chicago wheat advanced by 10.00 cents on September 21 on volume of 94,951 contracts, total open interest increased just 311 contracts. In summary the pattern is clear: there is little enthusiasm on the part of new buyers to make new commitments at ever higher prices.

As this report is being compiled on September 24, the December contract is trading 8.00 cents lower and has made a daily low of 4.98, which is above yesterday’s print of 4.93 3/4, however today’s low is below OIA’s key pivot point for the generation of a short-term buy signal. In order for a short-term buy signal to occur, the low of the day must be above OIA’s key pivot point for September 24 of $5.00 3/8. December Chicago wheat remains on short and intermediate term sell signals. Stand aside.

Cocoa:

December cocoa advanced $3.00 on volume of 28,656 contracts. Total open interest increased for the 13th consecutive day, this time by 2,895 contracts, which relative to volume is approximately 300% above average.

For the past three days, total open interest has increased by 5,160 contracts and the December contract has advanced only $4.00. We think this signals the market has run out of steam for now, and that a correction is overdue. From September 8, when December cocoa generated short and intermediate term buy signals through September 23, total open interest has increased every day, which brings the cumulative increase to 33,654 contracts while December cocoa has advanced $147.00.

As this report is being compiled on September 24, December cocoa is trading $10.00 lower. As we have said before, global macro risk is increasing, and this increases the likelihood of a meltdown in markets worldwide. Although, we think clients should stand aside in cocoa, if trading it, options should be used not futures.

Dollar index: On September 23, the December dollar index generated a short-term buy signal, but remains on an intermediate term sell signal.

The December dollar index lost 24 points on volume of 40,676 contracts. Total open interest increased by 492 contracts, which relative to volume is approximately 50% below average, however yesterday’s total open interest increase on the price decline is negative. This follows the total open interest decline of 1,270 contracts on September 22 when the dollar index advanced 41.2 points, which is another negative day. As this report is being compiled on September 24, the dollar index is trading 24.1 points lower after making a daily low of 95.575, which is below yesterday’s print of 96.185.

Although, the dollar index generated a short-term buy signal yesterday, with  negative open interest stats, it is possible this signal may reverse. If this were to occur, the daily high must be below OIA’s key pivot point for September 24 of 95.414. As it stands, the dollar index is pulling back the day after the generation of the buy signal, which is typical and not unusual. Conceivably, another day or two of corrective action is in order and as long as there is not a reversal of the short-term buy signal, the dollar index is likely to trend higher in the period ahead. 

Euro:

The December euro advanced 75 pips on volume of 223,718 contracts. Total open interest increased by 5,655 contracts, which relative to volume is average. The total open interest increase in yesterday’s trading signifies that new buyers were entering the market and driving prices higher (1.1229). It would have been far more favorable (from a bearish position point of view) if total open interest has declined on yesterday’s advance. This makes us extra cautious because managed money is substantially net short and yesterday’s advance did not shake them loose.

On September 22, the December euro generated a short-term sell signal, and typically after the generation of sell signals markets tend to have counter trend rallies lasting 1-3 days and September 24 is the second day of the rally. The rally on September 24 is occurring when the major US stock indices are trading sharply lower, and conceivably the euro is once again becoming a flight to safety currency.

We do not think that the sell signal will be reversed, but if it were to occur, the low of the day must be above OIA’s key pivot point for September 24 of 1.1364. The first indication the short term sell signal is about to reverse would be a close above OIA’s pivot point of 1.1291, then a daily low above this pivot point.

British pound: On September 23, the December British pound generated a short-term sell signal, which reversed the September 17 short-term buy signal. The December pound remains on an intermediate term sell signal.

The December British pound lost 1.06 cents on volume of 102,357 contracts. Total open interest increased by 4,125 contracts, which relative to volume is approximately 30% above average meaning that aggressive new short-sellers were entering the market in large numbers and driving prices lower (1.5214).

From September 18 through September 23 total open interest has increased by 6,709 contracts while the December contract has lost 3.54 cents. This is clearly a pattern of bearish open interest action relative to the price decline. As this report is being compiled on September 24, the December pound is trading 3 pips lower and has made a daily low of 1.5194, which is the lowest print since September 8 (1.5136). We have no recommendation.

WTI crude oil:

November WTI crude oil lost $1.88 on volume of 725,549 contracts. Total open interest declined by 15,059 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on September 24, the November contract is trading 17 cents higher and has made a daily high of 45.17, which dramatically below yesterday’s high of 47.15 and is just 1 cent above OIA’s pivot point for September 24 of 45.16.

If the November contract closes below the pivot point ($45.16), the chances increase a short-term sell signal will be generated during the next couple of days. For this to occur, the daily high must be below OIA’s key pivot point for September 24 of 43.74. The rally will resume, which we think is unlikely if the daily low is above OIA’s pivot point of $46.24 We have no recommendation.

Copper: On September 23, December copper generated a short-term sell signal, which reversed the September 9 short-term buy signal. December copper remains on an intermediate term sell signal.

December copper lost 20 ticks on volume of 46,420 contracts. Total open interest declined by a substantial 2,483 contracts, which relative to volume is approximately 110% above average meaning liquidation was extremely heavy on the fractional decline. As this report is being compiled on September 24, December copper is trading 55 ticks higher on the day. We have no recommendation.

Gold:

On September 24, December gold is rallying sharply and we will report on today’s activity tomorrow. December gold will not generate a short-term buy signal on September 24 because the daily low ($1129.50) is below OIA’s key pivot point of $1132.10. The daily low must be above the pivot to generate a short-term buy signal.

S&P 500 E-mini:

The S&P 500 E-mini lost 3.50 points on volume of 1,427,136 contracts. Total open interest declined just 3,673. As this report is being compiled on September 24, the December contract is trading 19.75 points lower and has made a new low for the move of 1897.25, which is the lowest print since 1898.75 made on September 1.

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. We continue to see extreme weakness and think we are on the precipice of a major downside move.

Volatility continues to be elevated, and this is helping the straddle maintain its value, which will probably continue as long as market participants feel equities are vulnerable to further downside. As we have said before, the increase in volatility 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.