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Corn:

December corn advanced 7.50 cents on volume of 199,338 contracts. Volume was the strongest since September 21 when the December contract gained 7.25 cents on volume of 212,196 contracts and total open interest increased by a massive 16,498. On September 25, total open interest increased by a very large number, this time by 15,150 contracts, which relative to volume is approximately 210% above average meaning huge numbers of new buyers were entering the market in substantial numbers and driving prices higher (3.89 1/2).

As this report is being compiled on September 28, the December contract has pulled back 3.50 cents after making a new high for the move of 3.92 1/2, which is the highest print since 3.95 made on September 15.

In  previous reports, we have expressed our concerns about global macro risk and we are seeing an example of it on September 28. A major commodity trade house appears to be in financial trouble and this undoubtedly will negatively affect commodities across the board. However, the open interest increase on September 25 bodes well for further advances in corn. December corn remains on a short-term buy signal, but an intermediate term sell signal. We have no recommendation.

Soybeans:

November soybeans advanced 21.25 cents on volume of 231,070 contracts. Total open interest increased by 2,624 contracts, which relative to volume is approximately 50% below average, however, the November contract lost 3,731 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in November and increase total open interest.

The interesting aspect of trading on September 25 is that total open interest did not decline, which means that managed money has more short covering to do if a short-term buy signal is generated. As the COT report revealed, which we published yesterday, managed money is massively short soybeans and the ratio is the highest in a couple of months.

As this report is being compiled on September 28, the November contract is trading 12.00 cents lower and trading on the lows of the day. For the November contract to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for September 28 of 8.84. We have no recommendation.

Chicago wheat:

December Chicago wheat advanced 10.50 cents on volume of 77,764 contracts. Total open interest increased by 2,246 contracts, which relative to volume is average. The May 2016 contract lost 120 of open interest. It is a very positive development that total open interest increased in Friday’s trading, especially since managed money is substantially short Chicago wheat, although they have been reducing their net short position for the past couple of weeks.

As this report is being compiled on September 28, the December contract is trading 5.25 cents lower on the day and has made a daily low of 5.00 1/4, which is below OIA’s key pivot point for the generation of a short-term buy signal. For the December contract to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for September 28 of $5.01. We have no recommendation.

Cocoa:

December cocoa lost $17.00 on volume of 27,366 contracts. Total open interest increased by a massive 3,924 contracts, which relative to volume is approximately a staggering 420% above average. The total open interest increase on September 25 is the 14th in a row.

For the past five days, total open interest has increased by 9,284 contracts and the December contract has declined by $35.00. This is negative open interest action for the past five days relative to the cumulative decline. This indicates the market is in a corrective mode.

From September 8, when December cocoa generated short and intermediate term buy signals through September 25, total open interest has increased every day, which brings the cumulative increase to 37,778 contracts while December cocoa has advanced $108.00.

We have recommended that clients stand aside in cocoa due to the massive open interest increases and the market was substantially overbought. We continue to recommend this, and as this report is being compiled on September 28, the December contract is trading $29.00 lower on the day. For December cocoa to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for September 28 of $3,182.

Sugar:

March sugar advanced 55 points on total volume of 202,654 contracts. Total open interest declined by 6,426 contracts, which relative to volume is approximately 10% above average, meaning that liquidation with substantial on the very strong advance. The gain in sugar along with many other commodities grown in Brazil on September 25 was due to the sharp rally of the Brazilian currency against the US dollar. Although the fundamentals for sugar are negative, it appears that the March 2016 contract will generate a short-term buy signal on September 28. We have no recommendation.

Dollar index:

The December dollar index advanced 28.5 points on volume of 44,076 contracts. Total open interest increased by a massive 3,710, which relative to volume is approximately 230% above average meaning aggressive new buyers were entering the market in large numbers and driving prices higher (96.880).

As this report is being compiled on September 28, the dollar index is trading 34.4 points lower as the equity market falls sharply and the euro rallies along with the Japanese yen. On September 23, the December dollar index generated a short-term buy signal, and for this to reverse, the high of the day must be below OIA’s key pivot point for September 28 of 95.474. We have no recommendation.

Euro:

The December euro lost 31 pips on volume of 216,879 contracts. Total open interest increased by 1,696 contracts, which relative to volume is approximately 55% below average, however, an open interest increase on yesterday’s decline is bearish. As this report is being compiled on September 28, the euro is assuming its familiar role of being the flight to safety currency as global equity markets decline on September 28.

On September 22, OIA announced that the December euro generated a short-term sell signal, and for this to reverse, the low of the day must be above OIA’s key pivot point for September 28 of 1.1353. We expect further downside in global equities, and therefore the euro may continue to rally, but we do not foresee the generation of a short-term buy signal. We recommend a stand aside posture at this juncture.

WTI crude oil:

November WTI crude oil advanced 79 cents on volume of 636,201 contracts. Total open interest increased by a strong 14,889 contracts, which relative to volume is approximately 10% below average, but Friday’s open interest increase follows the total open interest increase on September 24 when the November contract advanced 43 cents on volume of 641,403 and total open interest increased by 8,878.

The two-day total open interest increase is positive, but as this report is being compiled on September 28, the November contract is trading $1.21 lower and has made a daily low of 44.31, which is the lowest print since 43.71 made on September 24. For November WTI to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for September 28 of 43.81. The rally will resume if the low of the day is above OIA’s key pivot point for September 28 of $46.21. We have no recommendation.

Gold: On September 25, December gold generated a short-term buy signal, which reverses the short-term sell signal of September 10. December gold remains on an intermediate term sell signal.

December gold lost $8.20 on volume of 164,215 contracts. Total open interest declined by a sizable 7,295 contracts, which relative to volume is approximately 70% above average meaning liquidation was heavy on the decline. As this report is being compiled on September 28, December gold is pulling back, trading $13.60 lower, which is typical after the generation of a short-term buy signal.

As mentioned earlier, financial trouble at a major commodity trade house may cause a great deal of turmoil in commodity markets. For example, the October platinum contract is trading $29.90 lower and has made a new contract low of 920.50, which is slightly above the January 2009 low of $914.00 while December silver is sharply lower, down 56.6 cents. At this juncture, we see no reason to be involved in precious metals.

S&P 500 E-mini:

The S&P 500 E-mini gained 0.50 points on volume of 2,085,914 contracts. Total open interest declined by a massive 43,974 contracts, which relative to volume is approximately 20% below average, but this is a sizable number and liquidation of this magnitude on the modest gain is negative.

As this report is being compiled on September 28, the December E-mini is trading sharply lower, down 47.50 points and has made a new low for the move of 1871.75, which is the lowest print since 1850.00 made on August 26. Nearly 2 weeks ago, OIA recommended the initiation of at the money option straddles in the October contract and later also suggested that clients switch out of the October contract into November and December contracts due to the negative impact of time decay.

The straddle is working well, and we still think there is more downside left. We recommend holding the position for another two days (September 30).  The reason: there should be substantial liquidation until September 30 by professional money managers selling losing positions and performing the usual window dressing that accompanies end of the quarter activity. The employment report will be released this Friday and if it is a positive number, we could see a strong rally.

The end of quarter window dressing and the October 2 employment report bookend this week’s activity.