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Soybeans:  On December 3, January soybeans will generate a short-term sell signal, which reverses the short-term buy signal generated on October 24. January soybeans remain on an intermediate term sell signal. 

January soybeans lost 21.25 cents on heavier than normal volume of 198,427 contracts. Volume was the strongest since November 21 when January soybeans advanced 18.50 cents on volume of 215,742 contracts and total open interest declined by 3,949 contracts. On December 2, total open interest increased by 1,485 contracts, which relative to volume is approximately 60% below average.

However, the January contract lost 4,841 of open interest and July 2015 and November 2015 contracts lost a total of 602, which makes the total open interest increase more impressive (bearish).Yesterday, January soybeans made a new low for the move at 9.95, which took out the November 5 low of 9.95 1/4. As this report is being compiled on December 3, January soybeans are trading 6.50 cents lower and have made a new low for the move at 9.83 3/4, which is the lowest print since 9.73 1/4 made on October 27.

As the extract from the November 16 report confirms, we have been warning clients the move higher in soybeans was not likely to continue.In the December 1 report, we suggested that clients write out of the money calls in soybeans. Usually, after the generation of a short-term sell signal, the market has a tendency to have a counter trend rally, which can last from 1 to 3 days and this is the most opportune time to initiate bearish positions.

From the November 16 Weekend Wrap:

“From September 30 through November 11 (which is the most recent COT report), managed money has gone from a net long position of 39,941 contracts on September 30 to a net long position of 54,905 on November 11, or an increase of just 14,964 contracts during the time when January soybeans advanced 1.42 3/4, or 15.50%. In our view, this indicates a high degree of skepticism about the rally by managed money and especially about the continuation of it.”

“In short, we do not think managed money is going to be a supporter of higher soybean prices. Eliminating this category as a major buyer is problematic for soybean prices going forward.As we have said in previous reports, we think the rally in soybeans is on borrowed time and the inability of soybeans to generate an intermediate term buy signal underscores the internal weakness of the market. Remarkably, it is Chicago wheat that has generated the intermediate term buy signal even though the fundamentals for soybeans are more favorable.”

Soybean meal:

January soybean meal lost $4.10 on volume of 79,098 contracts. Total open interest declined by 232 contracts, which is approximately 85% below average. The December contract accounted for loss of 1752 of open interest, January 2015 -1,276, which means there were sufficient open interest increases in the forward months to bring the total open interest figure significantly below average. We consider this to be bearish open interest action relative to the price decline.

Yesterday, January soybean meal made a low of 357.40, and this has been taken out on December 3 and as this report is being compiled, January soybean meal has made a new low for the move at 349.40, which is the lowest print since $347.90 made on November 4. A short-term sell signal is clearly on the horizon, and this could occur as early as tomorrow. In order for a short-term sell signal to be generated, the daily high of the day must be below OIA’s key pivot point for December 3 of 353.80.

Corn:

March corn lost 8.50 cents on volume of 218,607 contracts. Total open interest declined by 1,896 contracts, which relative to volume is approximately 50% below average. The December contract lost 4,772 of open interest. Yesterday, March corn made a low of 3.81, and this has been taken out on December 3 with another new low of 3.77 1/4, which is the lowest print since 3.75 1/4 made on November 20. In order for March corn to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point of 3.77 3/8. In our view, and we have reiterated this point in previous reports, a sell signal is imminent and clients should begin to position themselves on the bearish side of the market. At this juncture, we think it is wise to initiate short call positions at strike(s) that make the most sense for your firm’s risk tolerance. We think the rally in the grains, which began in early October has come to end and that the path of least resistance is lower.

Chicago wheat:

March Chicago wheat lost 3.50 on strong volume of 125,186 contracts. Volume increased somewhat from December 1 when March wheat advanced 28.25 cents on volume of 123,997 contracts and total open interest increased by 2,232 contracts. On December 2, total open interest increased by 553 contracts, which relative to volume is approximately 70% below average. The December contract accounted for loss of 555 of open interest.

Yesterday, March Chicago wheat made a new high for the move to 6.11 3/4, and as this report is being compiled on December 3, the high for the day has been 6.06 1/2 and March wheat is trading 14.25 cents lower.As we have pointed out before, the fundamentals for wheat are anything but bullish, but the narratives out of Russia have been causing the market to move higher and blowout short sellers. At this juncture, clients should be on the sidelines. March Chicago wheat remains on a short and intermediate term buy signal.

Live cattle: February live cattle will generate a short-term sell signal on December 3.

February live cattle lost 1.80 cents on volume of 50,858 contracts. Total open interest declined by 661 contracts, which relative to volume is approximately 45% less than average. The December contract lost 4,310 of open interest and there were sufficient open interest increases to offset a good portion of the decline in December. The February 2015 through April 2016 contracts all gained open interest. We consider this to be bearish, and as this report is being compiled, this bearishness is being confirmed as February cattle is trading 2.175 cents lower and has made a daily low of 1.66100, which is the lowest print since 1.66200 made on November 7.

Clients should expect a counter trend rally in cattle, possibly beginning tomorrow and this will be the opportunity to initiate bearish positions. While we think cattle prices are headed lower short-term, the market has a tendency to top out on a seasonal basis in late January or February.

WTI crude oil:

January WTI crude oil lost $2.12 on volume of 595,882 contracts. Volume was the lightest since November 26 when January WTI lost 40 cents on volume of 447,212 contracts and total open interest increased by 11,190. On December 2, total open interest increased by 5,826 contracts, which relative to volume is approximately 50% below average. The January contract lost 10,096 of open interest. As this report is being compiled on December 3, January WTI is trading 19 cents higher and has made a daily high of 68.23, which is below the high on December 2 of 69.32 and the high of 69.54 made on December 1. In short, the market is unable to muster the strength to move beyond the previous day’s highs. WTI is extremely weak even at current prices and we expect oil to resume its downtrend. Stand aside.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.7 million barrels from the previous week. At 379.3 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 2.1 million barrels last week, but are well below the lower limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 3.0 million barrels last week but are near the lower limit of the average range for this time of year. Propane/propylene inventories rose 0.2 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 1.1 million barrels last week.

Natural gas:

January natural gas lost 13.3 cents on volume of 308,199 contracts. Total open interest increased by 6,211 contracts, which relative to volume is approximately 20% below average.The January contract lost 1,312 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on December 3, January natural gas is trading 8.9 cents lower and has made a new low for the move at 3.757, which is the lowest print since 3.710 made on October 28.

On December 1, January natural gas generated a short and intermediate term sell signal. Usually after the generation of a sell signal, the market has a tendency to rally from 1 to 3 days, and in this case natural gas continued in its southerly direction.According to the current COT report,, which was tabulated on November 25, managed money was long by a ratio of 1.16:1. It will be interesting to see in the next report whether the relatively large long position of managed money has been trimmed by the current slide in prices.

Gold:

February gold lost $18.70 on volume of 180,047 contracts. Total open interest declined by 3,904 contracts, which relative to volume is approximately 15% below average. As this report is being compiled, February gold is trading $8.70 higher and has made a high of 1215.00, which takes out yesterday’s high of 1212.60, but is below the December 1 high of 1221.00. We have become friendly to gold, and think a short-term buy signal is on the horizon. This will occur if the low the day is above OIA’s key pivot point for December 3 of $1203.10. Until then, stand aside.

Silver:

March silver lost 23.6 cents on volume of 68,897 contracts. Total open interest declined by 2,296 contracts, which relative to volume is approximately 30% above average meaning that liquidation was heavy on the modest decline. Yesterday, March silver made a high of 16.535, which was below the December 1 high of 16.810. As this report is being compiled on December 3, the daily high is 16.595, and the March contract is trading 6.1 cents lower on the day. In order for March silver to generate a short-term buy signal, the low the day must be above OIA’s the pivot point for December 3 of $16.605. Until then, stand aside.

Coffee:

March coffee lost 7.00 cents on volume of 18,531 contracts. Volume shrank dramatically from December 1 when March coffee advanced 2.95 cents on volume of 26,729 contracts and total open interest increased by a massive 6,132 contracts. On December 2, total open interest declined by 960 contracts, which relative to volume is approximately 100% above average meaning that liquidation was extremely heavy on the decline, which is very positive for coffee. Liquidation when prices decline is perfectly normal, especially when open interest has been increasing on price advances. We expect coffee to resume its uptrend, but apparently the market needs to do some more backing and filling before this occurs.