Bloomberg Access:{OIAR<GO>}

Soybeans: On December 21, March soybeans will generate a short term sell signal, but remain on an intermediate term buy signal.

March soybeans lost 16.25 cents on volume of 288,339 contracts. Total open interest declined by massive 15,043 contracts, which relative to volume is approximately 110% above average meaning liquidation was extremely heavy as prices made a new low for the move of $10.14 1/4. The January contract accounted for a loss of 18,942 of open interest and this indicated that there were few short-sellers entering the market on yesterday’s decline.

As this report is being compiled on December 21, the March contract is trading unchanged on low pre-holiday volume. Yesterday, soybean meal generated a short term sell signal and soybean oil will generate a short term sell signal on December 21. In summary, the entire bean complex is set up for lower prices ahead. What makes this particularly ominous is the very large net long position of managed money in soybeans and the rest of the complex.

For example, in the latest COT report, managed money was long by a ratio of 4.65:1, which was up from the previous week of 4.56:1, but down slightly from the ratio two weeks ago of 5.08:1. In summary, there are large numbers of speculative longs in the market who’ll exert a considerable amount of selling pressure as prices move lower. Now that soybeans are on a short term sell signal, the market should have a counter trend rally lasting 1-3 days and this will be the ideal time to initiate bearish positions.

Soybean meal: On December 20, March soybean meal generated a short term sell signal, and remains on an intermediate term buy signal.

March soybean meal lost $3.40 on volume of 91,088 contracts. Total open interest declined by 1,066 contracts, which relative to volume is approximately 50% below average. The January contract lost 5,889 of open interest As this report is being compiled on December 21 the March soybean meal contract is trading 90 cents above yesterday’s close.

The COT report revealed that managed money remains net long soybean meal and according to our calculations they were long by ratio 1.57:1, though this was down from the previous week of 1.75:1 it was fractionally higher than the ratio two weeks ago of 1.54:1. In summary there are spec longs who will be forced to liquidate as prices move lower. Once soybean meal has a counter trend rally, we recommend the initiation of bearish positions.

Soybean oil: March soybean oil will generate a short term sell signal on December 21 and it remains on an intermediate term buy signal.

March soybean oil lost 50 points on volume of 120,474 contracts. Total open interest declined by massive 8,052 contracts, which relative to volume is approximately 160% above average. The January contract lost 12,231 of open interest. Soybean oil is perhaps the most vulnerable in the bean complex for one important reason: managed money remains massively long and according to the latest report released last Friday they were long by ratio of 8.70:1, though this was down sharply from the previous week of 15.41:1 and the ratio two weeks ago of an astounding 20.22:1. Once March soybean oil has its counter trend rally, we recommend bearish positions.

Natural gas:

January natural gas lost 12.9 cents on volume of 472,081 contracts. Total open interest declined by a massive 18,996 contracts, which relative to volume is approximately 55% above average. The January contract accounted for a loss of 22,746 of open interest. As we pointed out in yesterday’s report, managed money is heavily long natural gas and yesterday’s action most definitely shook out large numbers of market participants.

However, on December 21, the story is very different: January natural gas is rallying sharply, up 23.6 cents or +7.23% and has made a high of 3.520, which takes out yesterday’s print of 3.408 and is the highest since 3.589 made on December 15. As we said in yesterday’s report, for January natural gas to generate a short term sell signal, the January contract would have to make a daily high below OIA’s he pivot point of 3.316. For the rally to continue, the January contract (we will be moving to the February contract) must make a daily low above OIA’s pivot point for December 21 of 3.485. Stand aside.

British pound: On December 20, the March British pound generated short and intermediate term sell signals.

The March British pound lost 33 pips on volume of 85,219 contracts. Total open interest increased by 1,636 contracts, which relative to volume is approximately 20% below average, but an open interest increase on yesterday’s moderate decline is bearish. As this report is being compiled on December 21, the March contract is trading 19 pips lower, but has not taken out yesterday’s print of 1.2340 which is the lowest since 1.2319 made on November 21.

The first quarter tends to be negative for the British pound on a seasonal basis and we expect a test of the October 2016 low of 1.2034 to occur in the next couple of months. In the meantime, once the pound has a counter trend rally lasting 1-3 days, we would use this as an opportunity to initiate bearish positions.