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The USDA will release its grain stocks and World Agriculture Supply Demand report (WASDE) on January 12.

March soybeans, soybean meal and Chicago & KC wheat are having counter trend rallies, which is perfectly normal after the generation of sell signals.

Soybeans:

March soybeans advanced 37.75 cents on heavier than normal volume of 176,917 contracts. Volume was the highest since December 29 when March soybeans lost 5.25 cents on volume of 195,503 contracts and total open interest declined by 12,063 contracts. On January 5, total open interest increased by 2,448 contracts, which relative to volume is approximately 40% below average. The January contract accounted for loss of 1,903 of open interest, which makes the total open interest increase more constructive.

As this report is being compiled on January 6, March soybeans are trading 8.25 cents higher and have made a daily high of 10.57, which is the highest print since 10.56 made on December 30.On January 2, March soybeans generated a short-term sell signal, and for this signal to reverse, the March contract must make a low above OIA’s key pivot point for January 6 of 10.49 1/2.Although the open interest action was favorable, it was unimpressive considering the magnitude of the move. We prefer the short side of soybean meal to soybeans as meal has been the weak sister for the past 2 months. Year to date for 2015 through January 5, March soybeans have advanced 2.13% while March meal has gained 1.84%.

Soybean meal: We recommend initiating bearish positions in soybean meal and for futures traders, the January 6 high of 358.00 can be used as an exit point.

March soybean meal advanced $13.60 on volume of 61,136 contracts. Volume was the strongest since December 29 when March soybean meal lost $3.50 on volume of 82,127 contracts and total open interest declined by 7,570 contracts. On January 5, total open interest increased only 143 contracts, however the January contract lost 676 of open interest and March 2015 – 694, which makes the very minor increase of open interest somewhat more positive.

As this report is being compiled on January 6, March meal is trading $1.40 higher and has made a daily high of 358.00, which takes out yesterday’s high of 354.90 and is the highest print since 359.80 made on December 30. We think soybean meal prices are headed lower and advise clients to initiate bearish positions.In order for the January 2 sell signal to reverse, the low the day must be above OIA’s key pivot point for January 6 of 358.10. March soybean meal remains on an intermediate term buy signal. 

Corn:

March corn advanced 10.25 cents on heavy volume of 217,518 contracts.Volume was the strongest since December 16 when March corn lost 2.50 cents on volume of 285,583 contracts and total open interest increased by 7,996 contracts. On January 5, total open interest increased by a massive 14,321 contracts, which relative to volume is approximately 160% above average meaning that aggressive new longs were entering the market in large numbers and driving prices higher (4.06 3/4). As this report is being compiled on January 6, March corn is trading unchanged and has made a daily high of 4.09 1/2, which is the highest print since 4.12 3/4 made on December 30. Also, March corn has made a daily low (4.02 1/4) above OIA’s key pivot point for January 6 of 4.02 1/8, which increases the likelihood of  a test of the December 29 high of 4.17.March corn remains on a short and intermediate term buy signal.

Chicago wheat:

March Chicago wheat advanced 7.75 cents on volume of 60,768 contracts. Volume was the strongest since December 22 when March Chicago wheat lost 6.50 cents on volume of 85,875 contracts and total open interest increased by 721 contracts. On January 5, total open interest declined by 333 contracts, which relative to volume is approximately 75% below average, but an open interest decline on a price advance of the magnitude seen on January 5 is negative. The March contract accounted for loss of 633 of open interest.

As this report is being compiled on January 6, March Chicago wheat is trading 8.50 higher and has made a daily high of 6.03 1/2, which is the highest print since 6.04 1/2 made on December 31. On January 2, March Chicago wheat generated a short-term sell signal, but remains on an intermediate term buy signal. For the sell signal to reverse, the low the day must be above OIA’s key pivot point for January 6 of 6.12.

Live cattle:

February live cattle advanced 55 points on volume of 36,056 contracts. Total open interest increased by a massive 3,741 contracts, which relative to volume is approximately 310% above average meaning that aggressive new longs were entering the market in heavy numbers and driving prices higher (1.66875), which is the high for the move thus far.January 5 was the second day in which prices and open interest advanced.

As we have said in prior reports, live cattle prices have a tendency to top in February. As this report is being compiled on January 6, February live cattle is trading down 15 points and has made a daily high of 1.66600. In order for February live cattle to generate a short-term buy signal, the low the day must be above OIA’s key pivot point for January 6 of 1.66130. An intermediate term buy signal will be generated if the low the day is above 1.65790. Until this occurs, stand aside.

WTI crude oil:

February WTI crude oil lost $2.65 on volume of 681,322 contracts. Volume was the strongest since December 18 when WTI lost $2.11 on volume of 899,531 contracts and total open interest declined by 15,463 contracts. On January 5, total open interest increased by 10,894 contracts, which relative to volume is approximately 35% below average. However, the February contract accounted for loss of 8,552 of open interest, which makes the total open interest more impressive (bearish).

Remarkably, total open interest has increased every day since December 24 and from December 24 through January 5, February WTI has lost $7.28, or -12.74%.The open interest build during the time of declining prices confirms that new short sellers are entering the market on a consistent basis and are driving prices lower. In short, lower prices are not the result of longs liquidating, rather new short sellers are the driving force. As this report is being compiled on January 6, February WTI is trading sharply lower, down $1.99 and has made a new contract low of 47.55. Stand aside.

Natural gas:

February natural gas lost 12.1 cents on heavy volume of 316,192 contracts. Volume was the strongest since December 22 when natural gas lost 32.0 cents on volume of 460,677 contracts and total open interest declined by 2887 contracts. On January 5, total open interest increased by 5,448 contracts, which relative to volume is approximately 25% below average. The February contract accounted for loss of 962 of open interest. As this report is being compiled on January 6, February natural gas is trading 2.3 cents lower, but has not taken out the contract low of 2.805 made on January 2. Stand aside.

Gold:

February gold advanced $17.80 on volume of 159,051 contracts. Total open interest increased by 3,301 contracts, which relative to volume is approximately 20% below average, but the open interest increase on a price advance is positive. This follows a pattern of consistent bullish open interest action relative to price advances and declines. As this report is being compiled on January 6, February gold is trading $15.50 higher and has made a daily high of 1223.30, which is the highest print since 1223.90 made on December 16, but on December 16 the high couldn’t hold and February gold closed at 1194.30.

As we said in yesterday’s report, gold must make lows above our key pivot points in order for the rally to continue. The first pivot point for January 6 is 1204.20 and the 2nd is 1211.80. The pivot point for an intermediate term buy signal is 1218.30. Ever since February gold generated a short-term buy signal on December 11, we have been emphasizing to clients that gold is in the process of turning from bear to bull. The market still has many skeptics, which is why higher prices are likely in the short-term.Also, it looks like silver is coming back from the dead, and this is another positive development for the precious metals.

Silver:

March silver advanced 44.5 cents on volume of 49,741 contracts. Total open interest increased just 17 contracts. This is a major disappointment considering the magnitude of the move, but it reflects the negative outlook for silver held by speculators. As this report is being compiled on January 6, March silver is trading 38.2 cents higher and has made a daily high of 16.74, which is the highest print since 17.08 made on December 15. In order for March silver to generate a short-term buy signal, the low the day must be above OIA’s key pivot point of 16.526.

Cocoa:

March cocoa advanced $17.00 on volume of 19,526 contracts. Total open interest increased by a spectacular 2,858 contracts, which relative to volume is an astounding 370% above average. We have been warning about the large build of open interest and that trade selling has been in evidence for quite some time while speculators are massively long cocoa. This will add selling pressure as prices move lower. In the December 31 report, we recommended that clients liquidate open cocoa positions and move to the sidelines. As this report is being compiled on January 6, March cocoa has closed at 2902, down 42.00.

In yesterday’s report, we told clients that March cocoa would have to make a low above OIA’s key pivot point of 2956 for the rally to continue, and the market has not have the strength to do so. On December 8, March cocoa generated a short-term buy signal and has been unable to generate an intermediate term buy signal. March cocoa will generate a short-term sell signal if the high of the day is below OIA’s key pivot point for January 6 of 2910. Stand aside.

Coffee:

March coffee advanced 7.05 cents on volume of 21,324 contracts.Volume was the strongest since December 17 when 22,140 contracts were traded and March coffee closed at 1.7185. On January 6, total open interest increased by a massive 1,390 contracts, which relative to volume is approximately 160% above average meaning that new buyers were aggressively entering coffee In large numbers and driving prices to a new high for the move (1.6865).

As this report is being compiled on January 6 after the close of the coffee market, March coffee has advanced 6.80 cents and has closed at 1.7490, which is the highest close since 1.7470 made on December 19. The market has moved sharply during the past 2 days and we expect a pullback along with some backing and filling before the rally resumes. March coffee will generate a short-term buy signal when the daily low is above OIA’s key pivot point for January 6 of 1.7640. 

10 Year Treasury Note: On January 5, the March 10 year treasury note generated a short and intermediate term buy signal.

The March 10 year treasury note advanced 19.5 points on volume of 901,906 contracts. Total open interest increased by 39,213 contracts, which relative to volume is approximately 60% above average meaning that new buyers were moving into the treasury market in large numbers and driving prices to a new high for the move (127-270). As this report is being compiled on January 6, March notes are trading 24 points higher and have made a new high for the move at 129-035. We have no recommendation.