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The USDA will release its grain stocks and World Agriculture Supply Demand report on January 12 at 12 noon EST. Unless positions are highly profitable, we recommend that clients move to the sidelines. Additionally, if clients decide to hold positions into the report, make sure that stop protection is in place.

Soybeans:

March soybeans lost 8.00 cents on volume of 121,395 contracts. Volume was the lowest since January 2 when March soybeans lost 16.00 cents on volume of 109,475 contracts and total open interest increased by 7,063 contracts. On January 8, total open interest declined by 542 contracts, which relative to volume is approximately 80% below average. The January contract accounted for loss of 1131 of open interest, March 2015 -562, May 2015-541.

As this report is being compiled, March soybeans are trading 2.00 cents higher and have made a daily low of 10.44, which is considerably below OIA’s key pivot point for January 9 of 10.50 1/4. March soybeans must make a daily low above OIA’s key pivot point to reverse the short-term sell signal of January 2. Stand aside.

Soybean meal:

March soybean meal lost $6.80 on volume of 59,243 contracts. Total open interest declined by a massive 3,102 contracts, which relative to volume is approximately 100% above average meaning that liquidation was extremely heavy on the decline. The January contract accounted for loss of 1,032 of open interest, March 2015 -3497.

According to the most recent COT report, managed money is long soybean meal by ratio of 3.05:1, which is considerably above the ratio for soybeans of 1.80:1. In short, it is not a surprise to see liquidation, especially ahead of the January 12 USDA report.As this report is being compiled on January 9, March soybean meal is trading 10 cents lower and has made a daily low of 345.00, which is below yesterday’s low of 346.80.

On January 2, March soybean meal generated a short-term sell signal, but remains on an intermediate term buy signal. In the report of January 5, we recommended the initiation of bearish positions and for futures traders we advised exiting the position upon penetration of the January 6 high of 358.00.

Bearish positions should be profitable at this juncture and we recommend maintaining them before the release of the USDA report on January 12.Conceivably, the market may anticipate a bearish report and move sharply lower before its release.Clients to make a decision whether or not to take profits before the report, or risk a move against them afterwards.

Soybean oil:

March soybean oil advanced 60 points on volume of 85,902 contracts. Total open interest increased by 2,515 contracts, which relative to volume is approximately 20% above average.   The January 2015 contract lost 810 of open interest and there were open interest increases from March 2015 thru January 2016. The market action in soybean oil has been very bullish despite the abysmal fundamentals.As we said in previous reports, the driver for soybean oil prices has been Malaysian palm oil.For the past 2 days we have seen prices advance along with open interest.

As this report is being compiled On January 9, March soybean oil is trading 3 points higher and has made a daily high of 33.95, which is slightly above yesterday’s high of 33.92.This is the highest print since 33.98 made on November 25. The daily low thus far has been 33.53 and in order for March soybean oil to generate an intermediate term buy signal, the low the day must be above OIA’s key pivot point for January 9 of 33.44.

After generating a short-term buy signal, on January 6, March soybean oil has not had a setback and is massively over bought relative to its 20 day moving average of 32.56 and the 50 day moving average of 32.82. Do not chase this market higher because soybean oil is liable to have a sharp setback at any time, especially if the January 12 report is bearish for the bean complex.

Corn:

March corn lost 2.00 cents on volume of 198,052 contracts. Total open interest increased by 2,192 contracts, which relative to volume is approximately 45% below average. However, the March contract lost 5,253 of open interest, which makes the total open interest increase more impressive (bearish).

Although corn prices have held up fairly well, open interest action tells us there is going to be a major move on January 12. Additionally, corn volatility index is at a major high which only confirms the explosive nature of a potential move on January 12. March corn remains on a short and intermediate term buy signal. We recommend a sideline stance whether bullish or bearish. It is just too risky and with volatility at a major high, options are very expensive.

Chicago wheat:

March Chicago wheat lost 12.50 cents on volume of 74,936 contracts. Total open interest declined by 1,758 contracts, which relative to volume is approximately 10% below average. The March 2015 contract lost 3,138 of open interest, May 2015 – 830. As this report is being compiled on January 9, March Chicago wheat is trading 1.00 cent lower and has made a daily low of 5.61 3/4, which takes out yesterday’s low of 5.65 3/4.

On January 2, March Chicago wheat generated a short-term sell signal and remains on an intermediate term buy signal. Ever since generating the sell signal, the market has been acting poorly and we expect in intermediate term sell signal to be generated shortly.

Live cattle:

February live cattle lost 2.30 cents on heavy volume of 79,145 contracts. Volume was the strongest since December 17 when February live cattle lost 2.925 cents on volume of 81,066 contracts and total open interest declined by 9,396 contracts. On January 8, total open interest declined just 904 contracts, which relative to volume is approximately 45% below average. However, the February contract lost 4850 of open interest, August 2015 -136, which means there were open interest increases in the forward months to offset a good portion of the loss in the February and August contracts.

The open interest action on January 8 was bearish and is surprising that open interest did not decline more considering the extremely large long position of managed money. According to the latest COT report, managed money was long live cattle by ratio of 11.40:1. In short, there is plenty of fuel to fund a continued downside move.

As this report is being compiled on January 9, February live cattle is trading down the 3.00 cent limit to 1.60600. Despite our thinking that cattle prices could make a seasonal high during February, we have continually advised clients to remain on the sidelines until such time as live cattle generated a short-term buy signal. As readers of this report know, this never occurred and as a result were spared needless loss. On December 3, February live cattle generated a short-term sell signal and an intermediate term sell signal on December 15. These have not been reversed.

WTI crude oil:

February WTI crude oil advanced 14 cents on volume of 812,149 contracts. Total open interest increased by 16,909 contracts, which relative to volume is approximately 20% below average. However, the February contract lost 27,585 of open interest, which makes the total open interest increase more impressive (potentially bullish short-term). January 8 was the second day in a row in which WTI prices advanced and open interest increased.  This tells us there are bottom pickers in the market, which means prices are headed lower. As this report is being compiled on January 9, February WTI is trading down $1.04 and has made a daily low of 47.16, which is the lowest print since 46.83 (the contract low) made on January 7. Stand aside.

Natural gas:

February natural gas advanced 5.6 cents on heavy volume of 377,257 contracts. Volume increased from January 7 when February natural gas lost 6.7 cents on volume of 343,371 contracts and total open interest increased by 7,873 contracts. On January 8, total open interest increased by 3,729 contracts, which relative to volume is approximately 50% below average. The February contract accounted for loss of 8,370 of open interest. As this report is being compiled on January 9, February natural gas is trading nearly unchanged on the day. On December 1, natural gas generated a short and intermediate term sell signal. Stand aside.

Gold:

February gold lost $2.20 on volume of 148,470 contracts. Total open interest declined by 1,403 contracts, which relative to volume is approximately 30% below average.The February contract, which will be approaching 1st notice day in the next couple of weeks lost 13,954 of open interest, which means there were sufficient open interest increases in the forward months to offset most of the decline in February.

As this report is being compiled on January 9, February gold is trading $7.70 higher and has made a daily high of 1221.00, which is the highest print since 1223.30 made on January 6. We continue to think the worst for gold is over, however, the market must make lows above our key pivot points to continue the advance. First, February gold must make a daily low above OIA’s key pivot point for January 9 of 1212.60 and for an intermediate term buy signal to be generated , the low the day must be above OIA’s key pivot point for January 9 of 1218.30.

Unfortunately, we think it is likely gold will make daily lows above the pivot points after it has made a major upside move. This means for speculators who want to be long after the pivot point lows have been made will have to pay up to get on board. Gold volatility is at the low end of the 2 month range, which makes options a cheap alternative. For those of you who subscribe to OIA Direct, please contact us for further information.

Cocoa:

March cocoa advanced $74.00 on huge volume of 47,501 contracts.Volume was the strongest since November 12 when 48,574 contracts were traded and March cocoa closed at 2867.On January 8, total open interest increased by a massive 8,850 contracts, which relative to volume is approximately 475% above average meaning that huge numbers of new buyers were entering the cocoa market and driving prices to a new high for the move (3016).

The move to the high in yesterday’s trading has all the earmarks of a potential blow off move, which suckered in new longs.Long time clients of OIA know that massive increases of volume and open interest on a new high for the move can often signal a top or temporary top.

As this report is being compiled after the close of cocoa, the March contract closed $18.00 lower. However, the real problem is March cocoa made a low of 2956, which is below OIA’s key pivot point for January 8 of 2957 and most importantly, the pivot point for January 9 of 2959.This does not rule out the possibility of cocoa making a daily low above the pivot point next week, however, clients should remain on the sidelines.

March Cocoa still has not generated an intermediate term buy signal, and for this to occur would need to make a daily low above OIA’s key pivot point for January 9 of 2990.March Cocoa generated a short-term buy signal on December 8. Stand aside.

Coffee: On January 9, 2015, March coffee generated a short-term buy signal, but remains on an intermediate term sell signal.

March coffee advanced 1.85 cents on heavy volume of 33,250 contracts. Volume shrank from January 7 when March coffee advanced 15 ticks on volume of 40,107 contracts and total open interest increased by 3,026 contracts. On January 8, total open interest increased by 570 contracts, which relative to volume is approximately 25% below average. However, the March contract lost 645 of open interest, September 2015, -242, which makes the total open interest increase more impressive (bullish).

As this report is being compiled on January 9, March coffee has closed at 1.8005, up 3.15 cents. The action on January 9 is outstanding for couple of reasons. First, the market gapped open at 1.7775, and this was the low for the entire session. Second, March coffee made a new high for the move of 1.8385, which is the highest print since December 5 (1.8335). Third, the advance on January 9 was accompanied by heavy volume.

Last, but not least is that March coffee generated a short-term buy signal on January 9, which reverses the short-term sell signal of October 23. However, March coffee remains on an intermediate term sell signal. OIA’s key pivot point for a short-term buy signal is 1.7720 and the low on January 9 is 1.7775.

Usually, after the generation of a buy signal, the market has a tendency to pullback from 1-3 days and this will be the most opportune time to initiate bullish positions. Coffee has gone straight up after making a low of 1.6010 on January 5 and is more than due for a pullback.