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Cotton: On October 18, December cotton generated a short term sell signal, but remains on an intermediate term buy signal.

December cotton lost 4 points on volume of 27,818 contracts. Total open interest increased by an astounding 6,865 contracts, which relative to volume is approximately 600% above average and the shorts were in control, and were likely commercial interests. The December contract made a high of 71.70, which broke above the October 17 print of 71.26.

As we said in yesterday’s report, cotton has the most bullish fundamentals of the agriculture markets that we follow. However, a note of caution: the market structure remains in contango. For example, the December contract close yesterday was 71.15, March 71.47, and May 71.74.In a solid bull market, the market structure should be inverted whereby the near months sell at a premium to the forward months. At this juncture, we have no recommendation.

Soybeans: On October 18, November and January soybeans generated short term buy signals, but remain on intermediate term sell signals.

Yesterday, November soybeans lost 5.75 cents on volume of 318,671 contracts. Total open interest increased by 4,161 contracts, which relative to volume is approximately 45% below average and an open interest increase on yesterday’s decline is negative. Additionally, the November contract lost 9,916 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. Yesterday’s action is a sign that anyone contemplating bullish positions should proceed with caution.As this report is being compiled on October 19 November soybeans are trading 8.50 cents lower on the day. We have no recommendation.

WTI crude oil:

December WTI crude oil gained 25 cents on low volume of 790,741 contracts. Volume was the lowest since October 3 when 835,076 contracts were traded and crude oil advanced 57 cents while total open interest declined by 9,875. On October 18, total open interest declined by 17,099 contracts, which relative to volume is approximately 10% below average. The November contract accounted for a loss of 37,263.

As this report is being compiled on October 19 after the release of the EIA storage report, which showed a stock decline of 5.2 million barrels, the December contract is rocketing higher by $1.38 and has made a new high for the move of 52.22, which slightly takes out the October 10 print of 52.16. We have no recommendation.

From the October 17 research note on WTI:

“Crude oil has been trading firmly ever since it generated short and intermediate term buy signals in late September.We cannot recommend bullish positions due to the inherent negative fundamental set up for crude. Additionally, the market must decisively break above the neck line of the reverse head and shoulders pattern on the weekly continuation chart. This would necessitate that crude advance beyond the high for the move thus far of 51.60 made on October 10 and make a weekly low above it.”

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.2 million barrels from the previous week. At 468.7 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 2.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.2 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 1.2 million barrels last week but are above the upper limit of the average range. Total commercial petroleum inventories decreased by 3.6 million barrels last week.

S&P 500 E-mini:

The December S&P 500 E-mini gained 9.00 points on volume of 1,140,624 contracts. Total open interest increased just 2,772 contracts. As this report is being compiled on October 19, the December contract is trading 8.75 points above yesterday’s close. We have been impressed with the performance of the E-mini during the time frame when extreme volatility is the norm. For example, the three month low for the December contract occurred on September 12 (2100.75) and subsequently on two occasions, the December contract made a low of 2107.75, first on September 15 and second on October 13. In summary, the E-mini is finding support at the 2100 level, and the chances for a major market decline are fading. 

Before  recommending bullish positions, we want to see the December contract generate a short term buy signal which would occur if the daily low is above OIA’s he pivot point for October 19 of 2155.50. The firm tone of the market may be attributed to the likelihood of a Clinton victory this November, which coincides when equities tend to rally strongly.

Additionally, the earnings season will be over for the most part in the next two weeks, which will be another potential obstacle that will have fallen by the wayside. The Federal Reserve meets in mid December and the market is in the process of discounting a quarter point increase. Regardless, this is approximately two months away and the market is likely to have a strong rally once a Clinton victory is sealed on November 8.