Bloomberg Access:{OIAR<GO>}

Live cattle: It appears quite probable that December live cattle will generate a short term buy signal on October 24. However, as this report is being compiled, approximately 90 minutes remain in the session and conceivably the market could reverse. For a short term buy signal to occur on October 24, the low of the day must be above OIA’s key pivot point for October 24 of 103.015.

December live cattle advanced 1.75 cents on heavy volume of 64,664 contracts. Volume easily surpassed that of October 20 when the December contract gained 3.00 cents (the daily limit) on volume of 45,808 contracts while total open interest increased only 301. On October 21, total open interest declined by 2,253 contracts, which relative to volume is approximately 25% above average meaning liquidation was substantial on Friday’s strong gain This reflects market participants who were liquidating on the rally.

The COT report revealed that managed money liquidated 234 contracts of their long positions and added 4,336 to their short positions. Commercial interests added 2,566 to their long positions and liquidated 638 of their short positions. As of the latest report, managed money is long live cattle by a ratio of 1.37:1, down from the previous week of 1.49:1 and the ratio two weeks ago of 1.56:1.

As this report is being compiled on October 24, the December contract is trading 2.80 cents higher on the day on substantial volume and has made a daily high of 104.750, which is the highest print since 104.600 made on September 29. If December live cattle generates a short term buy signal on October 24 as appears likely, the market should experience a pullback lasting 1-3 days before resuming the uptrend if in fact the short term buy signal represents a MAJOR turn in the market.

Keep in mind, the December contract made a contract low of 96.100 on October 14, which also was a multi-year low going back to October 2010. More likely, cattle is experiencing is a normal technical bounce usually seen after a major decline. We think it is likely that the October 14 low will be tested and if support holds, the market would be in a better position to mount a sustainable move higher. For now, stand aside.

Soybeans: January 2017 soybeans will generate an intermediate term buy signal on October 24 provided that daily low remains above OIA’s he pivot point for October 24 of 9.84 3/4. January soybeans generated a short term buy signal on October 18.

Soybeans advanced 7.50 cents on volume of 229,057 contracts. Total open interest declined by a massive 54,522 contracts due to the imminent expiration of the November contract. The COT report released on Friday showed that managed money added 16,286 contracts to their long positions and liquidated 3,197 of their short positions. Commercial interests added 8,243 to their long positions and also added 27,579 to their short positions. As of the latest report, managed money is long soybeans by a ratio of 4.71:1, up sharply from the previous week of 3.55:1 and the ratio two weeks ago 2.62:1.

Though soybeans are rallying strongly on October 24, the fact remains that soybean oil is driving the complex and this is due to the strong fundamentals for palm oil. It is difficult to determine the length of the current rally and typically soybeans get a post harvest bounce, but we do not think the market has the wherewithal for a major move at this juncture. We recommend a stand aside posture.

WTI crude oil:

December WTI crude oil gained 22 cents on volume of 963,599 contracts. Total open interest increased by 13,307 contracts, which relative to volume is approximately 40% below average, but a total open interest increase on Friday’s advance is positive. The November contract accounted for a loss of 1,061 of open interest.

The COT report revealed that managed money liquidated 10,517 of their long positions and also liquidated 20,628 of their short positions. Commercial interests liquidated 38,531 of their long positions and also liquidated 43,297 of their short positions. As of the latest report, managed money is long WTI by a hefty 5.22:1, up sharply from the previous week of 4.06:1 and the ratio two weeks ago of 3.14:1.

As this report is being compiled on October 24 the December contract is trading 85 cents below Friday’s close and has made a daily low of 49.62, which is the lowest print since 49.47 made on October 17. Stand aside.

From the October 19 research note on WTI:

“Yesterday’s strong price movement, but negative open interest action may indicate that crude has found its ceiling. This area coincides with the neck line of the reverse head and shoulders pattern on the weekly continuation chart. Stand aside.”

Natural gas:

December natural gas lost 7.3 cents on volume of 462,287 contracts. Total open interest declined by 4,260 contracts, which relative to volume is approximately 50% below average. The November contract accounted for a loss of 19,075 of open interest.

The COT report revealed that managed money added 9,964 to their long positions and liquidated 14,534 of their short positions. Commercial interests added 8,480 to their long positions and also added 35,641 to their short positions. As of the latest report, managed money is long natural gas by a new high ratio for 2016 of 1.97:1, up from the previous week of 1.74:1 and the ratio two weeks ago of 1.57:1.

The heavy net long position of managed money will exert considerable selling pressure as prices continue to move lower which is the typical seasonal pattern at this time of year. As this report is being compiled on October 24, the November 2016 contract is trading 13.3 cents lower while the December contract is trading 4.1 lower on the day. Both November and December natural gas remain on short and intermediate term buy signals and the December contract will generate a short term sell signal if the daily high is below OIA’s key pivot point for October 24 of $3.289. We continue to recommend a stand aside posture in natural gas.