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Tomorrow, October 10, the USDA will release its supply and demand report at 11: 00 a.m. CDT. Do not enter  new positions prior to the report. Additionally, if holding positions, make sure protective stops are in place.

Soybeans:

November soybeans lost 5.75 cents on heavier than normal volume of 252,771 contracts. Volume declined substantially from October 7 when November soybeans lost 1.50 cents on volume of 341,199 contracts and total open interest increased by 9,952 contracts. On October 8, total open interest increased again, this time by 8,073 contracts, which relative to volume is approximately 30% above average. Making the total open interest increase more impressive (bearish) was the November contract, which lost 13,513 of open interest. As this report is being compiled on October 9, November soybeans are trading 6.25 cents higher and have made a daily low of 9.32 1/2, which is above yesterday’s low of 9.26 1/2.Stand aside.

The USDA reported sales of 923.4 thousand metric tons bringing total commitments to 1.093 billion bushels versus USDA projections for the entire season, which ends on August 31, 2015 of 1.700 billion bushels. This season’s sales have been spectacular and is the best start of the season since 2008-2009.

Soybean oil:

December soybean oil lost 8 points on volume of 94,276 contracts. Total open interest increased by a massive 6,395 contracts, which relative to volume is approximately 160% above average meaning that new short sellers were entering the market in heavy numbers and driving prices fractionally lower (32.82). The October contract lost 194 of open interest, December 2014 -1425, which makes the total open interest increased more impressive (bearish).

Despite the bearish open interest action in soybean oil, we think this market has tremendous potential in the months ahead. As this report is being compiled on October 9, December soybean oil is trading 5 points higher and has made a daily low of 32.90.In order for December soybean oil to generate a short-term buy signal, the low the day must be above OIA’s key pivot point for October 9 of 33.09. The market has struggled to make a low above the pivot point has not been able to do so. We continue to like the long May 2015-short December 2015 soybean oil spread, and as of this writing has widened 7 points.

Corn: December corn will generate a short-term buy signal on October 9 if the low for the day continues to be above OIA’s key pivot point for October 9 of 3.38 3/8.

December corn advanced 2.75 cents on volume of 201,721 contracts. Volume declined considerably from October 7 when December corn advanced 8.00 cents on volume of 331,965 contracts and total open interest increased by 4,467 contracts. On October 8, total open interest increased by 7,324 contracts, which relative to volume is approximately 40% above average meaning that aggressive new buyers were entering the market in heavy numbers and driving prices to a new high for the move (3.43 1/2). The December contract lost 3,789 of open interest, which makes the total open interest increase much more impressive (bullish).As this report is being compiled on October 9, December corn is trading 2.75 cents higher and has made a new high for the move at 3.48, which is the highest print since September 16 when December corn made a high of 3.50 1/2.

Corn likely will generate a short-term buy signal on October 9, and as a consequence will probably experience a pullback. Additionally, December corn has closed higher every day since October 1, and the market is overbought relative to its 20 day moving average of 3.32 1/4, but not according to the 50 day moving average of 3.51 1/8. There has been talk about a possible cut in acreage, and if true could be a major game change for corn depending upon the size of the cut back.We advise a stand aside posture, especially going into the report.

The USDA reported sales of 784.8 thousand metric tons bringing total commitments to 602.3 million bushels versus USDA projections for the season, which ends on August 31, 2015 of 1.750 billion bushels. This week sales were the second highest of the season, which began on September 1.

Chicago wheat:

December Chicago wheat advanced 1.50 on volume of 71,482 contracts. Total open interest declined by 2,420 contracts, which relative to volume is approximately 35% above average meaning that liquidation was substantial on the modest advance. The December 2014 contract lost 859 of open interest, March 2015 -506. Yesterday, December wheat made a high of 5.11 3/4, which touched OIA’s key pivot point, but the market could not hold its gain. As this report is being compiled on October 9, December Chicago wheat is trading 14.75 cents lower and is trading at the lows of the day.

From the October 7 report: 

“Today’s key pivot point is the same as yesterday’s, and December Chicago wheat must make a daily low above 5.11 3/4 in order to generate a short-term buy signal. Unless there is a surprise in the upcoming USDA report on October 10, a short-term buy signal appears unlikely.”

The USDA reported sales of 372.4 thousand metric tons ringing total commitments to 512.2 million bushels versus USDA projections for the season, which ends on May 31, 2015 of 900 million bushels.

WTI crude oil:

November WTI crude oil lost $1.54 on heavy volume of 841,744 contracts. Volume was the strongest since October 2 when November WTI advanced 28 cents on volume of 1,004,463 contracts and total open interest increased by 1,374 contracts. On October 8, total open interest increased by 6,723 contracts, which relative to volume is approximately 65% less than average. The November contract lost 26,703 of open interest, which makes the minor increase of open interest more impressive (bearish).

As this report is being compiled on October 9, November WTI is trading sharply lower again, this time by $1.61 and is making new lows for the move. On October 3, 7 and 8, WTI fell by a combined $4.30 while total open interest increased only 4,347 contracts. This underscores reluctance on the part of potential market participants to make bearish bets as prices move lower. We are looking for increases of open interest that do not move the market lower. This could occur over period of weeks, and could signal a market bottom. In other words, we want to see market participants get bearish at the bottom without prices moving lower.

Natural gas:

November natural gas lost 10.2 cents on volume of 312,263 contracts. Total open interest declined only 431 contracts, which is minuscule and dramatically below average. The November contract accounted for loss of 14,821 of open interest. As this report is being compiled on October 9 after the release of the storage report by the EIA, natural gas is trading unchanged after rallying to a high of 3.941. As a result, November natural gas will not generate a short-term sell signal on October 9 because the daily high is above OIA’s key pivot point for October 9 of 3.921.On October 9, November natural gas has made a daily low of 3.815, which is the lowest print since 3.812 made on September 8.The February 2015-May 2015 bull spread has narrowed 1.00 cent on October 9. We like the spread, but we do not see a strong widening of the spread until the full force of winter begins to affect consumption of natural gas.

The Energy Information Administration announced that working gas in storage was 3,205 Bcf as of Friday, October 3, 2014, according to EIA estimates. This represents a net increase of 105 Bcf from the previous week. Stocks were 359 Bcf less than last year at this time and 378 Bcf below the 5-year average of 3,583 Bcf. In the East Region, stocks were 158 Bcf below the 5-year average following net injections of 62 Bcf. Stocks in the Producing Region were 180 Bcf below the 5-year average of 1,145 Bcf after a net injection of 32 Bcf. Stocks in the West Region were 40 Bcf below the 5-year average after a net addition of 11 Bcf. At 3,205 Bcf, total working gas is below the 5-year historical range.

10 year Treasury Note: On October 8, the December 10 year Treasury Note generated a short and intermediate term buy signal.

The December Treasury Note advanced 12 points on heavy volume of 2,290,910 contracts.Volume was the strongest since August 28 when 2,881,309 contracts were traded and the December note closed at 125-270.On October 8, total open interest increased by a 51,661 contracts, which relative to volume is approximately 10% below average, but a substantial number nonetheless. We have cautioned clients against short positions in the December note because we felt that equities were headed lower and this would boost note prices.We see no compelling reason to be long notes.

Dollar index:

The December dollar index lost 37.1 points on volume of 51,362 contracts. Total open interest declined by 1,232 contracts, which relative to volume is approximately 10% below average.Yesterday, the December dollar index made a low of 85.290, which is the lowest print since September 26 (85.235).We think it is likely the dollar index will continue to pullback, most likely to its 50 day moving average of 83.657. At that point, we would consider bullish positions. Stand aside.

S&P 500 E mini:

The December S&P 500 E mini advanced 33.75 points on volume of 2,527,103 contracts. Total open interest declined by 33,568 contracts, which relative to volume is approximately 45% less than average. Although, the open interest decline was below average, the fact that open interest declined at all is clearly bearish. In summary, both longs and shorts were liquidating as the market moved higher.

As this report is being compiled on October 9, the E mini has reversed course and is currently trading 37.75 points lower. The December E mini generated a short and intermediate term sell signal on October 2, and as the extract from the October 2 report shows, the E mini had to make a low above OIA’s key pivot points of 1962.80 and 1980.40 in order for the sell signals to reverse. This never occurred, and yesterday’s rally was engineered by the US Federal Reserve. 

From the October 2 report:

“In order for the short-term sell signal to reverse, the low the day must be above OIA’s key pivot point for October 3 of 1980.40 and for the intermediate term sell signal to be reversed, the low the day must be above OIA’s key pivot point for October 3 of 1962.80.”

Cotton: This will be our last report until we see a trading opportunity or a signal change.

December cotton lost 28 points on volume of 17,544 contracts. Total open interest increased by 924 contracts, which relative to volume is approximately 100% above average meaning that new short sellers were aggressively entering the market in heavy numbers and driving prices lower (64.30). As this report is being compiled on October 9, December cotton is trading 1.36 cents lower and has made a daily low of 63.12. December cotton was unable to make a daily low above our pivot point, and as a result continues to trade lower. December cotton remains on a short and intermediate term sell signal. Stand aside.

From the October 7 report:

“In order for December cotton to generate a short-term buy signal, the low must be above OIA’s key pivot point for October 8 of 64.38, and the low thus far has been 64.30. December cotton remains on a short and intermediate term sell signal. Stand aside.”

Sugar: This will be our last report on sugar until we see a trading opportunity or changes signals.

March 2015 sugar lost 11 points on volume of 73,701 contracts. Total open interest increased by 931 contracts, which relative to volume is approximately 45% below average. As this report is being compiled on October 9, March 2015 sugar has closed 22 points lower at 16.70.March 2015 sugar remains on a short and intermediate term sell signal.

From the October 7 report:

“October 7 was the 2nd day in a row that sugar prices advanced and total open interest declined. During the past 2 days, March 2015 sugar has advanced 59 points while total open interest has declined by 14,417 contracts, which means that short covering has been powering the market higher, not new buying. In order for March 2015 sugar to generate a short-term buy signal, the low the day must be above OIA’s key pivot point for October 8 of 16.95.”

Cocoa:

December cocoa lost $13.00 on volume of 15,008 contracts. Volume fell precipitously from October 7 when December cocoa lost 28.00 on volume of 27,651 contracts and total open interest declined by 868 contracts. On October 8, open interest declined again, this time by 1,711 contracts, which relative to volume is approximately 360% above average meaning that liquidation was off the charts heavy.

For the past 6 days, open interest has declined every day bringing the 6 day total decline to 14,825 contracts while December cocoa has lost 262.00. As this report is being compiled on October 9, December cocoa has closed 19.00 higher, but has not taken out yesterday’s low for the move of 3,030. The amount of liquidation has been significant, and puts cocoa on much stronger footing.We have mentioned this before, but it’s worth mentioning again: we do not see increases of open interest on price declines.

In short, potential market participants are not willing to bet on lower prices at the lower end of the trading range.The Ebola crisis is not going away anytime soon and we think it will continue to affect cocoa distribution. Clients should take a look at cocoa spreads: buying March 2015 futures and selling December 2015 futures.The low for the spread occurred on September 15 with March 2015 cocoa selling at a $20.00 premium to December 2015.

Yesterday, the spread closed at 48.00 premium to March 2015 and the high for the spread occurred on September 24 ($93.00) premium to March 2015. Although we do not discount the spread narrowing somewhat more, we think most of the major damage has already occurred, especially because of massive liquidation during the course of several days.On October 2, December cocoa generated a short and intermediate term sell signal. Other than the spread position, continue to stand aside.

Coffee:

December coffee lost 1.90 cents on volume of 29,898 contracts. Volume increased from October 7 when coffee lost 4.45 cents on volume of 23,753 contracts and total open interest declined by 394 contracts. On October 8, total open interest increased by a massive 2,081 contracts, which relative to volume is approximately 175% above average, meaning that the shorts had the edge in yesterday’s trading. There were open interest increases across the board. As this report is being compiled on October 9, December coffee has closed 7.20 cents higher at $2.2165. The July 2015-March 2016 bull spread has widened 30 points on October 9. We continue to like the spread and think this is a conservative way of trading the market without exposing the portfolio to excessive risk.