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The report issued by the USDA for soybeans, corn and wheat were all very bearish and took many market participants by surprise. An extreme bearish mindset is engulfing the grain markets.

Soybeans:

November soybeans lost 12.25 cents on heavy volume of 259,643 contracts. Volume was stronger than July 11 when 255,216 contracts were traded and November soybeans closed at 10.75 cents. On September 11, total open interest increased by a hefty 8,469 contracts, which relative to volume is approximately 30% above average meaning that new short sellers were entering the market at an above average rate and driving prices to a new contract low (9.69 1/2).The September contract lost 65 of open interest, November -1658, which makes the total open interest increase more impressive (bearish).

As this report is being compiled On September 12, November soybeans are trading 0.75 cents higher and have made a daily low of 9.79. Soybeans are massively oversold, but they can stay massively oversold for an extended period before a short covering rally takes place. The catalyst for this may be a major frost in the upper Midwest, but if this does not occur, the market will continue to have tepid rallies punctuated by new contract lows.The next downside target is $8.96 1/2 made on June 8, 2010. Soybeans remain on a short and intermediate term sell signal. Stand aside.

The USDA pegged the upcoming harvest at 3.913 billion bushels with a yield of 46.6 bushels per acre. This is a large number, and unless there is damage due to frost, the crop will increase.

Corn:

December corn lost 4.75 cents on heavy volume of 266,751 contracts. Volume was stronger than August 28 when December corn advanced 4.25 cents on volume of 262,810 contracts and total open interest declined by 16,946 contracts.On September 11, total open interest increased by a massive 11,043 contracts, which relative to volume is approximately 55% above average meaning that new short sellers were aggressively entering the market and driving prices to a new contract low (3.35 3/4).

The September contract lost 1395 of open interest, which makes the total open interest increased more impressive (bearish). The next downside target is the June 29, 2010 low of 3.24 1/2. If corn breaks below this, the next area of support is the September 11, 2009 low of 3.00. As this report is being compiled on September 12, December corn is trading 2.25 cents lower, but has not taken out yesterday’s contract low. December corn remains on a short and intermediate term sell signal. Stand aside.

USDA reported that the corn crop is estimated at 14.395 billion bushels and that yield per acre is 171.7, which was above expectations. The problem with corn is unless there is a major freeze, the crop size will increase.

Chicago wheat:

December Chicago wheat lost 10.25 cents on relatively low volume of 83,471 contracts.Total open interest increased by only 42 contracts. The September contract accounted for loss of 381 of open interest, March 2015 -714. On September 11, December Chicago wheat made a new contract low at $5.03, and as this report is being compiled on September 12, has made another new contract low at $5.00, which is the lowest print for Chicago wheat since July 2010. The major downside target is the June 9, 2010 low of 4.26.December Chicago wheat remains on a short and intermediate term sell signal. Stand aside.

The USDA reported that ending stocks for the 2014-2015 season would be 698 million bushels, which is considerably above expectations. Global stocks are estimated at a whopping 196.38  million metric tons, which also is above trade expectations.

Live cattle: Today’s report will be the last for live cattle until we see a trading opportunity or cattle generates sell signal(s).

December live cattle lost 2.40 cents on volume of 67,543 contracts. Volume declined considerably from September 10 when December live cattle lost 17.5 points on volume of 97,757 contracts and total open interest increased by 8,319 contracts. On September 11, total open interest increased by 1,823 contracts, which relative to volume is average.However, the October contract accounted for loss of 5,786 of open interest, which makes the total open interest increased more impressive (bearish).As this report is being compiled on September 12, December live cattle is trading 1.025 cents lower and is trading at the lows of the day.

We do not like the open interest action on yesterday’s decline, and are getting leery about the long side of the live cattle market. This is not to say there will not be a test of the contract high of 1.63875 made on September 10, but it is apparent market participants are not liquidating on the decline and that new short selling is coming from commercial interests..If clients are inclined to trade the cattle market, in our opinion the only way to do it in futures is to buy the October contract and sell either the December 2014 or February 2015 contract. However, we do not see a compelling reason to be involved in the cattle market.

Lean hogs: Today’s report will be the last for lean hogs until we see a trading opportunity or lean hogs generate sell signal(s).

December lean hogs lost 1.450 cents on volume of 52,826 contracts. Total open interest increased by a massive 2,963 contracts, which relative to volume is approximately 120% above average meaning that new short sellers were entering the market in heavy numbers and driving prices lower (96.650), which has been taken out in today’s trading on September 12 (94.800). The October contract lost 2,618 of open interest, which makes the total open interest increase more impressive (bearish). Like cattle, we are becoming leery of the long side of the lean hog market, and in our view the only way to trade futures conservatively is through a bull spread: buying October 2014 and selling December 2014 or February 2015.

WTI crude oil:

October WTI crude oil advanced $1.16 on huge volume of 952,291 contracts.Volume was the strongest since July 17 when 1,135,765 contracts were traded and October WTI closed at $101.23. On September 11, total open interest declined by 8,580, which relative to volume is approximately 55% below average. The October contract accounted for loss of 32,669 of open interest and there was sufficient open interest increases in the forward months to offset 75% of the loss in the October contract. The exceptionally large volume is a bit of the mystery, however the range traded on September 11 was $3.01, which is considerably above the 21 day average true range of $1.62.Yesterday, October WTI made a new low for the move at 90.43, which is the lowest print since the week of April 29, 2013 when the June 2013 contract made a low of 90.11.October WTI remains on a short and intermediate term sell signal. Stand aside.

Natural gas:

October natural gas lost 13.1 cents on heavy volume of 350,676 contracts. Volume was the highest since September 9 when October natural gas advanced 10.8 cents on volume of 429,680 contracts and total open interest increased by 6,490 contracts. On September 11, total open interest increased by 6,836 contracts, which relative to volume is approximately 20% below average. However, the October contract accounted for loss of 10,656 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on September 12, October natural gas is trading 1.6 cents higher and has made a new low for the move at 3.786, which takes out yesterday’s low of 3.809. October natural gas remains on a short and intermediate term sell signal. Stand aside.

Gold:

December gold lost $6.30 on heavier than normal volume of 171,655 contracts. Volume was the strongest since September 2 when December gold lost $22.40 on volume of 205,782 contracts and total open interest increased by 6,400 contracts. On September 11, total open interest declined by 1,977 contracts, which relative to volume is approximately 45% less than average. Yesterday, December gold made a new low for the move at $1235.30, and this has been taken out on September 12 with another new low of 1228.10, which is the lowest print since January 9, 2014 (1227.50).December gold remains on a short and intermediate term sell signal. Stand aside.

Silver:

December silver lost 32.7 cents on fairly heavy volume of 65,705 contracts. Volume was the strongest since August 28 when December silver advanced 13.4 cents on volume of 79,815 contracts and total open interest increased by 951 contracts. On September 11, total open interest increased by a massive 6,268 contracts, which relative to volume is approximately 265% above average meaning that new short sellers were very heavily entering the market and driving prices to a new contract low (18.570). As this report is being compiled on September 12, December silver has made another new contract low at 18.455. December silver remains on a short and intermediate term sell signal. Stand aside.

Australian dollar:

The September Australian dollar lost 60 pips on heavy volume of 241,668 contracts. Volume was slightly below that of September 10 when the September Australian dollar lost 37 pips on volume of 243,536 contracts and total open interest increased by 14,347. On September 11, total open interest increased by 1,396 contracts, which relative to volume is approximately 70% below average.

As this report is being compiled on September 12, the September Aussie dollar is trading 51 pips lower and has made a new low for the move at 90.30, which is the lowest print since March 25 (90.18).The collapse of the Australian dollar is nothing short of spectacular having made its high at 93.98 on September 5 and has fallen every day since September 8. OIA had been warning clients to stay away from the long side of the Australian dollar even though it had rallied strongly through September 5. Also, the Australian dollar was loaded with speculative longs and this was another sign for caution.

From the September 5 report:

“September Australian dollar gained 26 pips on volume of 93,307 contracts. Total open interest declined by 1,378 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on September 8, the September Australian dollar is trading 87 pips lower and has made a daily low of 92.75, which is significantly below OIA’s key pivot point of 93.32. As we pointed out in the weekend report, in order for the Australian dollar to generate a short and intermediate term buy signal, the daily low must be above the pivot point. The Australian dollar is loaded with speculative longs, which should exert additional selling pressure in the days ahead. On September 5, the September Australian dollar made a high of 93.98, and the high on September 8 has been 93.70. Stand aside.”

Cotton:

December cotton advanced 95 points on volume of 32,794 contracts. Volume shrank somewhat from September 10 when December cotton advanced 1.35 cents on volume of 35,968 contracts and total open interest increased by 2,207 contracts. On September 11, total open interest increased by a massive 1,559 contracts, which relative to volume is approximately 75% above average meaning that new longs were entering the market aggressively and pushing prices to a new high for the move( 68.18), which is the highest print since 68.24 made on July 24. There were open interest increases in the December 2014 through March 2016 contracts. Additionally, the December 2014-March 2015 spread widened by 32 points and the December 2014-May 2015 spread widened by 34 points. This is bullish. Also bullish, the December contract closed at a premium to July 2015 for the first time.

In order for cotton to continue its advance, the low the day must be above OIA’s key pivot points of 68.11 and then 71.02. These should be watched closely, because if cotton is unable to make a daily lows above the pivot points, the rally will stall.We advise against entering new futures positions at this juncture and the bull spreads have widened, which makes them vulnerable to a pullback. On August 22, December cotton generated a short-term buy signal, but remains on an intermediate term sell signal.

Cocoa:

December cocoa lost $35.00 on volume of 21,892 contracts. Total open interest declined by a massive 2,379 contracts, which relative to volume is approximately 320% above average meaning that liquidation was off the charts heavy.The December contract lost 3640 of open interest. From September 5 through September 11, open interest has declined every day and totals 7,418 contracts while December cocoa has declined by $104.00.

As we said in yesterday’s report, the decline of open interest as prices move lower is perfectly normal, especially in the early stages of a bear market. However, this will be followed by increases of open interest on price declines and open interest declines when cocoa advances.Yesterday, December cocoa made new low at 3019,which is the lowest print since May 27 (3002). We recommend waiting for a rally before considering bearish positions. December cocoa generated a short-term sell signal on September 5 and an intermediate term sell signal on September 8.

Coffee:  On September 11, December coffee generated a short-term sell signal, but remains on an intermediate term buy signal.

December coffee advanced 4.20 cents on volume of 28,179 contracts. Interestingly, volume was nearly identical to September 10 when December coffee lost 11.35 cents on volume of 28,207 contracts and total open interest increased by 520 contracts. On September 11, total open interest declined by a massive 2,621 contracts, which relative to volume is approximately 265% above average meaning that massive numbers of market participants were liquidating as prices advanced. This is bearish. The December contract accounted for loss of 1,612 of open interest, March -1,667.As this report is being compiled on September 12, December coffee has closed at 1.8455, down 90 points from yesterday’s close.Take note that the high in yesterday’s trading was 1.8590 and this is the high on September 12.