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On September 30, the USDA will release its quarterly grain stocks report.

Soybeans:

November soybeans lost 18.75 cents on volume of 229,769 contracts. Volume was the strongest since September 11 when November soybeans lost 12.25 on volume of 259,643 contracts and total open interest increased by 8,469 contracts. On September 22, total open interest increased by a hefty 9,145 contracts, which relative to volume is approximately 55% above average meaning that aggressive new short sellers were heavily entering the market and driving November soybeans to a new contract low (9.34 1/4). The November contract accounted for loss of 1,308 of open interest, which makes the total open interest increase more impressive (bearish).

 

As this report is being compiled on September 23, November soybeans are trading unchanged, but have made another new contract low at 9.31.As we have said on a number of occasions, we do not think soybeans will near its bottom until managed money assumes a net short position. According to the most recent COT report, managed money remains long soybeans by ratio of 1.24:1, therefore more liquidation is ahead. From September 15 through September 22, open interest has increased every day and totals 44,644 contracts while November soybean prices have declined 47 cents. In short, during the past several days, the dominant action in soybeans has been the addition of new longs and shorts, not the liquidation of shorts and longs, which would reduce open interest. Stand aside.

Corn:

December corn lost 1.50 cents on volume of 195,434 contracts. Volume was the strongest since September 16 when December corn advanced 0.75 cents on volume of 220,948 contracts and total open interest increased by 4,770 contracts. On September 22, total open interest increased by a massive 10,353 contracts, which relative to volume is approximately 110% above average meaning that aggressive new short sellers were entering corn in heavy numbers and driving prices to a new contract low (3.26 3/4). The December contract accounted for loss of 1,532 of open interest, which makes the total open interest increase more impressive (bearish). The March 2015 through December 2017 contracts all gained open interest indicating that shorts were in control across the board.

As this report is being compiled on September 23, December corn is trading 3.75 cents lower and has made another new contract low 0f 3.26. Similar to soybeans, corn has seen open interest increases from September 15 through September 22 with the exception of September 17 when corn declined 2.00 cents and total open interest declined by 3412. Corn has the same problem as soybeans with respect to the net long position of managed money, and these longs have to get blown out of the market and assume a net short position before corn can begin to bottom.

Chicago wheat:

December Chicago wheat advanced 2.25 cents on heavy volume of 109,348 contracts. Total open interest increased by a massive 14,594 contracts, which relative to volume is approximately 410% above average meaning that a battle ensued between longs and shorts and longs were able to move the market fractionally higher. The December 2014 through March 2016 contracts all gained open interest. The reason for the advance was that the USDA reported a sale of US wheat to Egypt, which is the world’s largest buyer of wheat. US wheat has not been competitive on the world market and perhaps the sale was more for political reasons than economic. As this report is being compiled on September 23, December Chicago wheat is trading 1.25 cents lower, but has not taken out yesterday’s contract low of 4.69 1/2.Chicago wheat continues to be on a short and intermediate term sell signal. There is no reason to be involved in the market.

WTI crude oil:

November WTI crude oil lost 78 cents on very low volume of 432,299 contracts.Volume was the weakest since August 27 when WTI crude oil advanced 2 cents on volume of 343,334 contracts and total open interest increased by 3,002 contracts. On September 22, total open interest increased by 853 contracts, which minuscule and dramatically below average . The October contract lost 15,954 of open interest , which makes the total open interest increase more impressive (bearish). The November 2014 through July 2015 contracts all gained open interest.This is the first open interest increase that we have witnessed on a price decline since September 12 when WTI lost 56 cents and total open interest increased by only 623 contracts on volume of 659,712.The low volume accompanying yesterday’s trade also is positive considering the November contract made a low of 90.41, which is the lowest print since September 15 (89.76).

We continue to emphasize that total open interest increases are few and far between on price declines, which indicates that market participants are not willing to bet their capital on lower prices. We recently saw this phenomenon in cocoa when prices declined approximately 10% from the August 27 high and we saw a consistent pattern of open interest declines accompanying price declines. This made cocoa’s downside move suspect.

Additionally, the inversion of the near month versus the back months continues. Yesterday for example, November declined 78 cents, December -80, January 2015 -81, February 2015 -78. In short, even when WTI prices were trading lower on the day near the bottom of the range, the inversion remained intact.As this report is being compiled on September 23, November WTI is trading 87 cents higher while December + 72 , January 2015 +58 , February 2015 +33. The widening of the inversion on a modest price advance is bullish.November WTI made its low for the move of 89.56 on September 11, and made a secondary low on September 15 at 89.76. November WTI remains on a short and intermediate term sell signal. Stand aside.

Natural gas:

October natural gas advanced 1.3 cents on volume of 238,660 contracts. Total open interest declined by a massive 13,774 contracts, which relative to volume is approximately 125% above average meaning that liquidation was extremely heavy on the modest advance. The October contract accounted for loss of 16,409 of open interest. As this report is being compiled on September 23, October natural gas is trading 9 ticks lower after making a daily high of 3.903, which is below the September 19 high of 3.922. The short-term moving averages have a bullish tilt with the 20 day moving average standing at $3.914 and the 50 day, 3.905. For clients who initiated a bull call spread, maintain the position until natural gas penetrates the low for the move of 3.740 made on July 28.

Australian dollar:

The December Australian dollar lost 59 pips on volume of 117,898 contracts. Total open interest increased by 1,049 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on September 23, the December Australian dollar is trading 31 pips lower and has made a new low for the move at 87.77, which is the lowest print since February 4, 2014 (87.05). The December Australian dollar remains on a short and intermediate term sell signal. Stand aside.

10 year Treasury Note:

The December 10 year Treasury Note gained 9 points on light volume of 1,020,227 contracts. Total open interest increased by 20,982 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on September 23, the December note is trading 6 points higher on a weaker equities market. The December note remains on a short and intermediate term sell signal. Stand aside.

Cotton: On September 22, December cotton generated a short-term sell signal, and remains on an intermediate term sell signal.

December cotton lost 1.80 cents on volume of 28,618 contracts. Volume was the strongest since September 11 when December cotton advanced 95 points on volume of 32,794 contracts and total open interest increased by 1,559 contracts.On September 22, total open interest increased by 995 contracts, which relative to volume is approximately 40% above average meaning that new short sellers were entering the market and driving prices to a new low for the move of 66.22, which is the lowest print since August 1 (62.02). Yesterday’s action was decidedly bearish. Now that cotton has generated a short-term sell signal, we recommend waiting for a counter trend rally , which is the opportunity to initiate bearish positions. Usually, after the generation of a sell signal, the market has a tendency to rally, and we strongly advise against initiating bearish positions at the bottom of the trading range.

Cocoa:

December cocoa advanced $69.00 on volume of 28,652 contracts. Volume declined somewhat from September 19 when December cocoa advanced 67.00 on volume of 30,852 contracts and total open interest increased by 3,532 contracts. On September 22, total open interest increased again, this time by a massive 1,515 contracts, which relative to volume is approximately 105% above average meaning that new longs were aggressively entering the market and bidding up prices to new contract high (3,343).

As this report is being compiled on September 23, December copper has made a new contract high at 3,366 and closed at 3,297, down 31.00 from yesterday’s close.The market is becoming highly volatile, which means it’s very dangerous to trade, especially since open interest has increased significantly since September 17. From September 17 through September 22, total open interest has increased by 7,274 contracts, while December cocoa has advanced 258.00. This, makes cocoa vulnerable to long liquidation in the event of a sharp decline. Unfortunately, with the volatility as high as it is, call options have become expensive. One way to take advantage of the volatility would be to write (Short) out of the money puts. However, this should be employed only after a further correction.

Coffee: On September 22, December coffee generated an intermediate term sell signal, after generating a short-term sell signal on September 11.

December coffee advanced 1.40 cents on light volume of 13,416 contracts. Volume shrank considerably from September 19 when December coffee lost 3.20 cents on volume of 22,557 contracts and total open interest declined by 1,388 contracts. On September 22, open interest declined again, this time by a massive 805 contracts, which relative to volume is approximately 140% above average, meaning that liquidation continued even though coffee prices advanced. This is healthy for the market, and clients know we have been looking for coffee to shed its speculative long interest. The December contract accounted for loss of 1,084 of open interest. As this report is being compiled on September 23, December coffee has closed at 1.8090, up 1.50 cents. We think coffee has terrific upside, but it first must generate a short-term buy signal before we would recommend long positions. Stand aside.