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

Soybeans:

November soybeans lost 12.50 cents on volume of 172,620 contracts. Total open interest increased by 4,819 contracts, which relative to volume is average. The November contract accounted for loss of 4,729 of open interest, which makes the total open interest increase more impressive (bearish). On Friday, November soybeans made a new contract low of 9.09 3/4, and as this report is being compiled on September 29, November soybeans made another contract low of 9.05 1/2, and is trading 11.25 cents above Friday’s close. Stand aside.

Soybean oil:

December soybean oil lost 71 points on volume of 98,781 contracts. Total open interest declined by 2,703 contracts, which relative to volume is average. The October contract lost 6,436 of open interest. The action on Friday is healthy, and as this report is being compiled on September 29 December soybean oil is trading 90 points higher and has advanced 2.84% while November soybeans have gained 1.33% and December meal is up 0.93%. In other words, on September 29, soybean oil is the leader.

We continue to like the action in soybean oil, and from September 1 through September 26, December soybean oil has lost -0.47% or -15 points while November soybeans lost 11.13%, or – $1.14. December soybean meal is the worst performer during September with a loss of 14.14 percent, or -. 49.60. Additionally, the contango in soybean oil is narrowing and appears to be headed toward inversion (backwardation). This is bullish, and spread action often foretells the future direction of a commodity.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 September 29 of 33.03. December soybean oil remains on a short and intermediate term sell signal. Stand aside.

Corn:

December corn lost 3.00 cents on volume of 144,841 contracts. Total open interest declined by a massive 14,094 contracts, which relative to volume is approximately 300% above average meaning that liquidation was off the charts heavy as December corn made a new contract low of 3.22 3/4. The December contract accounted for loss of 13,014 of open interest, and there was additional losses of open interest in the forward months.

The price and open interest action on September 26 is something of an anomaly because rather than an open interest build as prices moved to contract lows, which has been the pattern, there was massive liquidation at the lows. Additionally, there were few delivery months when open interest actually increased. It appears that we may begin to see reluctance on the part of new participants to initiate new short positions. Managed money remains long corn by a hefty margin and as we have said before, we do not see a sustained bottom in corn until managed money selling pressure has lessened and they assume a net short position.

Live cattle:

December live cattle advanced the 3.00 cent limit on healthy volume of 69,680 contracts. Total open interest increased by 3,902 contracts, which relative to volume is approximately 120% above average meaning that aggressive new longs were entering the market in heavy numbers and driving prices to a new high for the move (1.62100). As this report is being compiled on September 29, December live cattle is trading 95 points higher and has made a daily high of 1.65050, which takes out the all-time high of 1.63875 made on September 10.There appears to be good consumer demand for beef at current lofty prices, and how high the market can go is anyone’s guess. It’s going to take at least 2 years to rebuild herds, which will keep cattle prices elevated for some time. We think the best way to trade this market is via bull spreads. From a seasonal point of view, cattle tends to reach its high during the month of February. December cattle remains on a short and intermediate term buy signal.

WTI crude oil:

November WTI crude oil advanced $1.01 on light volume of 528,843 contracts. Volume declined slightly from September 25 when November WTI lost 27 cents on volume of 530,887 contracts and total open interest declined by 7015 contracts. On September 26, total open interest increased by 2,871, which relative to volume is approximately 75% below average. However, the November contract lost 11,887 of open interest, which makes the minor increase of open interest more impressive (bullish).

As clients know, we have been skeptical of the bearish argument against WTI and price and open interest action has been indicating a more bullish situation. For example, there has never been a pattern of open interest increases on the price decline, and the inversion of front versus back months has widened as prices declined. This is bullish as well. Also bullish, is that November WTI has not broken below its low for the move of $89.56 made on September 11 even though the dollar index has been making new contract highs during this period. A rising dollar index is bearish for crude oil prices and commodities in general. Although we are not wildly bullish on WTI, November WTI will generate a short-term buy signal, if the low the day is above OIA’s key pivot point for September 29 of $94.01. November WTI remains on a short and intermediate term sell signal.

Natural gas:

November natural gas advanced 1.5 cents on very light volume of 208,937 contracts. Volume shrank significantly from September 25 when November natural gas advanced 4.9 cents on heavy volume of 336,126 contracts and total open interest declined by 12,828 contracts. On September 26, total open interest declined by 5,340 contracts, which relative to volume is average.During the past 3 days, November natural gas has advanced each day however, open interest has declined each day.For example, from September 24 through September 26, November natural gas advanced 15.9 cents, however total open interest has declined by 20,024 contracts, which is bearish. We  are impressed by the price action of natural gas, but 3 consecutive days of open interest declines concerns us.

As this report is being compiled on September 29, November natural gas is trading 12.3 cents higher on low volume and has made a new high for the move at $.4.160, which is the highest print since August 28 (4.163)..For November natural gas to generate an intermediate term buy signal, the low the day must be above OIA’s key pivot point for September 29 of 4.147. On September 17, natural gas generated a short-term buy signal, and we have recommended that clients position themselves on the bullish side of the market. Previously, we advised the initiation of bull call spreads, which are working well. For those of you not involved in the natural gas market, we recommend waiting for a setback before initiating bullish positions.

10 year Treasury Note:

The December treasury note lost 10 points on fairly heavy volume of 1,683,786 contracts. Volume was the heaviest since September 5 when 1,737,991 contracts were traded and the September note closed at 125-170. On September 26, total open interest declined by 51,029 contracts, which relative to volume is approximately 20% above average meaning that liquidation was heavier than normal. As this report is being compiled on September 29, the December note is trading 11.5 points higher and has made a daily high of 124-280, which is below the high of 124-295 made on September 26.The December note remains on a short and intermediate term sell signal. We are recommending a stand aside posture due to the likelihood of the equity market continuing its southern trajectory, which will boost December note prices. Stand aside.

Dollar index:

The December dollar index advanced 46.4 points on volume of 24,385 contracts. Total open interest increased by 465 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on September 29, the December dollar index has made a new contract high at 85.930 and is trading 5 points lower on the day. The market is massively overbought stand aside.

Sugar #11:

March 2015 sugar advanced 48 points on volume of 136,540 contracts. Total open interest declined by a massive 16,092 contracts, which relative to volume is approximately 360% above average meaning that liquidation was off the charts heavy on the advance.From September 23 through September 26, March 2015 sugar has advanced 92 points, however total open interest has declined by 29,631 contracts. In short, it is not new buying that is driving sugar prices higher, rather it shorts liquidating positions that is powering sugar prices to their highest level on September 29 since September 10 (17.05). For March 2015 sugar to generate a short-term buy signal, the low the day must be above OIA’s key pivot point for September 29 of 17.00. March 2015 sugar remains on a short and intermediate term sell signal. Stand aside.

Cocoa:

December cocoa lost $22.00 on volume of 22,695 contracts. Total open interest increased by a massive 2,826 contracts, which relative to volume is approximately 420% above average, meaning that huge numbers of longs and shorts were entering the market, and the shorts had the edge on September 26. As this report is being compiled, on September 29, December cocoa has closed at 3,311, unchanged from Friday.The cocoa market is massively overbought and the large increases of open interest makes it vulnerable to sharp setbacks. We think the most intelligent way to trade cocoa via futures is through a spread: buying December 2014 and selling March, May or July 2015.

Coffee:

December coffee advanced 3.75 cents on light volume of 14,418 contracts. Total open interest declined by a massive 1,174 contracts, which relative to volume is approximately 230% above average meaning that liquidation was very heavy on the advance. September 26 was the 2nd day in a row in which open interest action was negative. On September 25, December coffee lost 6.80 cents, and open interest increased by 1,283 contracts, which is bearish. As this report is being compiled on September 29, December coffee has closed at 1.9125, up 5.20 cents. In order for December coffee to generate a short-term buy signal, the low the day must be above OIA’s key pivot point for September 29 of 1.9190. December coffee remains on a short and intermediate term sell signal.