This afternoon we will compile the latest COT data into the December 1 Weekend Wrap.

Soybeans:

January soybeans lost 15.25 cents on volume of 184,413 contracts. Total open interest increased by 1,211 contracts, which relative to volume is approximately 65% below average. The January contract accounted for loss of 4,424 of open interest. The latest COT report showed that managed money increased their long position and the ratio now stands at 7.03:1, which is up from 6.93:1 of the previous week and 6.24:1, the ratio of 2 weeks ago. In short, managed money is long soybeans at the highest ratio of the past couple of months. As this report is being compiled, soybeans are trading 2.50 cents higher, but have been unable to penetrate the high for the move of 13.46 made on December 2, which was the highest price since 13.63 made on September 19. We much prefer the long side of soybean meal to soybeans, not only because soybean meal is significantly outperforming soybeans, but because the long to short ratio in soybeans is nearly twice that of soybean meal. However, if so inclined, the low of $13.11 1/4 made on December 3 should be used as an exit point for new bullish positions.

Soybean meal:

January soybean meal lost $7.80 on total volume of 79,497 contracts. Total open interest declined by 508 contracts, which relative to volume is approximately 60% less than average. The December contract lost 1,138 of open interest as of the latest COT report, managed money is long soybean meal by a ratio of 3.61:1, which is up from the previous week of 2.86:1, and the ratio of 2 weeks ago of 3.44:1. As this report is being compiled on December 3, January meal is trading $2.40 higher, and has made and intraday low of $423.70. For new bullish positions, we recommend using the exit point of 423.70, the low on December 3.

Corn:

March corn closed unchanged on light volume of 173,582 contracts. Total open interest declined by 200 contracts, which is minuscule and dramatically below average. The December contract lost 5,298 of open interest, and there was sufficient open interest increases in the forward months to bring down total open interest to a minor number. The COT report showed that managed money massively increased their net short exposure and the short to long ratio stands at 1.60:1, which is up dramatically from the previous week of 1.19:1 and the ratio of 2 weeks ago of 1.24:1. As this report is being compiled on December 3, March corn is trading 3.50 higher and has made a high of $4.29 1/2. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat:

March Chicago wheat lost 7.00 cents on total volume of 66,222 contracts. Total open interest increased by 1,579 contracts, which relative to volume is average. The latest COT report showed that managed money increased their short exposure and the current ratio stands at 1.72:1, which is up from the previous week of 1.66:1 and the ratio of 2 weeks ago of 1.55:1. As this report is being compiled on December 3, March wheat is trading 4.00 cents higher, but has not tested the high of 6.74 3/4 made on December 2. With the stratospheric short to long ratio of managed money, we continue to like writing out of the money puts for an interim trade until wheat generates a short-term buy signal and long positions can be initiated. The key pivot point to watch is $6.79, and a close above this would signify that wheat has entered a new bull market.

March Kansas City wheat lost 3.50 cents on light volume of 11,486 contracts. Total open interest declined by 427 contracts, which relative to volume is approximately 40% above average. The December contract accounted for loss of 791 of open interest. The COT report showed that remarkably managed money is long KC wheat by a ratio of 1.80:1, which is down from the previous week of 2.28:1 and the ratio of 2 weeks ago of 3.52:1. In other words, managed money is nearly equally bearish in Chicago wheat as they are bullish in Kansas City wheat, but Kansas City wheat is the underperformer. Go figure. As this report is being compiled on December 3, March KC wheat is trading 4.25 higher, but has not tested the high of 7.16 1/4 made on December 2. Although our preference is to write puts in Chicago wheat, this can be applied in KC, though KC is vulnerable to more downside due to the relatively heavy long to short ratio of managed money.

Live cattle:

February live cattle gained 2.5 points on volume of 41,003 contracts. Total open interest increased by a massive 2,489 contracts, which relative to volume is approximately 140% above average. The December contract lost 2,547 of open interest, which makes the total open interest increase much more impressive (bullish). The COT report showed that managed money was long cattle by ratio of 4.38:1, which is down from the previous week of 4.95:1 and the ratio of 2 weeks ago of 5.74:1. The highest long to short ratio was 6.01:1, therefore there has been a fair amount of liquidation since then. Clients should consider various option strategies that allow them to make some money while waiting for cattle to make its move. Two strategies that would work in this market is bull put spreads and/or bull call  spreads rather than be long futures.

WTI Crude oil:

January crude oil advanced $1.10 on light volume of 465,507 contracts. Total open interest declined by 3,832 contracts, which relative to volume is approximately 60% below average. The January contract accounted for loss of 8,600 of open interest. The COT stats showed that managed money is long crude oil by a ratio of 5.29:1, which is down from the previous week of 5.94:1, but up from the ratio of 2 weeks ago of 4.22:1. As this report is being compiled on December 3, January WTI is trading $1.99 higher and has made a new high for the move at a $96.04, which is the highest price for January WTI since November 1 when it reached $96.93. We have been warning for well over a week to avoid the short side of the market due to buy signals in the products and Brent crude.

From the November 25 report:

“Although it would be easy for us to join the bearish side of the market, we are unable to join the pack due to gasoline being on a short and intermediate term buy signal, Brent crude on a short and intermediate term buy signal, heating oil on a short-term buy signal, and it appears that heating oil will generate in intermediate term buy signal on November 26.”

Brent crude oil:

January Brent crude advanced $1.76 on volume of 688,162 contracts. Volume was the highest since November 21 when 699,434 contracts were traded and Brent crude advanced $2.02 while total open interest increased by 11,832 contracts. On December 2, total open interest declined by 3,157, which relative to volume is approximately 75% below average and the January contract accounted for loss of 20,885 of open interest. On December 2, January Brent made a new high for the move at 112.34 and as this report is being compiled on December 3 has made another new high of 112.93, which is its highest price since August 28 when it made a high of $113.31. This was the highest price for January Brent for 2013. Although, Brent has out performed WTI, the long to short ratio in Brent according to the latest COT report is 2.34:1, compared to the long to short ratio in WTI of 5.29:1.  It was a disappointment to see total open interest decline even with the decline in the January contract. This, along with previous dismal increases of open interest on rallies underscores the skepticism of market participants about the current rally. Brent crude remains on a short and intermediate term buy signal. Stand aside.

Natural gas: On December 2, January natural gas generated an intermediate term buy signal and had generated a short-term buy signal on November 25.

January natural gas advanced 3.4 cents on volume of 297,227 contracts. Total open interest increased by 8,175 contracts, which relative to volume is average. The January contract accounted for loss of 5,133 of open interest, which makes the total open interest increase much more impressive (bullish). December 2 was the 3rd day in a row beginning on November 27 that prices have advanced and open interest has increased. The problem with this is that open interest increases are occurring at the very high-end of the trading range of the past several months. This makes natural gas vulnerable to a sharp setback when the market is ready to correct. Do not enter new long positions at current levels.

Euro:

The December euro lost 47 points on volume of 187,261 contracts. Total open interest declined by only 242 contracts, which is minuscule and dramatically below average. As this report is being compiled on December 3, the December euro is trading 65 points higher and has made a high of 1.3615, which is one pip lower than the high of December 2 and 8 pips below 1.3623, the high made on November 29, which has been the high for the move thus far. The December euro will not generate a short-term buy signal on December 3, but it remains on an intermediate term buy signal. We have advised a stand aside posture with respect to the long GBP/EUR trade due to its overbought condition. Also, last week we advised that the long USD/JPY trade be liquidated due to the overbought condition and our belief that the euro is going to generate a short-term buy signal, which will temporarily  weaken the dollar.

British pound:

The December British pound lost 12 pips on heavy volume of 130,133 contracts. Volume was the highest since September 19 when 138,104 contracts were traded. On December 2, open interest increased by 7,878 contracts, which relative to volume is approximately 140% above average meaning that new longs and shorts were aggressively initiating positions and short sellers had an edge by moving prices fractionally lower on the day. As we pointed out in yesterday’s report, open interest has increased every single day since November 13, which is 13 consecutive days. The market is massively overbought and we recommend a stand aside posture.

S&P 500 E mini:

The S&P 500 E mini lost 4.25 points on volume of 1,344,444 contracts. Total open interest increased by 8,862 contracts, which relative to volume is approximately 65% below average. As this report is being compiled on December 3, the E mini is trading 11.25 points lower, and we suspect the market is discounting a favorable employment report, which will be released on December 6. We continue to advise long put protection for those clients who hold long equity positions.