March coffee is getting close to generating a short-term buy signal for the first time since May 2013. However, we advise clients to wait for the generation of the signal before initiating bullish positions.

Soybeans:

January soybeans lost 5.25 and March -4.75 cents on total volume of 316,623 contracts. Volume was the highest since September 12 when 320,575 contracts were traded. On December 10, total open interest increased by 8,212 contracts, which relative to volume is  average. The January contract lost 10,354 of open interest, which makes the total open interest increase much more impressive (bearish). USDA reported that exports had been increased by 25 million bushels (mb) from the previous report and that ending stocks for 2013-2014 had been reduced to 150 mb. Though friendly, there was nothing surprising about the report and the market reacted accordingly. The total open interest increase on the modest decline accompanied by heavy volume is bearish in our view and we think soybeans will struggle to move higher. Soybeans remain on a short and intermediate term buy signal. For those clients who remain long and want to stay in the position, we recommend writing out of the money calls while tightening up stops to mitigate risk.

Soybean meal:

January soybean meal lost $.40 while March – $1.90 on total volume of 125,736 contracts. Total open interest declined by 1,839 contracts, which relative to volume is approximately 40% below average. December lost 862 and March -7744 of open interest, and there were open interest increases in the forward months to bring the total open interest below average. The USDA increased meal exports by 250 thousand metric tons (tmt). Soybean meal remains on a short and intermediate term buy signal, and we recommend a stand aside posture.

Corn:

March corn lost 2.00 cents on volume of 212,151 contracts. Total open interest declined by 1,557 contracts, which relative to volume is approximately 60% less than average. December and March lost a total of 7,662 of open interest, and there were open interest increases in the forward months which brought the total open interest down below average. The USDA report was considered somewhat positive in that they projected  xports and ethanol usage would increased by a total of 100 mb and that ending stocks would decline 95 mb, which is a 4% decline from the previous month’s report. Corn remains on a short and intermediate term sell signal, but we think it is highly likely corn will trade in a more positive manner at least in the short-term. Stand aside.

Wheat:

March Chicago wheat lost 11.75 cents on total volume of 101,361 contracts. Total open interest increased by 1,119 contracts, which relative to volume is approximately 50% below average. December and March contracts lost a total of 1,629 of open interest, which makes the total open interest increase more impressive (bearish). The USDA reported that ending stocks increased 10 mb from the previous report which was 35 mb above estimates. The big surprise was that USDA did not raise exports as was expected. Global stocks were increased by 4.3 million metric tons (mmt), which was 3.6 mmt more than estimated. March Chicago wheat remains on a short and intermediate term sell signal.

March Kansas City wheat declined 11.75 cents on volume of 22,273 contracts. Total open interest declined by 286 contracts, which relative to volume is approximately 45% less than average. The December and March contracts accounted for loss of 2,031 of open interest, and there were open interest increases in the forward months to bring total open interest down below average. On December 8, we recommended the short put position recommended earlier be liquidated and that clients should move to the sidelines. Both Chicago and KC wheat remain on short and intermediate term sell signals. Stand aside.

Cotton:

March cotton advanced 33 points on volume of 14,362 contracts. Total open interest increased by 203 contracts, which relative to volume is approximately 40% below average. Cotton made a new high for the move at 80.79, and as this report is being compiled on December 11, March cotton is trading 1.02 cents higher and has made a new high for the move at 82.93, which is its highest price since October 22 when it reached 83.11. On December 9, March cotton generated a short-term buy signal, but remains on an intermediate term sell signal. For the past 2 days we have recommended the initiation of bullish positions, and for futures traders to use the December 10 low of 79.76 as an exit point for long positions. We recommend moving up the stop based on money management to decrease risk exposure. Cotton has traded through our 1st pivot point of 81.41, and 2nd pivot point of 81.77, 3rd of 82.22 and 4th of 82.94. Stay with bullish positions.

Live cattle: On December 10, February live cattle generated a short-term sell signal, but remains on an intermediate term buy signal.

February live cattle lost 40 points on total volume of 39,584 contracts. Total open interest declined by a massive 4.710 contracts, which relative to volume is approximately 280% above average, meaning that liquidation was extremely heavy. The December contract accounted for loss of 2,367 of open interest and there was liquidation in the forward months to increase total open interest. The huge open interest decline on a relatively minor setback tells us we may be seeing tired longs throwing in the towel because the market has not performed as expected. The long to short ratio is at a very high level, and this portends further liquidation. In yesterday’s report, we recommended the liquidation of all bullish positions including bull call spreads, bull put spreads and short puts. Stand aside.

Lean hogs:

February lean hogs lost 1.125 cents on surprisingly light volume of 36,315 contracts. Total open interest declined only 678 contracts, which relative to volume is approximately 25% below average. The December contract accounted for loss of 1,260 of open interest. As this report is being compiled on December 11, February hogs have made a new low for the move at 87.300 and is trading 97.5 points lower. We think there is a considerable amount of liquidation ahead, especially since managed money is long by a ratio of 4.95:1, which is only slightly below the long to short ratio for cattle of 5.45:1. We have been recommending bearish positions in hogs and specifically on December 9 advised clients to take advantage of the short-term rally in hogs to position themselves on the bearish side of the trade. We recommend that protective buy stops on February futures be lowered to the December 10 high of 89.950 . Stay with bearish positions. We think prices are headed considerably lower.

WTI crude oil:

January WTI crude oil advanced $1.17 on volume of 642,047 contracts. Volume was the highest since December 4 when 830,979 contracts are traded and January WTI advanced $1.16 and open interest increased by 9,214 contracts. On December 10, total open interest increased by 9,153 contracts, which relative to volume is approximately 40% below average. The January contract accounted for loss of 28,950 of open interest. On December 4 and December 10, WTI had healthy advances, yet total open interest was significantly below average. In our view, this indicates a lack of conviction on the part of market participants. As this report is being compiled on December 11, January WTI is trading 94 cents lower. Even with the big draw of 10.6 million barrels in this week’s EIA report, the market is unable to rally. As we have said before, we see the rally in WTI as technical in nature and a correction of the spread between WTI and Brent which had widened significantly during the past couple of weeks. January WTI remains on a short-term buy signal but an intermediate term sell signal. Stand aside.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum  Reserve) decreased by 10.6 million barrels from the previous week. At 375.2 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 6.7 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 4.5 million barrels last week but are at the lower limit of the average range for this time of year. Propane/propylene inventories fell 1.7 million barrels last week and are well below the lower limit of the average range. Total commercial petroleum inventories decreased by 4.7 million barrels last week.

Brent crude oil:

February Brent crude oil lost 26 cents on very heavy volume of 823,589 contracts. Volume was the highest since November 8 when 888,016 contracts were traded. On December 10, total open interest increased by 11,465 contracts, which relative to volume is approximately 45% below average. The January contract lost 23,871 of open interest, which makes the total open interest increase much more impressive (bearish). The performance of Brent when it was rallying was abysmal, and the open interest increases on declines is more confirmation the market is headed lower. Brent remains on a short and intermediate term buy signal.

Natural gas:

January natural gas advanced 5 ticks (essentially unchanged) on heavy volume of 560,079 contracts. Total open interest declined by 8,347 contracts, which relative to volume is approximately 40% below average. The January contract accounted for loss of 36,586 of open interest. As this report is being compiled on December 11, January natural gas is trading 6.8 cents higher and has made a new high for the move at $4.340. This continues to be a weather driven market, and it will be interesting to see what tomorrow’s EIA report says about how much natural gas stocks have been drawn down. On November 25, OIA announced that January natural gas had generated a short-term buy signal and on December 2 generated an intermediate term buy signal. This market is a runaway train to the upside, and if not long from lower levels, clients should be on the sidelines. Do not chase this market and most important: do not short natural gas.

Copper:

March copper advanced 85 points on volume of 54,794 contracts. Total open interest increased by 2,459 contracts, which relative to volume is approximately 75% above average meaning that new longs were aggressively entering the market and driving prices to new highs for the move. As this report is being compiled on December 11, March copper has made another new high at $3.2955, which is the highest price for the contract since November 4 when it reached 3.3150. In the December 8 Weekend Wrap, we recommended a bull spread in March-July 2014 and/or March-September, March-December 2014. We expect the spread to continue to widen, and copper will likely generate a short-term buy signal on December 11.

Euro:

The December euro advanced 24 pips on volume of 271,954 contracts. Volume increased from December 9 when 160,762 contracts were traded and open interest increased by 6,198 contracts while the December euro advanced 44 pips. On December 10, total open interest increased by a massive 13,013 contracts, which relative to volume is approximately 85% above average meaning that new longs were aggressively entering the market and pushing prices higher. As this report is being compiled on December 11, the euro is trading 28 pips higher and has made a new high for the move at 1.3811. The euro has been making new highs on a daily basis, and it appears inevitable that it will make new highs for 2013. The euro is overbought, but this condition may continue for a while. In the most recent COT report, managed money was long by a ratio of only 1.49:1, which is at the lower end of of the ratio going back to September 2013. With the massive increase of open interest lately, we expect that managed money will have increased their longs significantly in the next report. Do not chase the market higher. We think a better way to trade the euro would be long GBP/EUR, but think it is premature.

British pound:

The December British pound advanced 19 pips on very heavy volume of 158,650 contracts. Volume was the highest since September 12 when 196,592 contracts were traded and the euro closed at 1.5812. On December 10, total open interest increased by 8,602 contracts, which relative to volume is approximately 120% above average meaning that new longs were aggressively entering the market and pushing prices higher. As this report is being compiled on December 11, sterling is trading 61 pips lower and has made a low of 1.6338. The pound has been overdue for a correction as well as a pullback in GBP/EUR . Stand aside.

S&P 500 E mini:

The December S&P 500 E mini lost 6.00 point on volume of 1,305,581 contracts. Total open interest increased by 30,794 contracts, which relative to volume is average, but it is a significant number indicating increased bearishness. As this report is being compiled on December 11 the E mini is trading 15.50 points lower and has made a new low for the move at 1785.75. Holders of long equity positions should have long put protection in the E mini.