Soybeans:

January soybeans lost 20.25 and the March contract lost 17.00 cents on heavy volume of 295,952 contracts. Volume increased approximately 98,000 contracts from December 11 when January soybeans advanced 5.75 and March +6.50 while total open interest increased’ by 771 contracts. On March 12, total open interest declined by 2,117 contracts, which relative to volume is approximately 65% below average. The January contract accounted for loss of 19,629 contracts. As this report is being compiled on December 13, January soybeans are trading 5.50 lower but have not taken out the low of 13.11 1/4 made on December 3. We assume that most clients have liquidated long futures positions as well as any option strategies. The only remaining position is the short call option recommended a couple of days ago. Continue to hold this position; otherwise stand aside.

Soybean meal:

January soybean meal lost $8.80 while March -6.80 on heavier than normal volume of 110,868 contracts. Volume increased approximately 27,000 contracts from December 11 when January meal advanced 60 cents and March + $1.70. On March 12, total open interest increased by 627 contracts, which relative to volume is approximately 70% below average. The December and January contracts lost a total of 8,898 of open interest, which makes the total open interest increase much more impressive (bearish). It should be noted that managed money has been consistently more bearish on soybean meal than soybeans. For example, according to the latest COT report, managed money was long soybeans by a ratio of 7.50:1 while they were long soybean meal by 3.96:1. This may explain the total open interest increase in soybean meal prices versus an open interest decline in soybeans even though both contracts declined in price. Stand aside.

Corn:

March corn lost 5.00 cents on volume of 235,276 contracts. Total open interest declined by 2,437 contracts, which relative to volume is approximately 50% below average. The December and March contracts lost a total of 6,243 of open interest. As this report is being compiled on December 13, March corn is trading 5.25 cents lower. March corn remains on a short and intermediate term sell signal. Stand aside.

Chicago wheat:

March Chicago wheat lost 7.00 cents on volume of 73,504 contracts. Total open interest increased by 3,416 contracts, which relative to volume is approximately 75% above average meaning that new short sellers were aggressively entering the market and driving prices lower. Although March Chicago wheat made a new low on December 12, on December 13 another new low has been made at 6.26 1/2. March Chicago wheat remains on a short and intermediate term sell signal. Stand aside.

Cotton:

March cotton advanced 57 points on volume of 21,327 contracts. Total open interest increased by a massive 1,683 contracts, which relative to volume is approximately 210% above average, meaning that large numbers of new longs were entering the market and driving prices to new highs for the move. In yesterday’s report, we let clients know of our disappointment that open interest did not increase when March cotton advanced 1.80 cents, but the action on December 12 allays our skepticism. Furthermore, we stated that the daily low in cotton must be above 82.94 in order for the market to move to its 200 day moving average of 84.03. As this report is being compiled on December 13, March cotton has made a high of 83.42, but the low is 82.47. Stay with the bullish positions that we recommended when cotton generated a short-term buy signal on December 9.

Coffee: On December 12, March coffee generated a short-term buy signal, but remains on an intermediate term sell signal.

March coffee advanced 1.60 cents on total volume of 15,440 contracts. Total open interest increased by 543 contracts, which relative to volume is approximately 40% above average meaning that new longs were aggressively entering the market and pushing prices higher. As this report is being compiled on December 13, March coffee has broken out and is trading 3.75 cents higher and has made a new high for the move at 1.1540.

From the December 11 report:

“Although we discourage trading the futures contracts because of liquidity and volatility issues, we would use the December 11 low of 1.0935 as an exit point for long futures positions if clients are inclined to trade futures. We much prefer options because of the calibration of risk based upon strike prices and very importantly coffee options are cheap at this juncture. Managed money is net short by 21,864 contracts, which means there is fuel for the upside move when they cover positions. The 50 day moving average for March coffee is 1.1138, which is approximately its current price as of this writing on December 12. Therefore, bullish positions can be initiated at current levels if the low of the day holds.”

Live cattle:

February live cattle advanced 30 points on light volume of 34,863 contracts. Total open interest increased by 533 contracts, which relative to volume is approximately 40% below average. The December contract lost 1,595 of open interest, which makes the total open interest increase somewhat friendly. As this report is being compiled on December 13, December cattle is trading 85 points lower and has made a new low for the move at 1.32100. The market is undergoing liquidation, and we recommend that clients remain on the sidelines until such time that managed money holdings have been reduced and cattle generates a short-term buy signal.

Lean hogs:

February lean hogs advanced 22.5 points on volume of 45,594 contracts. Total open interest declined by 1,565 contracts, which relative to volume is approximately 40% above average meaning that both longs and shorts were liquidating in heavy numbers on the minor market rally. The open interest action on December 12 was extremely bearish and it is important to note that both February and April contracts lost open interest in addition to the December contract totaling 5,038 contracts. It will be interesting to see what the long to short ratio of managed money is when the COT report is released this afternoon. Continue to hold the bearish positions we recommended a couple of days ago, and lower buy stops in accordance with sound risk and money management practices.

WTI crude oil:

January WTI crude oil advanced 6 cents on light volume of 508,686 contracts. Total open interest increased by 13,405 contracts, which relative to volume is average. There was a battle going on between longs and shorts and neither side was able to move the market much one way or the other. The January contract lost 19,172 of open interest, and there were open interest increases in the forward months that turned total open interest into a positive number. As this report is being compiled on December 13, January WTI is trading 65 cents lower and has made a low for the move of $96.26. WTI remains on a short term buy signal, but an intermediate term sell signal. Stand aside. 

Brent crude oil:

February Brent crude oil lost $1.13 on volume of 574,908 contracts. Surprisingly, volume was approximately 9,000 contracts below December 11 when Brent advanced 38 cents and total open interest declined by 8,311 contracts. On December 12, total open interest increased by 3,403 contracts, which relative to volume is approximately 65% below average. The January contract lost 19,172 of open interest, which makes the total open interest increase much more impressive (bearish). Although February Brent remains on a short and intermediate term buy signal, we think a short-term sell signal will be generated next week. Stand aside.

Natural gas:

January natural gas advanced 7.2 cents on huge volume of 726,395 contracts. Volume traded on December 12 was the highest since April 5 when 792,024 contracts were traded and January natural gas closed at 4.493.  Total open interest declined by 3,887 contracts. The January contract accounted for loss of 25,771 of open interest. In yesterday’s report, we mentioned that a top in the natural gas market may be accompanied by extremely heavy volume and a massive increase of open interest. We have not seen this yet, although it is becoming more likely as cold-weather begins to moderate and the market begins to discount current weather conditions. Do not chase the market, and do not short it. Stand aside.

Copper:

March copper advanced 5 ticks on volume of 59,848 contracts. Total open interest declined by 1,850 contracts, which relative to volume is approximately 20% above average. During the past 2 sessions, copper has advanced slightly more than 2.85 cents while open interest has declined 3,181 contracts. Although we would much prefer open interest increases, the fact is managed money has been heavily short copper, and it appears likely they are covering these positions. Although the spread (long March-short July-September-December has been a slow mover, if the market continues to move higher the spread should continue to widen. 

Euro:

The December euro lost 44 pips on very heavy volume of 387,214 contracts. Volume on December 12 exceeded the 371,407 contracts traded on December 11 when the December euro advanced 24 pips and made a new high at 1.3811 while open interest declined 3,714 contracts. On December 12, total open interest increased by 714 contracts, which is dramatically below average, but an open interest increase nonetheless. The December contract lost 51,707 of open interest due to its expiration, but there was sufficient open interest increases in the forward months to bring the total open interest increase to a positive number. We recommend a stand aside posture in the euro.

British pound:

The December British pound lost 36 pips on very heavy volume of 226,583 contracts. Total open interest increased by a massive 21,519 contracts, which relative to volume is approximately 175% above average meaning that aggressive new short sellers were entering the market and driving prices lower. This is the 2nd day in a row that the pound has experienced huge volume accompanied by massive increases of open interest as sterling declined each day. As this report is being compiled on December 13, the March British pound is trading 56 pips lower and has made a new low for the move at 1.6252. Stand aside in March futures and on the long side of GBP/EUR.

S&P 500 E mini:

The December S&P 500 E mini lost 5.75 points on extremely heavy volume of 2,667,441 contracts. We attribute heavy volume to switching out of December and into the March contract. Total open interest increased by 81,885 contracts, which again we attribute to the changeover from December to March. We continue to advise the initiation of put protection for those clients who hold long equity positions.