Soybeans:

January soybeans lost 22.50 and March -21.00 cents on fairly heavy volume of 260,654 contracts. Volume increased by approximately 22,000 contracts from December 17 when January soybeans advanced 8.75 and March +9.50 cents while open interest increased by 5,995 contracts. However, volume on December 18 was not as heavy as the activity on December 12 when January soybeans lost 20.25 and March -17.00 on volume of 295,952 contracts and open interest declined by a total of 2,117 contracts. On December 18, total open interest declined by 8,321 contracts, which relative to volume is approximately 25% above average. The January contract accounted for loss of 19,826 of open interest. Market action on December 16 and 17 was very positive from a price, volume and open interest standpoint. However, on December 18, soybeans fell apart and as this report is being compiled on December 19, January soybeans are trading 4.50 cents lower while March -1.25. Soybeans remain on a short and intermediate term buy signal. Stand aside.

The USDA reported sales of 415.5 thousand metric tons (tmt), which is the lowest of the season that began on September 1. Total commitments for the season to date is 1.434 billion bushels (bb) versus USDA projections for the season of 1.475 bb.

Soybean meal:

January soybean meal lost $6.80 and March -8.90 on total volume of 95,917 contracts. Total open interest declined by 71 contracts and the January contract lost 5,722 of open interest. The USDA reported that sales for the recent reporting week totaled 77 tmt, which is the lowest of the season that began on October 1. Total commitments to date are 5948.8 tmt versus USDA projections for the season of 9526 tmt. Soybean meal remains on a short and intermediate term buy signal. Stand aside.

Corn:

March corn lost 1.75 cents on very light volume of 127,697 contracts. Total open interest declined by 4,874 contracts, which relative to volume is approximately 50% above average, meaning that longs and shorts were liquidating in fairly substantial numbers. The March contract accounted for loss of 6,035 of open interest. As this report is being compiled on December 19, March corn is trading 3.75 cents higher and has made a high for the day of $4.30. Corn remains on a short and intermediate term sell signal. Stand aside.

The USDA reported that sales totaled 827.1 tmt for the recent reporting week, which brought total commitments to 1.083 bb versus USDA projections of 1.450 bb for the entire season.

Chicago wheat:

March Chicago wheat lost 7.00 cents on volume of 75,255 contracts. Total open interest increased by 3,461 contracts, which relative to volume is approximately 75% above average meaning that new short sellers were entering the market aggressively and driving prices down to new lows. As this report is being compiled on December 19, March Chicago wheat is trading 1.75 cents higher and has not taken out yesterday’s low of $6.12 1/4. Chicago wheat remains on a short and intermediate term sell signal. Stand aside.

The USDA reported that 656.1 tmt have been sold in the most recent reporting week, which brings total commitments to 868.4 million bushels versus USDA projections for the season of 1.100bb, which ends on May 31 2014.

Cotton:

March cotton advanced 5 points on light volume of 13,879 contracts. Total open interest increased by 1,770 contracts, which relative to volume is approximately 280% above average, meaning that new longs and shorts engaged in a battle for dominance and as result cotton moved only 5 points higher. From December 12 through December 18, total open interest has increased by 5,984 contracts, but March cotton has advanced only 86 points, or 14 points shy of 1 cent. The performance of cotton is looking troublesome and the massive increase of open interest with a minor price advance indicates there is heavy commercial selling keeping a lid on prices.

At this juncture, we feel cotton is vulnerable to a reversal because interest rates are clearly going higher and this is bearish for all commodities. Additionally, cotton has not made a daily low above our key pivot point of 82.95. Tomorrow, the COT report will be released and this will tell us the extent to which managed money has increased their bullish positions. For those who took our advice and initiated bullish positions when cotton generated a short-term buy signal on December 9, caution is warranted because we think the market could turn lower at any time. Tighten up sell stops and write out of the money calls if this is not been done already.

Coffee:

March coffee advanced 1.80 cents on light volume of 14,565 contracts. Total open interest declined by 1,032 contracts, which relative to volume is approximately 180% above average meaning that liquidation was extreme on the rally. This would be expected because managed money has been heavily net short according to the latest COT report. However, if coffee is to continue to advance, open interest must begin to increase. Coffee has been unable to make its daily low above our key pivot point of 1.1480, which makes it vulnerable to a reversal. For those who took our advice to initiate bullish positions when coffee generated a short-term buy signal on December 12, we strongly suggest that sell stops be tightened and write out of the money calls. 

Live cattle:

February live cattle lost 62.5 points on very light volume of 26,273 contracts. Total open interest declined by 2,417 contracts, which relative to volume is approximately 190% above average, meaning that both longs and shorts were massively liquidating on the pullback.The December contract lost 2,103 of open interest. Cattle remains on a short-term sell signal, but an intermediate term buy signal. Stand aside.

Lean hogs:

February lean hogs advanced 70 points on light volume of 28,024 contracts. Total open interest declined by a massive 3,432 contracts, which relative to volume is approximately 280% above average meaning that both longs and shorts were massively liquidating as hog prices advanced. This is extremely bearish price and open interest action. The February contract lost 1,325 of open interest. Continue to hold bearish positions.

WTI crude oil:

February WTI crude oil advanced 59 cents on volume of 528,754 contracts. Volume increased approximately 129,000 contracts from December 17 when WTI lost 30 cents and total open interest declined by 12,717 contracts. On December 18, total open interest declined by a massive 24,563 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy on the modest advance. The January contract lost 31,479 of open interest.

As this report is being compiled on December 19, February WTI is trading $1.30 higher and has made a new high for the move at $99.49 which is the highest price for February crude since October 22 when it reached $100.08. Although WTI remains on a short and intermediate term buy signal, the lackluster volume and terrible open interest action diminishes our enthusiasm for the upside. Additionally, the poor volume and open interest action in Brent crude oil confirms our ideas about WTI. Although we don’t feel comfortable recommending bullish positions, we advise against initiating bearish positions due to WTI being on a short and intermediate term buy signal.

Brent crude oil:

February Brent crude oil advanced $1.19 on lackluster volume of 473,529 contracts. Total open interest declined by 3,617 contracts, which relative to volume is approximately 65% less than average. The open interest losses were spread among the front month contracts. As this report is being compiled on December 19, February Brent is trading 57 cents higher on the day. Brent remains on a short and intermediate term buy signal. Stand aside.

Natural gas:

January natural gas lost 3.6 cents on volume of 323,100 contracts. Volume was the lightest since December 4 when 255,201 contracts were traded and open interest increased by 2,403 contracts while January natural gas declined 1.6 cents. On December 18, total open interest declined by 8,610 contracts, which relative to volume is average. As this report is being compiled on December 19, January natural gas is trading 16.9 cents higher and has made a new high for the move at $4.471, which takes out the previous high of 4.443 made on December 13. The natural gas storage report released by the Energy Information Administration was bullish and showed a draw of 285 Bcf from the previous week.

The Energy Information Administration announced  that working gas in storage was 3,248 Bcf as of Friday, December 13, 2013, according to EIA estimates. This represents a net decline of 285 Bcf from the previous week. Stocks were 488 Bcf less than last year at this time and 261 Bcf below the 5-year average of 3,509 Bcf. In the East Region, stocks were 207 Bcf below the 5-year average following net withdrawals of 132 Bcf. Stocks in the Producing Region were 23 Bcf below the 5-year average of 1,138 Bcf after a net withdrawal of 99 Bcf. Stocks in the West Region were 31 Bcf below the 5-year average after a net drawdown of 54 Bcf. At 3,248 Bcf, total working gas is within the 5-year historical range.

January natural gas is trading at levels where typically natural gas prices have topped out. During April and May 2013, natural gas traded at the $4.440 level, and prior to that traded as high as 4.530 in July of 2011. If long this market, caution should be exercised because it is only a matter of time before weather turns for the better, and the market will have discounted the bad news. OIA announced that January natural gas generated a short-term buy signal on November 25 and an intermediate term buy signal on December 2.

Copper: This will be our last report on copper. Maintain bull spreads, but liquidate at break even.

March copper lost 25 points on volume of 46,636 contracts. Total open interest increased by 1,211 contracts, which relative to volume is average. Continue to maintain the long March-short July-September-December spread, but liquidate at break even. We remain concerned about rising interest rates and the impact this will have on homebuilding and   related sectors. Additionally, we think interest rates on the 10 year note will continue to rise and this will negatively affect copper. Although copper remains on a short and intermediate term buy signal, we would exercise caution at current levels.

Euro:

The March euro lost 8 pips on volume of 228,473 contracts. Volume was surprisingly light considering the range of 1.61 cents. Compare this to trading on December 13 when the range in the euro was 60 pips and volume traded was 227,218 contracts while open interest declined 3,645 contracts. On December 18, total open interest declined by 58,534 contracts, but this was due to the December contract expiring this Friday. Despite the move lower, the March euro remains on a short and intermediate term buy signal.

British pound:

The March British pound advanced 1.67 cents on heavy volume of 146,411 contracts. Total open interest declined by 90,920 contracts, which is the result of the December contract expiring this Friday. Although GBP/EUR will not generate a short-term buy signal on December 19, it looks increasingly likely in the next day or two. March sterling remains on a short and intermediate term buy signal. 

S&P 500 E mini:

The S&P 500 E mini advanced 31.75 points on huge volume of 3,414,804 contracts. Although open interest stats get distorted when contracts near expiration, total open interest of 39,075 was surprisingly week (45% below average) considering the magnitude of the advance and the volume that accompanied it. From December 1 through December 18, the S&P 500 cash index has advanced only 4.84 points or +0.27%. We continue to think that rising interest rates will act as a drag on commodities, equities and real estate. Long put protection is mandatory if clients hold long equity positions.