Soybeans:

January soybeans advanced 3.00 and March + 5.25 cents on volume of 249,081 contracts. Total open interest increased by 574 contracts, which is dramatically below average. However, the January contract lost 20,296 of open interest, which makes the total open interest increased more impressive (bullish). As this report is being compiled on December 20, January beans are trading 13.50 higher and March +13.25. The market has been trading in a consolidation pattern, and in our view does not have the momentum to carry soybean prices significantly higher. January soybeans, which reflects the spot condition of the market, has been unable to advance beyond 13.53 1/2 made on December 10. Since then, the high in January soybeans has been 13.50 on December 17 and 13.51 on December 18. The high for trading on December 28 is 13.45. Soybeans remain on a short and intermediate term buy signal. Stand aside.

Soybean meal:

January soybean meal advanced 90 cents while March +80 on total volume of 74,011 contracts. Total open interest declined by 1,624 contracts, which relative to volume is approximately 20% below average. The January contract lost 5,110 contracts. Although the performance of soybean meal has far surpassed soybeans, we cannot recommend bullish positions, despite soybean meal being on a short and intermediate term buy signal. There is a bearish pall over the entire commodity sector, and the impending Brazilian harvest will begin the weigh on US prices. Stand aside.

Corn:

March corn advanced 5.25 cents on light volume of 137,204 contracts. Total open interest increased by 1,109 contracts, which relative to volume is approximately 60% less than average. However, the March contract lost 2,547 of open interest which makes the total open interest increase more impressive (bullish). This is the 1st time in quite a while that total open interest has increased on a price advance. For example on December 17, March corn advanced 3.50, but total open interest declined by 481 contracts and on December 11, corn advanced 3.25 cents while total open interest declined by 897 contracts. Although corn has been on a short and intermediate term sell signal for a number of months, we have been leery about the massive short position held by managed money. We would consider recommending bearish positions once a rally has occurred that reduces the net short position held by speculators. Stand aside.

Chicago wheat:

March Chicago wheat lost 2.00 cents on total volume of 78,692 contracts. Total open interest increased by 1,645 contracts, which relative to volume is approximately 20% below average. The increase of open interest on a price decline confirms the well-known bearish technicals of wheat. As this report is being compiled on December 20, March Chicago wheat has made another new low at $6.07 1/4, which is the lowest price since June 15, 2012(6.08) on the wheat continuation chart. Wheat should find support at the 2012 lows of 5.91 made on January 18 and 5.89 3/4 printed on May 9 2012. We think wheat will surprise on the upside, but this may not occur until the WASDE report is released during the 1st week of January. Until then, we suspect wheat will continue to drift lower, which will induce speculators to initiate additional short positions. 

Cotton:

March cotton advanced 33 points on extremely light volume of 8,992 contracts. Volume was the lightest since September 20 when 8,733 contracts were traded. On December 19, total open interest increased by 798 contracts, which relative to volume is approximately 185% above average meaning that new longs were aggressively entering the market and pushing prices higher. As we indicated in yesterday’s report, our concern is that open interest continues increase dramatically, but its impact on price has been tepid. As this report is being compiled on December 20, the low for the day has been 83.03, which is above our key pivot point of 82.95. If this holds for the rest of the session, we should begin to see cotton trading more positively. Cotton has made a new high on December 20 of 83.85, but as of this writing is trading unchanged on the day. Continue to hold bullish positions, but we advise tightening sell stops and writing out of the money calls against bullish positions.

Coffee:

March coffee lost 2.20 cents on light volume of 14,224 contracts. Total open interest declined by 626 contracts, which relative to volume is approximately 75% above average. As this report is being compiled on December 20, March coffee is trading 1.75 cents higher and has made a daily high of 1.1670, which is above yesterday’s high of 1.1625, but below the high of 1.1725 made on December 16. Coffee’s daily low has not been above our key pivot point of 1.1480, which needs to occur if coffee is to continue moving higher. Continue to hold bullish positions, but tighten stops and write out of the money calls against bullish positions.

Live cattle:

February live cattle advanced 62.5 points on light volume of 29,731 contracts. Total open interest declined by 1,457 contracts, which relative to volume is approximately 100% above average meaning that liquidation was extremely heavy on the advance. The December contract accounted for loss of 1,536 of open interest. As this report is being compiled on December 20, February cattle is trading 95 points higher and has made a high of 1.34225. The COT report will show whether managed money has liquidated their heavy net long position. If they have, cattle may be on the verge of moving higher. Cattle remains on a short-term sell signal, but an intermediate term buy signal and will not generate a short-term buy signal on December 20.

Lean hogs:

February hogs advanced 2.5 points on very light volume of 16,427 contracts. Total open interest increased by a massive 1,642 contracts, which relative to volume is approximately 300% above average, meaning that both longs and shorts were aggressively entering new positions, but neither side was able to move the market much. As this report is being compiled on December 20, February hogs are trading 17.5 points lower and has made a daily low of 85.850, which has not taken out the low of 85.550 made on December 17. Continue to hold bearish positions.

WTI crude oil:

February WTI crude oil advanced 98 cents on light volume of 487,319 contracts. Total open interest declined by 6,246 contracts, which relative to volume is approximately 45% less than average. The January contract lost 16,013 of open interest. During the 3 days of recent advances, (December 16, December 18 and 19), open interest has declined each day. This is definitely bearish open interest action relative to the price advance, and though WTI remains on a short and intermediate term buy signal, we cannot recommend bullish positions. Additionally, volume is abysmal on advances which is another sign that market participants lack enthusiasm for the upside. Stand aside.

Brent crude oil:

Brent crude oil advanced 69 cents on very light volume of 416,086 contracts. Total open interest declined by a massive 14,894 contracts, which relative to volume is approximately 40% above average meaning that liquidation was extremely heavy on the advance. The declines of open interest was fairly well-distributed through the front months with the largest decline being in the February contract of 4,641 of open interest. Our feeling towards WTI is exactly the same as Brent, and like WTI, Brent is on a short and intermediate term buy signal, but negative open interest action on price advances and tepid volume tell us the market could turn on a dime. Stand aside.

Natural gas:

January natural gas advanced 20.1 cents on heavy volume of 586,255 contracts. Volume was the highest since December 11 when 658,031 contracts were traded and January natural gas advanced 10.00 cents while total open interest increased by a massive 26,105 contracts. On December 19, total open interest declined by 3,322 contracts, which relative to volume is approximately 70% below average. However, the fact that open interest declined on a massive advance may be the 1st signal that market participants are getting leery of higher prices and liquidating positions. The January contract lost 12,639 of open interest. On December 19, natural gas made a high of 4.471, and this has been taken out on December 20 with another new high of 4.492. The market currently is trading 1.9  cents lower on the day. As we have said in previous reports, weather will dictate the future course of natural gas prices, and we have good reason to believe the market has discounted increased consumption due to the cold-weather. Natural gas remains on a short and intermediate term buy signal, however do not initiate bullish positions at current levels and do not short the market.

Euro:

The March euro lost 1.02 cents on surprisingly light volume of 174,929 contracts. Volume was the lightest since December 17 when 144,805 contracts were traded and the March euro advanced 3 pips while total open interest declined by 107 contracts. On December 19, total open interest increased by 1,688 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on December 20, the March euro is trading 24 pips higher on the day. The euro remains on a short and intermediate term buy signal. Stand aside.

British pound:

The March British pound lost 57 pips on total volume of 71,034 contracts. Total open interest declined by 867 contracts, which relative to volume is approximately 45% less than average. As this report is being compiled on December 20, the March British pound is trading 20 pips lower and has made a daily low of 1.6305, which is below its low of December 19 of 1.6326. The GBP/EUR cross remains on a short-term sell signal, but an intermediate term buy signal.

S&P 500 E mini:

The S&P 500 E mini lost 2.75 points on volume of 1,904,612 contracts. Total open interest increased by 37,791 contracts. The December contract expires today. As this report is being compiled on December 20, the March S&P 500 E mini is trading 14.25 points higher on very low volume. We are witnessing the typical end of the year rally and expect the market to move higher over the next week or two. However, this does not negate the necessity of having some downside protection, especially since we believe interest rates are headed higher for the 10 year note and longer duration government bonds. There seems to be a unanimous belief the market can do nothing but go higher. When the consensus is this high, long put protection is good insurance for holders of long equity positions in the event the herd is wrong.