Soybeans: We suggest that clients review the December 22 Weekend Wrap on soybeans.

January soybeans advanced 12.00 cents and March advanced by the same amount on volume of 190,687 contracts. Although the Christmas holiday is approaching, volume was the lowest since December 6 when 176,116 contracts were traded. Additionally, volume was approximately 59,000 contracts less than December 19 when January soybeans advanced 3.00 and March gained 5.25 cents while total open interest increased by 90 contracts. On December 20, total open interest declined by 8,447 contracts, which relative to volume is approximately 75% above average. The January contract accounted for loss of 18,890 of open interest.

It should be noted that on December 19 when there was positive total open interest, the January contract lost 20,296 of open interest versus December 20 when total open interest declined on a much larger price advance when the January contract lost 18.890. In short, there was liquidation on December 20 as the market moved to its highest level since December 18 when it made a high of 13.51 basis January. On December 20, the March contract made a high of 13.36 1/2, which is shy of the 13.39 high made on December 18. January soybeans made its high for the move at 13.53 1/2 on December 10 and has not surpassed it since. In the December 22 report, we suggested that more adventurous speculators should short out of the money calls even though soybeans remain on a short and intermediate term buy signal.

Soybean meal:

January soybean meal advanced $4.50 while March gained 5.10 on total volume of 66,618 contracts. Total open interest declined by 1,407 contracts, which relative to volume is approximately 20% below average. The January contract lost 5,389 of open interest. Soybean meal remains on a short and intermediate term buy signal. Stand aside. 

Corn:

March corn advanced 2.75 cents on volume of 149,478 contracts. Total open interest declined by 4,112 contracts, which relative to volume is average. The March contract lost 5,243 of open interest. As this report is being compiled on December 23, March corn is trading 1 cent higher and has made a new high for the move the $4.36. Corn remains on a short and intermediate term sell signal, and we recommend waiting for a rally before considering bearish positions.

Chicago wheat:

March Chicago wheat advanced 2.75 cents on volume of 77,177 contracts. Total open interest increased by 83 contracts. As this report is being compiled on December 23, March Chicago wheat is trading 1.50 cents lower and has tested the low of 6.071/4 made on December 20, but has not broken through it. Chicago wheat remains on a short and intermediate term sell signal.

Cotton:

March cotton lost 18 points on volume of 13,492 contracts. Total open interest increased by 267 contracts, which relative to volume is approximately 20% below average. On December 20, March cotton’s daily low was 83.03, which was above our key pivot point of 82.95 and cotton made a new high for the move at 83.85. However, on December 23 cotton is trading 83 points lower and has made a new low for the move at 81.42. This is very negative considering Friday’s positive action. In the December 22 Weekend Wrap, we discussed the large degree to which commercials have been initiating new short positions, and this has been keeping a lid on prices. As a result, we think cotton is ripe for a reversal and the action on December 23 may be the first sign of it. If cotton closes below 82.29 and/or 81.81, we would liquidate long calls and futures contracts. With respect to the short call position, holding this will depend upon each individual client’s situation and risk profile.

Coffee:

March coffee advanced 1.55 cents on volume of 13,178 contracts. Total open interest declined by 760 contracts, which relative to volume is approximately 120% above average meaning that liquidation was very heavy on the modest advance. As this report is being compiled on December 23, March coffee is trading 1.25 cents higher and has made a high for the move at 1.1750, which takes out the previous high of 1.1725 made on December 16. The low on December 20 was 1.1355 and this has been the low on December 23. Unlike cotton, coffee has been unable to trade above the daily low pivot point of 1.1480. Additionally, on rallies, we see a consistent pattern of liquidation, which is negative for a continued move higher.

Since coffee generated a short-term buy signal on December 12, new longs have not been entering the market in sufficient numbers and this is of great concern. The trade in coffee, like cotton is not going to be much more than a technical rally to relieve their oversold condition. We think it is wise to take money off the table when the market shows a consistent lack of enthusiasm for the upside. Additionally, and this is applicable to all commodities, interest rates on the 10 year note continue to rise, which is bearish for commodities. We suggest that long calls and futures positions be liquidated today. With respect to the short call position, like cotton this will depend upon your individual situation and risk profile.

Live cattle:

February live cattle advanced 92.5 points on heavier than normal volume of 47,987 contracts. Volume was the highest since December 9 when 49,276 contracts were traded and cattle advanced 20 points while total open interest declined 3,480 contracts. On December 20, total open interest increased 2,617 contracts, which relative to volume is approximately 120% above average meaning that new longs were initiating positions at a very aggressive pace and driving prices higher on fairly heavy volume. On December 20, February cattle made a high for the move at 1.34225, and this has been taken out on December 23 with February cattle making another new high at 1.34325. Cattle did not generate a short-term buy signal on December 20, nor will it on December 23. Stand aside.

Lean hogs:

February lean hogs lost 12.5 points on total volume of 29,684 contracts. Total open interest declined by 957 contracts, which relative to volume is approximately 30% above average. The February contract lost 1,777 of open interest. As this report is being compiled on December 23, February hogs are trading unchanged on the day and have made a low at 85.850, which was the low on December 20. Continue to hold bearish positions.

WTI crude oil:

WTI crude oil advanced 28 cents on light holiday volume of 351,117 contracts. Total open interest increased by 371 contracts, which is minuscule and dramatically below average. The January February contract lost a total of 3,805 of open interest. WTI continues to trade in a lackluster fashion despite it being on a short and intermediate term buy signal. We do not like the long side of this market even though WTI has moved into backwardation in the front months. Stand aside.

Brent crude oil:

February Brent crude oil advanced $1.48 on light volume of 447,516 contracts. Total open interest declined by a massive 15,300 contracts, which relative to volume is approximately 40% above average meaning that large numbers of market participants were liquidating as the market advanced to a new high for the move at 111.89. The February contract accounted for loss of 9,090 of open interest, which means there also was liquidation in the forward months bringing the total open interest decline to a substantial number. Like WTI, Brent is trading in a dismal fashion despite it being on a short and intermediate term buy signal. Stand aside.

Natural gas:

January natural gas lost 4.2 cents on volume of 360,146 contracts. Total open interest declined by 6,862 contracts, which relative to volume is approximately 20% below average. The January contract lost 17,313 of open interest. From December 16 through December 20, open interest has declined each day and totals 28,448 contracts while January natural gas has advanced 6.1 cents. This is negative open interest action relative to the price advance. Apparently market participants feel comfortable liquidating positions at current levels, and for the market to continue to advance, new longs have to be willing to enter new positions at stratospheric prices. See the December 22 Weekend Wrap for more commentary on natural gas. Stand aside.

Euro:

The March euro advanced 17 pips on volume of 181,102 contracts. Total open interest increased by a substantial 4,298 contracts, which relative to volume is average. According to the latest COT report, leveraged funds are long the euro by a ratio of 2.18:1. This is slightly higher than the ratio of 1.98:1 in the November 5 COT tabulation. The COT report tabulated on October 29 showed a long to short ratio of 3.04:1, and this was when the euro is traded at the 1.38 level. The euro remains on a short and intermediate term buy signal. Stand aside.

British pound:

The March British pound lost 40 pips on volume of 75,928 contracts. Total open interest declined by 2,433 contracts, which relative to volume is approximately 30% above average meaning that liquidation was fairly substantial on the modest decline. GBP/EUR remains on a short-term sell signal, but an intermediate term buy signal. March sterling remains on a short and intermediate buy signal. Stand aside.

S&P 500 E mini:

The S&P 500 E mini advanced 12.50 points on light holiday volume of 1,405,742 contracts. Total open interest increased by 65,447 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. As we have said a number of times, we see a period of rising interest rates, and believe this will impact equity prices. As this report is being compiled on December 23, the interest rate on the 10 year note has advanced 4 basis points and is only 5 basis points from the multiyear high of 2.98%. Despite all of the bullish talk, we continue to think it is prudent to maintain long put protection in the E mini for those clients who hold long equity positions.