On Thursday, December 26, the interest rate (TNX) on the 10 year note reached 3.00%. This took out the previous high of 2.984% made on September 5. Additionally, it is the highest rate since July 27, 2011 when TNX made a high of  3.01%. We have been warning for quite some time that interest rates were going to hit 3.00% and had discussed the ramifications of such a move. We see it as deflationary for equities, commodities and real estate. Additionally, the 50 week moving average of TNX crossed above the 150 week moving average a couple of weeks ago.  

Soybeans:

January soybeans advanced 5.25 and March advanced 3.00 cents on light holiday volume of 60,604 contracts. Total open interest declined 3,690 contracts, which relative to volume is approximately 140% above average meaning that liquidation was very heavy on the modest advance. The January contract lost 6,784 of open interest. During the past 3 sessions when soybeans f rallied, total open interest has declined. Although this can be attributed to the liquidation of the January contract due to the impending 1st notice day, the fact remains there isn’t enough buying in the forward months to offset the decline. This is bearish. As this report is being compiled on December 26, January soybeans are trading 13.00 cents lower while the March contract is trading 16.25 lower. The crucial pivot points to watch are 13.11 1/8 and 13.00 5/8. If the March contract closes below these, a short-term sell signal becomes imminent.

Soybean meal:

January soybean meal advanced $3.20 while March gained 2.20 on total volume of 29,557 contracts. Total open interest declined by 1,133 contracts, which relative to volume is approximately 50% above average meaning that liquidation was heavy on the modest advance. The January contract lost 2,801 of open interest. As this report is being compiled on December 26, January soybean meal is trading $7.70 lower and March -7.60. Soybean meal remains on a short and intermediate term buy signal. Stand aside.

Corn:

March corn advanced 0.25 cents on volume of 42,042 contracts. Total open interest declined by 2,099 contracts, which relative to volume is approximately 100% above average meaning that liquidation was extremely heavy. As this report is being compiled on December 26, March corn is trading 6.75 cents lower. Corn remains on a short and intermediate term sell signal. Stand aside.

Chicago Wheat:

March wheat lost 3.25 cents on volume of 16,094 contracts. Total open interest increased by 869 contracts, which relative to volume is approximately 105% above average meaning that new short sellers were aggressively entering the market and driving prices to new lows. On the 24th, March wheat made a new low at 6.05 3/4, and has made another new low on December 26 of 6.00 3/4. Support should be found at the January 18, 2012 low of 5.91 and the subsequent retest at 5.89 3/4 made on May 9 2012. The next area of support if this is broken would be the November 25, 2011 low of 5.75, and the test of that low of 5.75 1/2 made on December 8, 2011. This was the lowest price is for wheat during 2011. Chicago wheat remains on a short and intermediate term sell signal.

Live cattle:

February live cattle declined 22.5 points on volume of 20,043 contracts. Total open interest increased by 102 contracts, which relative to volume is 75% below average. The December contract lost 929 of open interest. February cattle remains on a short-term sell signal, but an intermediate term buy signal. It appears imminent that a short-term buy signal will be generated.

Lean hogs:

February lean hogs lost 32.5 points on volume of 14,799 contracts. Total open interest increased by 260 contracts, which relative to volume is approximately 25% below average. The February contract lost 720 of open interest, which makes the total open interest increased more impressive (bearish). As this report is being compiled on December 26, February lean hogs have taken out the low of 85.375 made on December 24  and made a new daily low of 85.325. Stay with bearish positions, the market looks to head lower still.

WTI crude oil:

February WTI crude oil advanced 31 cents on total volume of 138,784 contracts. Total open interest increased by 5,178 contracts, which relative to volume is approximately 40% above average meaning that new longs were entering the market aggressively and pushing prices fractionally higher. The February contract lost 613 of open interest, and there was more than enough open interest increases in the forward months to offset this. As this report is being compiled on December 26, February crude oil is trading 42 cents higher and has made a new high for the move at 99.68. Although WTI remains on a short and intermediate term buy signal, we continue to be unimpressed with its action. Stand aside.

Brent crude oil:

February Brent crude oil advanced 34 cents on volume of 149,558 contracts. Total open interest declined by 7,613 contracts, which relative to volume is approximately 100% above average meaning that large numbers of market participants were liquidating as prices advanced. What makes the open interest decline more negative is that Brent made a new high for the move at 112.06. From December 18 through December 24, Brent crude oil has advanced $3.65, however, total open interest has declined by 63,069 contracts. This is very bearish open interest action relative to the price advance. Brent remains on a short and intermediate term buy signal. Stand aside.

Natural gas:

February natural gas lost 5.00 cents on volume of 140,762 contracts. Total open interest increased by 2,010 contracts, which relative to volume is approximately 40% less than average. The January contract lost 4,693 of open interest, which makes the total open interest increase more impressive (bearish). The last time we saw an open interest increase on a price advance occurred on December 13 when natural gas lost 5.8 cents and total open interest increased by 1,856 contracts. Beginning on December 23 when February natural gas topped out at 4.578, we have seen a series of lower highs and lower lows through December 26. The natural gas storage report will be released tomorrow, and this may provide one final thrust higher before natural gas prices begin to decline in earnest. Weather projections show extremely cold-weather through next week, but the market has likely discounted this already. Prior to December 24, natural gas prices advanced, but we saw a series of days beginning on December 16 when open interest declined as prices advanced. In our view, this indicates that the smart money is liquidating. Do not enter new long or short positions.

Euro:

The March euro declined by 10 pips on volume of 34,398 contracts. Total open interest increased by 68 contracts. The euro remains on a short and intermediate term buy signal. Stand aside.

British pound:

The March British pound advanced 2.6 pips on volume of 23,823 contracts. Total open interest increased by a massive 3,370 contracts, which relative to volume is approximately 370% above average meaning that new longs were aggressively entering the market, but were only able to move prices fractionally higher. It is a certainty, the GBP/EUR cross will generate a short-term buy signal on December 26, which reverses the short-term sell signal generated on December 13. We suggest that clients begin to think about initiating bullish positions, and recommend using the exit point of 1.1918, which was the low made on December 23.

S&P 500 E mini:

The March S&P 500 E mini gained 6.25 points on volume of 314,730 contracts. Total open interest increased by 10,354 contracts, which relative to volume is approximately 30% above average, meaning that new longs were entering the market at an above average rate and driving prices to new highs. As this report is being compiled on December 26, the March E mini has made another new high at 1837.00. As we have said on numerous occasions, we are concerned about the rising interest rates and believe this will begin to impact equity prices significantly. As such, if clients hold long equity positions, we consider it mandatory to have some downside protection and recommend long puts in the E mini.