Soybeans:

January soybeans advanced 12.75 and March gained 8.50 cents on light holiday volume of 118,676 contracts. Total open interest declined by 19,301 contracts, which relative to volume is approximately 410% above average meaning that liquidation was extremely heavy on the advance. The January contract accounted for loss of 22,345 of open interest. As this report is being compiled on December 30, January soybeans are trading 8.75 cents lower while the March contract -10.50. The March contract has dipped below our key pivot point at 13.02 1/4, and a close below this would dramatically increase the likelihood that a short-term sell signal is imminent. The fact that the March contract has made a new low for the move at 13.01 on December 30 gives us greater confidence that a close under the key pivot point is highly likely. In the December 22 Weekend Wrap, we warned about the impending decline of soybeans and suggested that traders who were so inclined, write out of the money calls. This trade has worked out very well and we recommend holding this position.

From the December 22 Weekend Wrap:

“With the stratospheric long to short ratio, the inability for soybeans to move significantly higher on increased open interest and the collapse of the January-March spread sows the seed for the upcoming decline. Managed money will provide the fuel for an extended move lower. Although March soybeans have not generated a short or intermediate term sell signal, we expect a short-term sell signal to be shortly. Once this occurs, we will advise when to initiate bearish positions. However, more adventurous traders may consider writing out of the money calls, which is a trade that we had advised earlier, but recommended covering it based upon price action at the time. Additionally, we did not have the data that we have included in this report which confirms our bearish views of soybeans. Another factor to consider, the WASDE report will not be issued until January 10, which means there is only a moderate amount of risk because soybeans will likely discount some of the report. In addition, holiday volumes and a lack of participation will likely keep prices in check. Our key pivot points are as follows: 13.06, 12.98 1/2 and 12.87. If March soybeans closes below any of these 3 points, the likelihood of a short-term sell signal increases. Soybeans remain on a short and intermediate term buy signal.”

Soybean meal:

January soybean meal advanced $4.70 while March gained 2.70 on total volume of 50,931 contracts. Total open interest declined by 5,234 contracts, which relative to volume is approximately 200% above average meaning that participants were liquidating heavily on the advance. The January contract lost 5,620 and March -46 of open interest. Although an open interest decline would be expected in the January contract due to its impending 1st notice day, it is somewhat surprising that open interest declined in the March contract. This is very bearish. Soybean meal remains on a short and intermediate term buy signal, however we question how long it will be before short-term signal is generated due to the weakness in soybeans. Stand aside.

Corn:

March corn gained 1.25 cents on total volume of 70,500 contracts. Surprisingly, total open interest increased by a massive 9,235 contracts, which relative to volume is approximately 215% above average meaning that new longs and shorts were aggressively entering the market, but prices moved only fractionally higher. The March 2014 through March 2015 contracts all saw increases of open interest indicating the battle between longs and shorts was broad-based. As this report is being compiled on December 30, March corn is trading 3.75 cents lower, although it has not made a new low for the move. Corn remains on a short and intermediate term sell signal. Stand aside.

Chicago wheat:

March Chicago wheat advanced 3.00 cents on total volume of 33,786 contracts. Total open interest declined by 1,203 contracts, which relative to volume is approximately 40% above average meaning that liquidation was fairly heavy on the advance. As this report is being compiled on December 30, Chicago wheat is trading 4.25 lower and KC wheat -7.75. The spread between KC and Chicago wheat continues to narrow dramatically and as this report is being compiled on December 30, the spread is trading at 31.75 premium to KC wheat. To put this in perspective, the last time the spread traded this low was on July 12 when it closed at 31.50 premium to KC wheat. The low at the end of May occurred on June 19 when KC wheat sold at a 27.50 cents premium to Chicago wheat. Remarkably, in last week’s COT report, managed money remained net long KC wheat while they were net short in Chicago wheat.

Cotton: On December 27, March cotton generated an intermediate term buy signal and had been on a short-term buy signal since December 9.

March cotton advanced 1.23 cents on volume of 17,881 contracts. Total open interest increased by a substantial 1,867 contracts, which relative to volume is approximately 200% above average meaning that new longs were aggressively entering the market and pushing prices to new highs for the move. As this report is being compiled on December 30, cotton has made a daily high of 85.07, which is shy of 85.20 made on December 27. In the Weekend Wrap, we recommended to clients who wanted to be long cotton to initiate a bull spread in the March-July 2014 contracts. Please review the December 29 Weekend Wrap for more information on cotton. We are not terribly enthusiastic about the long side of the market, but realize that as stocks decline, higher prices are likely in store. We do not think it’s wise to be long the futures.

Live cattle: On December 27, February cattle generated a short-term buy signal, which reversed the short-term sell signal generated on December 10.

February live cattle advanced 80 points on heavy volume of 59,766 contracts. Volume was the highest since November 19 when 75,455 contracts were traded and February cattle declined 1.525 cents. The December contract lost 2,143 of open interest and February -1684, which makes the total open interest increase extremely impressive (bullish). As this report is being compiled on December 30, February cattle is trading 27.5 points higher, but has not surpassed the high of 1.35275 made on December 27. As indicated in the December 29 Weekend Wrap, we suggest the initiation of bull call spreads, bull put spreads, buying calls, shorting puts.

Lean hogs:

February lean hogs advanced 35 points on volume of 21,317 contracts. Total open interest declined by 862 contracts, which relative to volume is approximately 55% above average. The February contract lost 1259 of open interest and April -463. Total open interest action and that of February and April is bearish. As this report is being compiled on December 30, hogs are trading 17.5 points lower and has taken out the low made on December 26 of 85.225 to make a new low of 85.000. There was a USDA Hog and Pigs report released on Friday, and though this was constructive somewhat longer-term, the reality is the cash market is weak and managed money remains long per last week’s COT report. This is providing additional selling pressure to the market.

WTI crude oil:

WTI crude oil advanced 77 cents on volume of 288,558 contracts. Total open interest increased by 8,737 contracts, which relative to volume is approximately 20% above average meaning that new longs were entering the market at an above average pace and pushing prices to new highs ($100.75). The February contract lost 6,132 of open interest, which makes the total open interest increase more impressive (bullish). As this report is being compiled on December 30, February WTI is trading 96 cents lower and has made a daily low of 99.14. As we have mentioned before, we have not been comfortable with the long side of WTI and continue to recommend a stand aside posture.

Brent crude oil:

February Brent crude oil advanced 20 cents on volume of 350,062 contracts. Total open interest increased by 11,366 contracts, which relative to volume is approximately 25% above average meaning that new longs and shorts were entering the market at a fairly aggressive pace, but were only able to move prices fractionally higher. The February contract lost 6,808 of open interest, which makes the total open interest increased more impressive (bullish). Brent made a new high for the move at $112.80, and as this report is being compiled on December 30, is trading $1.09 lower. The high made on December 27 has not been taken out on December 30. Our feeling about WTI is exactly the same as Brent. Stand aside.

Natural gas:

February natural gas declined 10.8 cents on volume of 240,175 contracts. Volume was the heaviest since December 23 when 250,223 contracts were traded and February natural gas advanced 5.2 cents while open interest declined 10,163 contracts. On December 27, total open interest declined only 144 contracts and the January contract lost 7,508 of open interest. We consider the minor decline of total open interest to be negative because it was accompanied by the largest decline since October 28 when February natural gas declined 14.3 cents. The January contract lost 7,508 of open interest, and there were open interest increases in the forward months to bring down total open interest to a minor number. The reason we think the minor open interest decline is negative is there has been a large build of open interest by manage money and on a decline of the magnitude seen on December 27 to the lowest level since December 19, it would be healthy to see total open interest decline significantly. This tells us there is a likelihood speculators are digging in and refusing to liquidate even though there is a reasonably good possibility that natural gas prices are in the process of topping. Do not enter new long positions nor short positions.

Euro:

The March euro advanced 42 pips on volume of 177,105 contracts. Volume was low considering the nearly 200 pip range of trading on December 27. Total open interest increased by 4,763 contracts, which relative to volume is average. The euro made a new high for the move at 1.3893 on heavy volume on the 15 minute chart. As this report is being compiled on December 30, the March euro is trading 72 pips higher and has made a high at 1.3819. We think it is going to be difficult for the euro to break above Friday’s high, however we recommend a stand aside posture as the euro remains on a short and intermediate term buy signal.

British pound:

The March British pound advanced 40 pips on volume of 85,342 contracts. Total open interest increased by 2,627 contracts, which relative to volume is approximately 20% above average meaning that new longs and shorts were entering the market at an above average pace and pushing prices higher. The March pound made a new high for the move at 1.6570 and as this report is being compiled on December 30 is trading 55 pips higher, but has not taken out Friday’s high. GBP/EUR will not generate a short-term buy signal on December 30.

Silver:

March silver advanced 13.3 cents on volume of 24,521 contracts. Total open interest declined by a massive 1,412 contracts, which relative to volume is approximately 125% above average meaning that both longs and shorts were liquidating heavily as the market advanced. As this report is being compiled on December 30, March silver is trading 35.3 cents lower. The dollar sharply lower, which should give a bid to commodities in general, and this has not happened. For example, petroleum, precious metals and grains are lower. In yesterday’s report on silver, we discussed the possibility of writing out of the money puts in the March contract at a 17.00 strike with a small position. Be mindful if March silver penetrates 19.13, and we recommend liquidating the short put position if this occurs. We have written extensively about the deflationary trend in commodities and when you see a sharply lower dollar index with the commodity complex trading lower, caution is in order.

S&P 500 E mini:

The S&P 500 E mini closed unchanged on volume of 623,323 contracts. Total open interest increased by 6,342 contracts, which relative to volume is approximately 50% below average. We continue to encourage long put protection for those clients who hold on equity positions.