Tomorrow is the release date of the employment report by the US Department of Labor, and it is likely that Friday will be a volatile day. The report should have a significant impact on equities, commodities and currencies. Be cautious. 

Soybeans:

January soybeans advanced 9.75 cents on total volume of 217,787 contracts. Total open interest increased by 1,452 contracts, which relative to volume is approximately 65% below average. The January contract lost 4,222 of open interest, which makes the total open interest increase more impressive (bullish). The USDA reported that sales of soybeans for the recent reporting week totaled 805.2 thousand metric tons (tmt), which brings total commitments season to date to 746.1 million bushels (mb) versus USDA projections of 1.450 billion bushels (bb) for the season. The current export pace is the best since the 2007-2008 season. As this report is being compiled on December 5, January soybeans are trading 5.25 cents lower, and have not taken out the low of $13.11 1/4, which is the exit point for bullish positions. January soybeans remain on a short and intermediate term buy signal.

Soybean meal:

January soybean meal advanced $1.50 on total volume of 76,302 contracts. Total open interest increased by 2,230 contracts, which relative to volume is approximately 20% above average. The December contract lost 828 of open interest, which makes the total open interest increase more impressive (bullish). Note the difference of open interest increases in soybean meal versus soybeans. The USDA reported that sales of soybean meal totaled 120.4 tmt and total commitments season to date is 5789 tmt versus USDA projection of 9299 tmt for the season. Season to date, sales are the strongest since 2008-2009. As this report is being compiled on December 5, January soybean meal is trading $2.70 lower, and has not taken out the low of 423.70, which is the recommended exit point for bullish positions. Soybean meal remains on a short and intermediate term buy signal.

Corn

March corn lost 5.25 cents on total volume of 249,931 contracts. Volume was the highest since November 27 when 356,671 contracts were traded and corn advanced 1.75 cents while total open interest declined by 27,165 contracts. On December 4, total open interest declined by 3,586 contracts, which relative to volume is approximately 40% less than average. The December contract accounted for loss of 4,074 contracts. The USDA reported that sales for the most recent reporting week totaled 593.6 tmt, which brings total commitments to date of 1.023 bb versus USDA projections for the season of 1.400 bb. To date, the current season is the best since 2007-2008. Corn made a new high for the move at 4.39 1/2, which is its highest price since November 15 when March corn reached 4.39 3/4. We think corn is headed higher, and the large net short position of managed money should fuel the move. Ultimately we see corn prices are headed lower in 2014, but for now it appears the path of least resistance is upwards. Corn remains on a short and intermediate term sell signal.

Wheat:

March Chicago wheat lost 6.50 cents on volume of 70,676 contracts. Total open interest increased by only 64 contracts and the December contract lost 206 of open interest. The USDA reported that wheat sales for the most recent period totaled 229.2 tmt, which is a low for the season that began on June 1. This may explain why Chicago wheat is trading 7.50 cents lower on December 5. Despite the weak sales number, total commitments season to date are 830.6 mb versus USDA projections for the season of 1.100 bb. We see the pullback as temporary and think higher wheat prices are in store during the 1st quarter of 2014. We continue to advocate writing out of the money puts while waiting for Chicago wheat to generate a short-term buy signal, at which time new bullish positions can be added.

March Kansas City wheat lost 7.25 cents on volume of 11,844 contracts. Total open interest increased by only 76 contracts and the December contract accounted for loss of 206 of open interest. As this report is being compiled on December 5, March KC wheat is trading 7.25 lower on the day. As we have said on a number of occasions, we prefer writing out of the money puts in Chicago wheat because there remains a net long position of managed money in KC wheat and Chicago is out performing KC.

Live cattle:

February live cattle advanced 32.5 points on light volume of 34,502 contracts. Open interest increased by a massive 3,543 contracts, which relative to volume is approximately 195% above average meaning that new longs were initiating positions at an extraordinarily high rate and driving prices fractionally higher. From November 26 through December 4, open interest has increased every day and totals 12,897 contracts while February live cattle has advanced 2.50 cents. This is bullish open interest action relative to the price advance. As this report is being compiled on December 5, February cattle is trading 1.075 cents lower on the day. We have advocated the initiation of bull put spreads or bull call spreads as a way of mitigating downside risk while at the same time being able to profit from the longer term uptrend. Live cattle remain on a short and intermediate term buy signal.

Lean hogs:

February lean hogs advanced 25 points on volume of 46,015 contracts. Total open interest declined by 3,731 contracts, which relative to volume is approximately 230% above average meaning meaning that both longs and shorts were massively liquidating as prices rallied fractionally higher. On November 22, February hogs generated a short-term sell signal, and it looks increasingly likely that an intermediate term sell signal could occur on December 5. On December 4, we recommended bearish positions and continue to advocate the initiation of these on any rally.

WTI Crude oil: On December 4, January WTI crude oil generated a short-term buy signal, but remains on an intermediate term sell signal.

January crude oil advanced $1.16 on extremely heavy volume of 830,979 contracts. Volume was the heaviest since November 14 when 894,849 contracts were traded and January crude oil closed at $94.41. On December 4, total open interest increased by 9,214 contracts, which relative to volume is approximately 45% less than average. However, as a mitigating factor, the January contract lost 21,912 of open interest, which makes the total open interest increase more impressive (bullish). As this report is being compiled on December 5, January WTI is trading 46 cents higher and has made a new high for the move at 97.99. We generally advise clients that once a buy signal is generated the market has a tendency to pullback from 1-3 days, and this is the opportunity to initiate bullish positions.

Brent crude oil:

January Brent crude oil lost 74 cents on heavy volume of 715,655 contracts. Volume was the heaviest since November 14 when 748,135 contracts were traded. On December 4, total open interest increased 21,039 contracts, which relative to volume is approximately 20% above average meaning that new shorts were aggressively entering the market and driving prices lower. The action in Brent on December 4 is very negative, and it confirms the comment we made in the December 3 report about tempering bullishness because of the abysmal open interest action on the price advance. As this report is being compiled on December 5, January Brent crude is trading 87 cents lower and has made a low of $110.76. Stand aside.

Natural gas:

January natural gas lost 1.6 cents on light volume of 255,201 contracts. Total open interest increased by 2,403 contracts, which relative to volume is approximately 50% below average. The January contract accounted for loss of 4,099 of open interest, which makes the total open interest increase more impressive (bullish). On November 25, January natural gas generated a short-term buy signal and on December 2 generated an intermediate term buy signal. As this report is being compiled on December 5, January natural gas is trading 17.2 cents higher on a very bullish storage report released by the Energy Information Administration, which showed a 162 bcf draw in stocks. Ever since natural gas generated a short-term buy signal on November 25, the market has not had a pullback of any size which would allow clients to initiate bullish positions. As this report is being compiled, volume traded is over 400,000 contracts, and if there is a massive (significantly above average) increase of open interest, this could be a sign of a temporary top. Do not chase the market higher because a downside reaction could be uncomfortable if long.

On December 5, the Energy Information Administration announced that working gas in storage was 3,614 Bcf as of Friday, November 29, 2013, according to EIA estimates. This represents a net decline of 162 Bcf from the previous week. Stocks were 200 Bcf less than last year at this time and 104 Bcf below the 5-year average of 3,718 Bcf. In the East Region, stocks were 158 Bcf below the 5-year average following net withdrawals of 78 Bcf. Stocks in the Producing Region were 32 Bcf above the 5-year average of 1,191 Bcf after a net withdrawal of 68 Bcf. Stocks in the West Region were 22 Bcf above the 5-year average after a net drawdown of 16 Bcf. At 3,614 Bcf, total working gas is within the 5-year historical range.

Euro:

The December euro lost 3 pips on volume of 246,143 contracts. Volume increased approximately 71,000 contracts from December 3 when the euro advanced 51 points and open interest increased by 3,934 contracts. On December 4, total open interest increased by 5,249 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on December 5, the euro is trading 78 points higher on heavy volume and has made a new high for the move at 1.3677. Despite the move higher, the euro will not generate a short-term buy signal on December 5, however it remains on an intermediate term buy signal.

 British pound:

The December British pound lost 2.3 pips on heavy volume of 133,325 contracts. Volume was higher than December 2 (130,133) when the December pound lost 12 pips and open interest increased by 7,878 contracts. On December 4, total open interest increased by 411 contracts, which relative to volume is approximately 85% below average. Yesterday, we commented on the fact that the open interest increase of 570 contracts was the lowest increase from November 13 when open interest began increasing each day. Remarkably, open interest has increased for 15 consecutive days. However, as we commented in yesterday’s report, the tepid open interest increases may be a sign market that participants are becoming concerned about the current level of prices and that a short-term correction may be at hand. As this report is being compiled on December 5, the December pound is trading 52 pips lower and has made a new low for the move at 1.6298. Previously, we have advised a stand aside posture in the long GBP/EUR trade due to its overbought condition, and it appears that a correction for the pair is under way.

S&P 500 E mini:

The December S&P 500 E mini advanced 0.25 points on heavy volume of 2,128,855 contracts. Volume was the heaviest since November 7 when 2,469,000 contracts were traded and open interest increased by 15,547 while the E mini lost 20.25 points. On December 4, open interest increased by a minor 4,429 contracts. The market made a new low for the move at 1777.75, and spent a good portion of the day trading on the minus side, which explains the heavy volume. As we have stated on a number of occasions, volume in the E mini expands on declines and contracts when prices advance. This is negative. Long put protection is advised.