Soybeans:

January soybeans lost 1.50 cents on volume of 202,269 contracts. Total open interest increased by 2,583 contracts, which relative to volume is approximately 45% less than average. The January contract accounted for loss of 11,205 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on December 6, January soybeans are trading 5.50 lower and have made a low for the day at 13.16 1/2. Since November 25, January soybeans of the trading of the congestion zone bounded by the low of 13.11 1/4 made on December 3 and the high of 13.46 made on December 2. The tone of the market appears lackluster and there is a palpable lack of enthusiasm for soybeans at current levels. We have advised clients to maintain stops at the December 3 low, and it appears that this is likely to be triggered. Soybeans remain on a short and intermediate term buy signal, but we question the duration of this.

Soybean meal:

January soybean meal lost $2.20 on volume of 62,287 contracts. Total open interest declined by 2,122 contracts, which relative to volume is approximately 40% above average meaning that liquidation was fairly substantial on a rather minor decline. The December contract lost 638 of open interest. As this report is being compiled on December 6, January soybean meal is trading $1.90 has made a low of 422.00. This means that sell stops that were placed at or slightly below the low of 423.70 made on December 3 have been triggered. Although we have been partial to soybean meal, if soybeans continue trading the way they have, we don’t see a major move in the offing for soybean meal. Soybean meal remains on a short and intermediate term buy signal.

Corn:

March corn lost 3.00 cents on total volume of 169,367 contracts. Total open interest increased by 2,130 contracts, which relative to volume is approximately 50% below average. The December contract lost 1,341 of open interest. As this report is being compiled on December 6, March corn is trading 1.50 lower. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat:

March Chicago wheat lost 9.75 cents on volume of 88,519 contracts. Total open interest increased by 1,507 contracts, which relative to volume is approximately 25% less than average. The December contract accounted for loss of 695 of open interest. As this report is being compiled on December 6, March Chicago wheat is trading 1.75 cents lower and has taken out the low made on December 5. Although, March Chicago wheat remains on a short and intermediate term sell signal, we continue to like the idea of writing out of the money puts while waiting for wheat to generate a short-term buy signal. The COT report will be released this afternoon, and the results of it will be included in the upcoming Weekend Wrap. It will be interesting to see whether the net short position of managed money has increased.

March Kansas City wheat lost 9.00 cents on fairly heavy volume of 21,565 contracts. Volume was the highest since November 27 when 23,610 contracts were traded and total open interest declined by 2,420 contracts while KC wheat advanced 8.00 cents. On December 5, total open interest declined by 1,103 contracts, which relative to volume is approximately 100% above average meaning that liquidation was extremely heavy on the decline. We consider this to be healthy for the market because of the net long position of managed money per the COT report of last week. As we have said before, our preference is to write out of the money puts in the Chicago contract due to the extreme net short position of managed money versus the net long position in KC wheat.

Live cattle:

February live cattle lost 1.525 cents on volume of 49,090 contracts. Volume was the highest since November 27 when 49,302 contracts were traded and February cattle advanced 1.075 cents and open interest increased by 3,570. We would’ve expected heavier volume on the decline simply because the speculative community is significantly net long cattle. However, total open interest declined massively by 4,428 contracts, which relative to volume is approximately 150% above average, which means longs and shorts were massively liquidating as prices moved lower. We consider this to be very positive price and open interest action. We continue to advise the initiation of bull call spreads and/or bull put spreads as a way of mitigating some potential downside risk while being able to take advantage of the upside.

Lean hogs:

February lean hogs lost 32.5 points on volume of 35,875 contracts. Total open interest declined by 3,462 contracts, which relative to volume is approximately 175% above average meaning that both longs and shorts were massively liquidating on a fractional decline. For the past 3 trading sessions beginning on December 3, open interest has declined each day and totals 11,854 contracts while February hogs have declined 1.775 cents. Relative to volume, open interest declines for each of the past 3 days have been heavy. In short, market participants are quick to head for the exits even when the net change of prices is minor. Hogs remain on a short-term sell signal, and they may generate an intermediate term sell signal on December 6. On December 4, we recommended bearish positions be initiated in hogs and if not long, bearish positions should be initiated on any rally.

WTI Crude oil:

January crude oil advanced 18 cents on significantly reduced volume of 531,988 contracts. Volume shrank almost 300,000 contracts from December 4 when January WTI advanced $1.16 and open interest increased by 9,214 contracts. On December 5, total open interest increased by 7,985 contracts, which relative to volume is approximately 40% less than average. The January contract lost 17,218 of open interest, which makes the total open interest increase much more impressive (bullish). As this report is being compiled on December 6, January WTI is trading 18 cents higher and has made a new high for the move at 98.07. Though WTI remains on a short-term buy signal, we recommend a stand aside posture. The 50 day moving average of 97.47 on the continuation chart is trading below the 200 day moving average of 98.46, which will provide formidable resistance. In short, we are not convinced the current rally is for real, and we think the move higher may be a technical correction and a reaction to the massive widening of the spread between Brent and WTI.

Brent crude oil:

January Brent crude oil lost 90 cents on volume of 587,332 contracts. Volume shrank 128,323 contracts from December 4 when Brent lost 74 cents and open interest increased by a massive 21,039 contracts. On December 5, total open interest increased by 6,978 contracts, which relative to volume is approximately 45% less than average. However, the January contract lost 13,704 of open interest, which makes the total open interest increase more impressive (bearish). This is the 2nd day in a row that Brent prices have declined and open interest has increased. This is bearish. As this report is being compiled on December 6, January Brent is trading 30 cents higher on the day. Brent remains on a short and intermediate term buy signal, but we strongly suggest a stand aside posture.

Natural gas:

January natural gas advanced 17.2 cents on huge volume of 671,133 contracts. Volume was the highest since April 5 when 792,024 contracts were traded and January natural gas closed 11.7 cents higher at $4.493. On December 5, total open interest increased by a massive 36,152 contracts, which relative to volume is approximately 110% above average meaning that new longs were initiating positions at an extraordinarily high rate and driving prices to a new high for the move of $4.152, which is the highest price since June 24 when January natural gas reached $4.156. Additionally, open interest in the January contract declined by 16,846, which makes the total open interest increased much more impressive (bullish).

In yesterday’s report, we warned about a possible spike in volume and open interest, and that this is a major negative for the market. As this report is being compiled on December 6, January natural gas is trading 1.4 cents lower after making a new high for the move at $4.199 on what appears to be another heavy volume day, though less than yesterday. The market is massively overbought, and is vulnerable to a sharp setback, especially if the weather warms up. January natural gas remains on a short and intermediate term buy signal. Stand aside.

Euro: On December 5, the December euro generated a short-term buy signal, and remains on an intermediate term buy signal.

The December euro advanced 88 pips on heavy volume of 343,993 contracts. Volume was the highest since November 7 when 439,650 contracts were traded and the December euro closed at 1.3428. On December 5, total open interest increased by 12,026 contracts, which relative to volume is approximately 40% above average meaning that new longs were aggressively entering the market and moving prices to new highs. As this report is being compiled on December 6, the December euro has made another new high at 1.3701, which is its highest price since October 31 when it reached 1.3740. It looks increasingly likely that the December dollar index will generate a short-term sell signal.

British pound:

The December British pound lost 37 pips on fairly heavy volume of 127,897 contracts. Total open interest declined by 776 contracts, which relative to volume is approximately 65% less than average. We think the long GBP/EUR should continue to correct. Stand aside

S&P 500 E mini:

The December S&P 500 E mini lost 7.75 points on volume of 1,614,640 contracts. Open interest increased by only 594 contracts. As this report is being compiled on December 6, the E mini is trading 20.50 points higher and has made a high of 1806.00, which is 6.50 points below the high made on November 29 of 1812.50. The employment report was positive and reaction by the market has been positive as well. This is somewhat unusual because of late, bad news has been good news and good news has been bad news. In this particular case, the good news is the economy is picking up and therefore tapering should begin sooner rather than later. As we have pointed out on numerous occasions, volume contracts when prices advance and the volume on December 6 is almost 200,000 contracts below that of December 5 when the market declined 7.75 points. We advise long put protection because we think interest rates are headed higher, and this is massively deflationary for equities, commodities and real estate.