Soybeans:

March soybeans lost 6.00 cents on very heavy volume of 303,729 contracts. Volume was the heaviest since December 10 when 316,623 contracts were traded and March soybeans closed at $13.22. On February 10, total open interest increased by 7,938 contracts, which relative to volume is average. The March contract lost 10,982 of open interest, which makes the total open interest increase potentially bullish. We say this because prices declined and usually when open interest increases on a decline, especially by an amount that is average or above, it is generally bearish. However, our concern is not one day’s action, but a pattern we have been seeing for the past 8 sessions beginning on January 30.

From January 30 through February 10, (8 days) March soybean prices have advanced 56.25 cents while total open interest has increased by 70,138 contracts. As we stated before, the trend following crowd is jumping into the long side of soybeans en masse.

On February 10 , March soybeans made a new high for the move at 13.40, but pulled back to close at 13.25 1/2. Our concern is that March soybeans is approaching the previous high of 13.43 1/4 (January contract) made on September 19, 2013. With the massive increase of open interest in the market already, we question whether soybeans have the wherewithal to break significantly above the September 19 high. Perhaps the market knows that exports will be higher than indicated by the USDA report. Despite this, the market should have a correction, especially since there has been only one day (February 10) that prices have declined since January 30. Additionally, March soybeans generated a short and intermediate term buy signal on February 5, which is another indication that a correction is overdue. Stand aside.

The USDA left ending stocks unchanged at 150 million bushels (mb) and raised exports only 15 mb, which leaves stocks to usage ratio of 4.5% unchanged. Although the report was considered a disappointment, market action has been generally positive.

Soybean meal:

March soybean meal lost $2.40 on heavy volume of 114,108 contracts. Volume was the highest since December 10 when 125,736 contracts were traded and March soybean meal closed at $426.60. On February 10, total open interest declined by 988 contracts, which relative to volume is approximately 55% below average. The March contract accounted for loss of 13,360. On February 10, March soybean meal reached a new high of 450.70,, which is the highest price on the continuation chart since December 31 when the January contract made a high of 452.50. We much prefer soybean meal to soybeans, not only because of the tightness in meal compared to soybeans, but because the long to short ratio in soybean meal is approximately half that of soybeans.

The USDA reported that exports were increased 200 thousand metric tons (tmt), but domestic consumption was lowered by 200 tmt, therefore there was no change in ending stocks. Stocks to usage was unchanged at 0.7%.

Soybean oil:

March soybean oil gained 17 points on volume of 166,882 contracts. Volume was the highest since November 21 when 203,161 contracts were traded and March soybean oil closed at 42.16. On February 10, total open interest declined by 2,563 contracts, which relative to volume is approximately 40% less than average. The March contract lost 15,372 of open interest. The USDA reported no change in stats and stocks to usage remains at 8.7%.

On February 7, March soybean oil generated a short-term buy signal, but remains on an intermediate term sell signal. The low on February 7 was 38.46 and the February 10 low was 38.47. We recommend the initiation of bullish positions in soybean oil, and would use the February 7 low of 38.46 as an exit point for bullish positions. We think this is a relatively low risk trade, and managed money is massively short, which will provide fuel for the upside move.

Corn:

March corn lost 1.25 cents on huge volume of 565,486 contracts. Volume was the heaviest since January 10 when 644,921 contracts were traded and March corn closed at $4.32 3/4. On February 10, open interest skyrocketed by a massive 17,453 contracts, which relative to volume is approximately 20% above average. However, the March contract lost 24,783 of open interest, which makes the total open interest increased more impressive (bullish). March corn made a new high for the move at 4.49, which is its highest price since the print of 4.49 1/2 made on November 12. As this report is being compiled on February 11, March corn has made a low of 4.37 1/4, which may be a tradable low to use as an exit point for any bullish position. This is not a recommendation because we think there better trades on the board. However, there was the huge volume spike (12,804 contracts) on the 15 minute chart (9:15-9:930 ) when March corn traded from a high of 4.39 1/2 to the low of 4.37 1/4. Volume spikes often indicate a major or temporary low.

The USDA reduced ending stocks to 1.481 billion bushels (bb) down from 1.631 bb from January’s report. Exports were raised 150 mb and stocks to usage was lowered to 11.1% from 12.4%.

Chicago wheat:

March Chicago wheat gained 7.25 cents on heavy volume of 178,086 contracts. Volume declined from the 206,986 contracts traded on February 7 when March wheat declined 3.25 cents and total open interest declined by 1,850 contracts. On February 10, total open interest increased by a healthy 6,060 contracts, which relative to volume is approximately 40% above average meaning that fresh longs were entering positions aggressively and driving prices higher.The March contract lost 11,191 of open interest, which makes the total open interest increase much more impressive (bullish)

This is the first meaningful increase of open interest on a price advance in quite a while and in our view may signify a possible change in psychology toward the wheat market. It has been extremely negative for many months. As this report is being compiled on February 11, March wheat is trading 5.00 cents higher, however, it has not taken out the high print of 5.92 3/4 made on February 6. In the February 6 report written on February 7, we recommended that clients use the February 7 low of 5.66 1/4 as an exit point for bullish positions. However, our preference has been the bullish side of KC wheat over Chicago.

The USDA increased exports in all wheat categories by 50 mb and that took ending stocks down the 558 mb leaving stocks to usage ratio of 22.71% for all wheat categories. 

Kansas City wheat:

March Kansas City wheat advanced 13.50 cents on heavy volume of 41,985 contracts. Volume was the highest since November 8 when the print was 41,178 contracts and March KC wheat closed at $7.11 1/4. On February 10, total open interest declined by a massive 3,696 contracts, which relative to volume is approximately 250% above average meaning that liquidation was off the charts heavy . The March contract accounted for loss of 7,094 of open interest. Since generating a short-term buy signal on February 5, KC wheat has advanced 16.25 cents, however, total open interest has declined by 11,659 contracts. Additionally, open interest declined every day from February 5 through February 10. This is very bearish open interest action relative to the price advance. This sends up some red flags and indicates caution for clients in bullish positions. On February 7 writing in the February 6 report, we recommended that clients use the exit point of $6.39 1/4 for bullish positions. Maintain positions, but tighten stops to break even.

Live cattle:

April live cattle lost 22.5 points on volume of 48,124 contracts. Total open interest declined by 3,701 contracts, which relative to volume is approximately 210% above average meaning that liquidation was extremely heavy. As this report is being compiled on February 11, April cattle is trading 1.050 higher and has made a high for the day of 1.41875. Additionally, the low for the day has been 1.39775, which is above OIA’s key pivot point of 1.39600. This is very positive price action and indicates the likelihood of a continued move higher. We want to see an open interest increase on today’s advance.

WTI crude oil: On February 10, March WTI crude oil generated an intermediate term buy signal after generating a short-term buy signal on January 24.

March WTI crude oil advanced 18 cents on volume of 612,841 contracts. Total open interest increased by 18,031 contracts, which relative to volume is approximately 20% above average. The March contract lost 23,094 of open interest. Interestingly, the open interest increase on February 10 nearly matched the 18,831 open interest increase on February 7 when March WTI advanced $2.04. The only difference is the massive increase of open interest did not move prices much on February 10. We continue to recommend a stand aside posture.

Brent crude oil: On February 10, Brent crude oil generated a short and intermediate term buy signal. We will not report on Brent crude until we see a trading opportunity. Currently WTI is massively outperforming Brent and year to date April Brent has declined 2.57% while March WTI has advanced 1.47%.

Gasoline: On February 10, March gasoline generated a short and intermediate term buy signal. Gasoline is too volatile to trade intelligently.

Natural gas:

March natural gas lost 19.6 cents on volume of 402,841 contracts. Total open interest declined by 6,519 contracts, which relative to volume is approximately 35% less than average. The March contract accounted for loss of 15,293 of open interest. As this report is being compiled on February 11, March natural gas is trading 24.6 cents higher. Natural gas is too volatile to trade and we recommend a stand aside posture.

Euro:

The March euro advanced 13 pips on very low volume of 124,664 contracts. Volume was the lowest since December 31 when 64,905 contracts were traded. Despite the low volume, total open interest increased by a hefty 4,823 contracts, which relative to volume is approximately 50% above average meaning that there was a battle between longs and shorts and the euro was able to move only fractionally higher. On February 6, we recommended that clients short out of the money calls and exit the position if the low for the day was above 1.3651. As this report is being compiled on February 11, the March euro has made a high of 1.3683, but also a low of 1.3629. Continue to hold the short call position.

British pound:

The March British pound lost 7 pips on extremely low volume of 57,799 contracts. Volume was the lowest since December 31 when 39,468 contracts were traded. On February 10, total open interest declined by 356 contracts, which relative to volume is 60% less than average. As this report is being compiled on February 11, the March pound is trading 44 pips higher and has made a high of 1.6484. The key area to watch in the March pound is the pivot point of 1.6477. If the daily low is above the pivot point, then a short-term buy signal will be generated. This would reverse the short-term sell signal generated on February 4. We think the pound is a strong currency and ultimately is headed higher. We were hoping to see more of a correction, but it does not appear in the cards.

Yen:

The March yen gained 9 pips on light volume of 95,860 contracts. Volume was the lightest since January 17 when 79,716 contracts were traded. On February 10, total open interest declined by 277 contracts, which is minuscule and dramatically below average. The market made a daily low of .9744 on February 10 and the low print on February 11 is .9738. We have a couple of observations about the yen: First, open interest has declined as prices have declined, which is positive. Despite the bearish outlook by managed money, they do not appear to be initiating new short positions to any great extent. The pullback  seen thus far has been orderly, despite the rally in the stock indices. For example, since the equity rally began on February 4 through February 10, the E mini has advanced 51.00 points or 2.92% while the March yen has declined by 57 pips or -0.58%. We consider this to be an outstanding performance for the yen. We think the March yen will resume its rally, but it may take a decline in stock indices for this to occur.

Gold:

April gold advanced $11.80 on very light volume of 99,617 contracts. Volume was the lightest since February 6 when 90,820 contracts were traded and April gold advanced 30 cents while total open interest declined 1,680 contracts. On February 10, total open interest increased by 3,145 contracts, which relative to volume is approximately 25% above average meaning that new longs were initiating positions at slightly above average levels and driving prices to new highs for the move ($1277.80). As this report is being compiled on February 11, April gold has made another new high at 1294.40 on heavier volume than yesterday. For the past 2 days as gold rallied, open interest has increased. Perhaps, we are seeing the beginning of a change in psychology, however, we know managed money remains on the sidelines. This makes us more bullish than usual. Typically, when the trend following crowd gets involved they drive prices much higher than normally would be justified. On February 6, we recommended the initiation of bullish positions in gold and the trade continues to work well. Stay with it.

Silver:

March silver gained 17.6 cents on heavy volume of 64,221 contracts. Volume was the highest since November 27 when 76,884 contracts were traded and March silver closed at $19.680. On February 10, total open interest increased by 1,580 contracts, which relative to volume is average. The action on February 10 was outstanding and as this report is being compiled on February 11, March silver is trading 5.7 cents higher. On February 6, we recommended the use of long straddles or strangles to take advantage of a major move in silver, which we think is imminent. Continue to hold these positions.

S&P 500 E mini:

The March S&P 500 E mini gained 1.25 points on low volume of 1,155,996 contracts. Total open interest increased by 13,301 contracts, which relative to volume is approximately 45% less than average. As this report is being compiled on February 11, the E mini is trading 21.00 points higher based upon the testimony of the new chairman of the Federal Reserve. The market continues to act as it has in the past when the chairman gives testimony before Congress.

In yesterday’s report, we stated: “Based upon OIA calculations, if the E mini is to continue its advance, the daily low must be above 1793.50.We think any further advance will be confined to a range of 1798.50-1804.25.” OIA was both right and wrong with respect to yesterday’s analysis: We were right with respect that the low had to be above OIA’s pivot point of 1793.50 for the advance to continue (1794.25 low on February 11). However, OIA was incorrect about the advance being confined to 1798.50-1804.25. It now appears the E mini is headed for a test of the all-time high made on December 31 of 1846.50. We continue to recommend the maintenance of long put protection if holding long equity positions.