Soybeans:

March soybeans advanced 9.25 cents on heavy volume of 285,371 contracts. Volume declined from the 303,729 contracts traded on February 10 when March soybeans lost 6.00 cents and total open interest increased by 7,938 contracts. On February 11, total open interest increased again, this time by 7,372 contracts, which relative to volume is  average. The March contract lost 14,587 of open interest, which makes the total open interest increase more impressive (bullish). However, as we stated in yesterday’s report, the open interest increases have been a massive and we think the systematic trend following crowd is jumping into the market at the high-end of its trading range.

From January 30 through February 11, (9 days) March soybean prices have advanced 65.50 cents while total open interest has increased by 77,510 contracts. As of the latest COT report, managed money is long soybeans by ratio 7.67:1, which is up significantly from the previous week of 5.59:1 and the ratio of 2 weeks ago of 5.93:1. The current ratio is the highest since the COT tabulation date of December 24, 2013 when managed money was long soybeans by ratio of 10.29:1.

From the February 10 report:

“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.”

Soybean meal:

March soybean meal gained $5.20 on heavy volume of 111,357 contracts. Volume was slightly below the 114,108 contracts traded on February 10 when March soybean meal declined $2.40 and total open interest declined by 988 contracts. On February 11, total open interest increased by 1,540 contracts, which relative to volume is approximately 45% less than average. The March contract accounted for loss of 8,842 of open interest. While we much prefer soybean meal to soybeans, but the fact is the market is significantly overbought and overdue for a correction. We much prefer the bullish side of soybean oil. Stand aside.

Soybean oil:

March soybean oil advanced 12 points on volume of 126,474 contracts. Total open interest declined by 3,691 contracts, which relative to volume is approximately 20% above average meaning that liquidation was heavier than usual. The March contract accounted for loss of 13,496 contracts. As this report is being compiled on February 12, March soybean oil is trading 32 points higher and has made a new high for the move at 39.40, which is the highest price for March soybean oil since December 24 when the high print was 39.41.

From the February 10 report:

“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 1.50 cents on huge volume of 461,080 contracts. Volume declined from the 565,486 contracts traded on February 10 when March corn lost 1.25 cents and total open interest increased by 17,453 contracts. On February 11, total open interest increased by 1,971 contracts, which relative to volume is approximately 60% below average. The March contract accounted for loss of 34,971 of open interest. There were open interest increases in the May 2014 through December 2015 contracts, with the exception of the March 2015 contract, which lost 29 of open interest. On February 11, March corn made a low of 4.37 1/ 4, which we suggested should be used as an exit point if clients have bullish positions. We are not recommending bullish positions in corn.

Chicago wheat:

March Chicago wheat advanced 5.25 cents on extremely heavy volume of 195,408 contracts. Volume was above the 178,086 contracts traded on December 10 when  March wheat advanced 7.25 cents and total open interest increased by 6,060 contracts, but below volume of 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 11, total open interest declined by 697 contracts, which relative to volume is minuscule and dramatically below average. The March contract accounted for loss of 23,624 of open interest and there was open interest increases in the May 2014 through March 2015 contracts, which brought total open interest down to a minor number. 

As this report is being compiled on February 12, March wheat has made a new high for the move at $5.98 1/4, which blew past the previous high of 5.92 3/4 made on February 6. Although we much prefer KC wheat to Chicago, we recommend using $5.66 1/4 as an exit point per the February 6 report (written on February 7) for clients who initiated bullish positions on February 7.

Kansas City wheat:

March Kansas City wheat advanced 2.75 cents on huge volume of 44,154 contracts. Volume was the heaviest since August 8, 2013 when 50,355 contracts were traded and March KC wheat closed at $7.15. On February 11, total open interest declined by 875 contracts, which relative to volume is approximately 20% below average. The March contract accounted for loss of 5,345 of open interest. As the February 10 report indicates (below), we are concerned of the consistency of the open interest declines during February 5 through February 11 when KC wheat has been advancing. From February 5 through February 11 , total open interest has declined by 12,534 contracts while KC wheat has advanced 19.00 cents in this time frame. As we said in yesterday’s report, sell stops should be tightened to break even.

From the February 10 report:

“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 advanced 1.00 cents on volume of 58,917 contracts. Total open interest increased by 3,473 contracts, which relative to volume is approximately 140% above average meaning that new longs were aggressively entering the market and moving prices higher. Cattle made a high of 1.41875, which is the high on February 12. However, it was important that the low print was 1.39775, which was above OIA’s key pivot point of 1.39600. This means there is a greater likelihood of continued advances than continued declines. Despite our bullishness , we recommended writing out of the money calls against bullish positions in the report of January 30. This trade has worked well, and though we think cattle prices are headed higher, we the move as a slow grind upwards rather than a sprint. This benefits holders of short calls, who also hold bullish positions initiated at significantly lower prices.

WTI crude oil:

March WTI crude oil lost 12 cents on volume of 573,137 contracts. Total open interest increased by 13,343 contracts, which relative to volume is approximately 10% less than average. The March contract lost 27,704 of open interest, which makes the total open interest increase more impressive (bullish). During the past 5 days beginning on February 5, total open interest has increased each day and totals 87,049 contracts while March WTI prices advanced $2.75. This is bullish open interest action relative to the price advance.

As this report is being compiled on February 12, March WTI is trading 47 cents higher and has made a new high for the move at $101.38, which takes out the previous high for the March contract of $100.79 made on December 27. Although open interest has been acting positively, and gasoline, heating oil and Brent crude oil are on short and intermediate term buy signals, we are a bit concerned about the overbought condition from a price and open interest standpoint. For example the latest COT report showed that managed money was long crude oil by a ratio of 7.69:1

The current ratio is the highest since the COT tabulation date of December 31, 2013 when managed money was long WTI crude oil by ratio 8.59:1. During the reporting period of December 25 through December 31, the March contract traded from a high of $100.79 on December 27 to a low of 98.29 on December 31.

In short, March WTI is currently trading at approximately the same price and long to short ratio (managed money) when prices began to fall in early January. Additionally, we are not thrilled by WTI fundamentals and are concerned that Brent crude has dramatically underperformed WTI. We continue to recommend a stand aside posture. This does not preclude the possibility of prices moving higher.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.3 million barrels from the previous week. At 361.4 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories decreased by 1.9 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 0.7 million barrels last week and are well below the lower limit of the average range for this time of year. Propane/propylene inventories fell 2.9 million barrels last week and are below the lower limit of the average range. Total commercial petroleum inventories increased by 2.0 million barrels last week.

Natural gas:

March natural gas advanced 24.5 cents on volume of 414,978 contracts. Total open interest increased by 14,061 contracts, which relative to volume is approximately 25% above average. The March contract lost 15,031 of open interest, which makes the total open interest increase more impressive (bullish). We continue to recommend a stand aside posture.

Euro:

The March euro lost 3 pips on volume of 197,672 contracts. Total open interest increased by 5,849 contracts, which relative to volume is approximately 20% above average meaning that for the second day in a row there was a major battle between longs and shorts, and the euro closed nearly unchanged on February 11. On February 10 we saw the same kind of market when open interest increased by 4,823 contracts and the March euro advanced by only 13 pips. As this report is being compiled on February 12, the March euro is trading 46 pips lower and has made a low of 1.3562. In the February 6 report, we recommended shorting out of the money calls, with the proviso to exit the position if the March euro made a low for the day above 1.3651. The euro has been unable to break above the key pivot point, therefore clients should maintain short call positions. Some key moving averages: 20 day 1.3596, 50 day 1.3649, year to date moving average 1.3607.

British pound:

The March British pound advanced 45 pips on lackluster volume of 88,570 contracts. Total open interest increased by a hefty 4,440 contracts, which relative to volume is approximately 100% above average meaning that new longs were aggressively bidding prices higher. Although the March pound will not generate a short-term buy signal on February 12, we expect this to occur tomorrow. The March pound has been on a short-term sell signal since February 4.

Yen:

The March yen lost 41 pips on light volume of 114,071 contracts. Total open interest declined only 218 contracts, which is minuscule and dramatically below average. As we stated in yesterday’s report, we like the way the yen has been trading and the decreases of open interest on price declines is positive . As this report is being compiled on February 12, the March yen is trading 10 pips higher and has made a high of .9784. We expect the March yen to test last week’s high of .9927.

Australian dollar:

The March Australian dollar advanced 92 pips on volume of 94,292 contracts. Total open interest declined by 5,620 contracts, which relative to volume is approximately 140% above average meaning that liquidation was extremely heavy on the advance. This is a pattern we have been seeing as the March Aussie has rallied from a low of 86.32 on January 24 to the high of 90.48 on February 12. The March Aussie should struggle to break above the 90.69 pivot point and may be a candidate for short call positions. We want to watch it for a couple of days.

Gold: On February 11, April gold generated an intermediate term buy signal after generating a short-term buy signal on January 13.

April gold advanced $15.10 on volume of 161,843 contracts. Volume was the highest since January 30 when 221,410 contracts were traded and April gold fell $19.70 while total open interest increased by 167 contracts. On February 11, total open interest increased by a very healthy 4,388 contracts, which relative to volume is average. As this report is being compiled, April gold is trading 4.50 higher and has made a new high for the move at $1296.40.

April gold has closed higher each day since February 5, and is well overdue for a healthy, but moderate correction, especially since April gold generated an intermediate term buy signal on February 11. However, one mitigating factor is that open interest increases have been modest and we know professional speculators are largely on the sidelines. This may create the well-known scenario of gold “climbing a wall of worry.” In short, the market may continue to move higher while frustrated would be longs wait for correction. April gold will likely find its first major resistance at the 200 day moving average of 1314.10, and currently April gold is trading a mere $21.00 below it.

Silver:

March silver advanced 4.1 cents on very heavy volume of 73,650 contracts. Volume exceeded the 64,221 contracts traded on February 10 when March silver advanced 17.6 cents and open interest increased by 1,580 contracts. Volume tends to increase as the contract nears its 1st notice day. However, open interest increased for the 2nd day in a row, this time by 1,249 contracts, which relative to volume is approximately 30% less than average, but an open interest increase nonetheless. As this report is being compiled on February 12, March silver is trading 15.5 cents higher on the day. Additionally, platinum is showing strength, which has been unusual of late. This is positive for gold and silver. In the February 6 report, we recommended the initiation of long straddles or strangles, and we encourage clients to stay with these positions.

S&P 500 E mini:

The S&P 500 E mini advanced 18.75 points on volume of 1,773,941 contracts. Total open interest increased by 32,879 contracts, which relative to volume is approximately 25% less than average. Maintain long put protection if holding long equity positions.