Soybeans:

March soybeans advanced 10.00 cents on light volume of 171,232 contracts. Volume on February 3 was approximately 27,000 contracts higher than January 31 when March soybeans advanced 7.75 cents and total open interest increased by 3,045 contracts. On February 3, total open interest increased by 2,963 contracts, which relative to volume is approximately 25% less than average. The March contract lost 1,149 of open interest, which makes the open interest increase more impressive (bullish). February 3 with the 3rd day in a row that saw price advances along with increases of open interest. The light volume on advances accompanied by moderate increases of open interest indicate that there is tepid enthusiasm for the long side of soybeans at this juncture. As we said in yesterday’s report, we think there is a likelihood of strength in the short-term, and although March soybeans remain on a short and intermediate term sell signal, this could change tomorrow. As a consequence, we strongly discourage bearish positions. Those holding bearish positions should have been out of the market yesterday.

Soybean meal:

March soybean meal gained $7.90 on fairly light volume of 66,500 contracts. Total open interest increased by a massive 6,932 contracts, which relative to volume is approximately 320% above average meaning that new longs were heavily entering the market and driving prices to new highs for the move ($436.80). There were open interest increases in the March and May 2014 contracts. In the January 30 report, we suggested for those who hold bearish soybean positions to initiate light bullish positions in soybean meal. Continue to hold these, but keep in mind that Brazilian beans will be hitting the market soon, which could result in cancellations by the Chinese who bought US beans earlier in the season. March soybean meal remains on a short and intermediate term buy signal.

Corn:

March corn advanced 1.75 cents on heavier than normal volume of 327,188 contracts. Volume increased from the 326,584 contracts traded on January 30 when March corn advanced 6.00 cents and total open interest declined by 707 contracts. On February 3, total open interest increased by healthy 5,632 contracts, which relative to volume is approximately 25% below average, however, the March contract lost 19,561 of open interest, which makes the total open interest increase more impressive (bullish). The increase of open interest on a price advance on February 3 was the first since January 23 when March corn advanced 2.75 cents and total open interest increased by a massive 15,248 contracts on volume of 292,284 contracts. We have said in previous reports that March corn would find resistance at $4.39 5/8, however as this report is being compiled on February 4, March corn has pierced this and made a new high for the move at $4.42. This is the highest price for March corn since November 14 when it printed $4.41 1/2. On January 13, OIA announced that March corn generated a short-term buy signal and has remained on an intermediate term sell signal.

Chicago wheat:

March Chicago wheat gained 8.00 cents on volume of 81,501 contracts. Total open interest declined by 4,568 contracts, which relative to volume is approximately 120% above average meaning that liquidation was extremely heavy on the advance. The March contract lost 6,174 of open interest. As this report is being compiled on February 4, March Chicago wheat is trading 15.00 cents higher and has made a new high for the move at $5.80, which is the highest price since January 14 when March wheat printed 5.80. March Chicago wheat remains on a short and intermediate term sell signal. However, if March wheat makes a low above $5.76 3/4, a short-term buy signal will be generated.

Kansas City wheat: March Kansas City wheat will generate a short-term buy signal if the daily low is above $6.33 3/8. March Kansas City wheat has been outperforming Chicago wheat on a year-to-date basis with KC wheat declining 2.54% while March Chicago wheat – 6.86%.

Live cattle:

April live cattle lost 1.025 cents on volume of 50,842 contracts. Total open interest declined by 2,493 contracts, which relative to volume is approximately 100% above average meaning that liquidation was heavy on the decline. The February contract lost 2,485 of open interest. We want to see further liquidation, and expect the April contract to trade to a low of at least 1.38600. On the other hand, if April cattle is able to make a low for the day above 1.39600, we think the market would be headed higher. In the January 30 report, we advised clients to write out of the money calls against their bullish cattle positions.

WTI crude oil:

 March WTI crude oil lost $1.06 on heavier than normal volume of 611,348 contracts. Total open interest declined by 11,039 contracts, which relative to volume is approximately 25% less than average. The March contract accounted for loss of 15,224 of open interest. As this report is being compiled on February 4, March WTI is trading 82 cents higher and has made a high of 97.71, which is below the high made on February 3 of 97.94, and the high of January 31 of 98.39. As we said before, we see no reason to be involved in WTI crude oil. Stand aside.

Natural gas:

March natural gas lost 3.8 cents on extremely low volume of 276,103 contracts. Volume was the lightest since January 6 when 195,676 were traded and March natural gas closed at $4.284. On February 3, total open interest increased by 5,896 contracts, which relative to volume is approximately 20% below average. The March contract accounted for loss of 5,365 of open interest, which makes the total open interest increase more impressive (somewhat bearish). As this report is being compiled on February 4, March natural gas is trading 47.9 cents higher and has made a daily high of $5.397. Natural gas continues to be a weather market and as the weather changes so will natural gas prices. The low volume on February 3 when natural gas had a trading range of 20.5 cents is indicative that many speculators are on the sidelines due to the extreme volatility of natural gas. This is a market to watch and not participate.

Euro:

The March euro advanced 47 pips on volume of 227,327 contracts. Total open interest increased only 380 contracts. On January 31, the March euro generated a short and intermediate term sell signal, and as is usually the case after the generation of sell signals, the market has a tendency to rally from 1-3 days. The rally on February 3 may be the extent of it, but caution should still be exercised on the bearish side of the market. The market could rally somewhat more before it finally peters out. Any bearish positions initiated at current levels should be on the light side.

British pound:

The March British pound lost 1.27 cents on very heavy volume of 147,639 contracts. Volume was the highest since January 24 when 157,524 contracts were traded and the March pound closed at 1.6500. On February 3, total open interest declined by 5,089 contracts, which relative to volume is approximately 40% above average meaning that liquidation was fairly heavy on the decline. During the past 3 days beginning on January 30, open interest has declined 10,684 contracts while the March pound has declined 2.68 cents. In yesterday’s report, we mentioned that the March pound would generate a short-term sell signal on February 3. Instead, the signal will be generated today, but the March pound will not generate an intermediate term sell signal on February 4.

Yen:

The March yen advanced 143 pips on heavy volume of 252,193 contracts. Volume was the highest since January 24 when 295,276 contracts were traded and the March yen closed at .9777. On February 3, total open interest declined by 858 contracts, which is minuscule and dramatically below average. The decline of open interest on a major move confirms that bearish participants are covering their short positions rather than adding new positions. Remember, when open interest declines, both longs and shorts are closing out positions, which means that they are in agreement on the direction of prices. Open interest increases when longs and shorts disagree about this. The March yen reached the highest level since November 21 when the high print was .9998. On January 27, OIA announced that the March yen had generated a short-term buy signal, but has not as of this date generated an intermediate term buy signal.

Gold:

April gold advanced $20.10 on light volume of 133,076 contracts. Total open interest declined by 2674 contracts, which relative to volume is approximately 20% below average. However the fact that open interest declined at all on the advance confirms that major players are not willing to enter the long side of the gold market. As we have said before, we don’t see gold moving much higher unless platinum and silver (especially silver) begin to trade in a bullish manner. Clients should be on the sidelines.

10 year treasury note:

The March 10 year treasury note advanced 21.5 points on volume of 1,624,141 contracts. Volume was the highest since January 29 when 1,988,672 contracts were traded and the March 10 year treasury note closed at 125-20. On February 3, total open interest increased by a substantial 52,973 contracts, which relative to volume is approximately 35% above average meaning that new longs were aggressively entering the market and driving prices to new highs for the move (125-19.5). It is a certainty that the March 10 year treasury note will generate an intermediate term buy signal on February 4. OIA announced on January 23 that the March 10 year treasury note generated a short-term buy signal.

S&P 500 E mini:

The S&P 500 E mini lost 43.75 points on extremely heavy volume of 3,037,182 contracts. Volume was the highest since December 18 when 3,414,804 contracts were traded and the March S&P 500 E mini closed at 1804.75. On February 3, total open interest increased by 67,235 contracts, which relative to volume is approximately 15% below average, but the largest increase of open interest on a decline that we have seen thus far. Since January 29, open interest has been acting in a bearish fashion relative to price advances and declines. We thought it was possible an intermediate term sell signal would be generated on February 4. However, we expect this in the coming days and continue to recommend maintaining long put protection if holding long equity positions. We think the carnage is far from over.