The WASDE report has been released and we will provide an update tomorrow.

Soybeans:

March soybeans advanced 5.75 cents on volume of 201,616 contracts. Total open interest increased by a massive 12,965 contracts, which relative to volume is approximately 150% above average meaning that new longs were heavily entering the market and driving prices higher. The March contract lost 7,704 of open interest. As this report is being compiled on February 10 after the release of the USDA report, March soybeans are trading 8.50 lower and have made a low of $13 18 1/2. February 7 was the 7th day in a row that soybean prices advanced along with open interest. From January 30 through February 7, March soybeans have advanced 62.25 cents while total open interest has increased by 62,200 contracts. As we stated in the February 6 report, the trend following crowd is jumping into the long side of soybeans en masse.

On February 5, March soybeans generated a short and intermediate term buy signal, which usually means that a pullback is imminent. Beans continued to rally on February 6 and 7 and we are seeing a normal pullback on February 10, which will likely be accentuated due to the massive increase of open interest. As we mentioned in the February 9 Weekend Wrap, the current long to short 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. Based upon the open interest stats of Wednesday through Friday of last week, managed money has significantly added to their long positions. This will be reflected in the upcoming COT report. Stand aside for now.

From the February 6 report:

“February 6 was the 6th day in a row that soybean prices advanced along with open interest. Beginning on January 30 through February 6 March soybeans advanced 56.50 cents while total open interest in this time frame increased by 49,235 contracts. We are especially cautious about soybeans considering that on February 5 and 6th March soybean prices advanced 12.50 cents and total open interest increased by a massive 30,446 contracts. This indicates the likelihood of the trend following crowd initiating new positions at the high-end of the trading range.”

Soybean meal:

March soybean meal advanced 40 cents on volume of 89,707 contracts. Total open interest declined by 502 contracts, which relative to volume is approximately 70% below average. The March contract lost 10,427 of open interest. There were sufficient increases of open interest in the forward months to bring total open interest significantly below average. As this report is being compiled on February 10, March soybean meal is trading $3.20 lower and has made a daily low of 440.10. Stand aside.

Soybean oil On February 7, March soybean oil generated a short-term buy signal, but remains on an intermediate term sell signal. This is the first short-term buy signal that has been generated in over one year.

March soybean oil lost 10 points on volume of 150,872 contracts. Total open interest declined by 7,922 contracts, which relative to volume is approximately 100% above average meaning that liquidation was extremely heavy on a minor decline. Soybean oil may be one of the best candidates of the bean complex for bullish positions, because the risk is low, and managed money is massively short by a ratio of 2.29:1 , which is at the extreme high of the range going back one year. As this report is being compiled on February 10, March soybean oil is trading 32 points higher and has made a new high for the move at 39.24, which is the highest print since 39.29 made on December 31. We would wait for a pullback before initiating bullish positions. The 5 day moving average is 38.40, 20 day 37.82 and 50 day moving average is 38.92.

Corn:

March corn advanced 1.25 cents on heavy volume of 384,116 contracts. Volume declined from the 407,268 contracts traded on February 6 when March corn lost 0.25 and total open interest increased by 7,407 contracts. On February 7, total open interest increased again, this time by 8,223 contracts, which relative to volume is approximately 20% below average. However, the March contract lost 18,991 of open interest, which makes the total open interest increase more impressive (bullish). As this report is being compiled on February 10 after the release of the USDA report, March corn is trading 1.75 cents higher and has made a new high for the move at $4.49. On February 6, March corn generated an intermediate term buy signal after generating a short-term buy signal on January 13. Stand aside.

Chicago wheat:

March Chicago wheat lost 3.25 cents on huge volume of 206,986 contracts. Volume traded on February 7 was the highest in at least one year. On February 7, total open interest declined by 1,850 contracts, which relative to volume is approximately 55% below average. The March contract lost 19,473 of open interest, and there was sufficient open interest increases in the forward months to bring total open interest significantly below average.

March wheat made a high on Friday of 5.86, then fell to the floor to make a new low for the move at 5.66 1/4. This rapid decline accounts for the heavy volume as large numbers of participants were caught on the wrong side of the move. As this report is being compiled on February 10, March Chicago wheat is trading 8.75 cents higher and has made a daily high of $5.90 1/2, which is shy of the February 6 high of 5.92 3/4. On February 5, March Chicago wheat generated a short-term buy signal, but remains on an intermediate term sell signal. In the report of February 6, which was written on February 7, we expressed our preference for the bullish side of KC wheat. However, we recommended using the February 7 low of 5.66 1/4 as an exit point for bullish positions for clients who wanted to be long Chicago wheat. If this recommendation was taken on February 7, stay with bullish positions.

Kansas City wheat:

March Kansas City wheat advanced 0.50 cents on heavy volume of 35,846 contracts. Volume declined from the 39,276 contracts traded on February 6 when March KC wheat declined 2.50 and total open interest declined by 3,787 contracts. On February 7, total open interest declined by 883 contracts, which relative to volume is average. The March contract accounted for loss of 5,745 of open interest, and there was sufficient open interest increases in the forward months to bring the total decline to an average number.

As this report is being compiled on February 10, March KC wheat is trading 13.50 higher and has made a new high for the move at $6.66 3/4 which takes out the previous high for the move of 6.57 1/4 made on February 6. In the February 6 report, which was written on February 7, we recommended that bullish positions be initiated and that the February 7 low of $6.39 1/4 should be used as an exit point for these positions. Stay with bullish positions initiated on February 7.

Live cattle:

April live cattle advanced 1.325 cents on heavy volume of 68,242 contracts. Volume was the heaviest since January 31 when 76,535 contracts were traded and April cattle advanced 5 points while total open interest increased by 4,646 contracts. On February 7, total open interest declined by a huge 8509 contracts, which relative to volume is approximately 400% above average meaning that liquidation was off the charts heavy on the advance. The February contract accounted for loss of 11,945 contracts.

On Friday, many speculators got overly enthusiastic thinking April cattle was about to embark on another leg higher . However, we have cautioned clients for April cattle to continue its advance, the low for the day had to be above 1.39600. As this report is being compiled on February 10 the low for the day for April cattle has been 1.39500, therefore new bullish positions should not be added to current holdings. On January 30, we recommended the writing of out of the money calls against bullish positions. This trade has worked out well and we recommend holding short call positions against bullish positions initiated at significantly lower levels.

WTI crude oil:

March WTI crude oil advanced $2.04 on volume of 617,648 contracts. Volume was the highest since January 23 when 646,012 contracts were traded and March WTI advanced 59 cents while total open interest declined 5,775 contracts. On February 7, total open interest increased by 18,831 contracts, which relative to volume is approximately 20% above average. The March contract lost 10,392 of open interest, which makes the total open interest increased much more impressive (bullish). March WTI crude oil will likely generate an intermediate term buy signal on February 10. Stand aside.

Brent crude oil:

March Brent crude oil advanced $2.38 on volume of 719,269 contracts. Volume was the highest since January 23 when 749,814 contracts were traded. On February 7, total open interest increased by a massive 29,870 contracts, which relative to volume is approximately 55% above average meaning that new longs were aggressively entering the market and driving prices to new highs for the move ($109.72). Brent crude will likely generate a short and intermediate term buy signal on February 10.

Gasoline:

March gasoline advanced 6.59 cents on volume of 163,260 contracts. Volume was the highest since January 16 when 177,525 contracts were traded and March gasoline close at $2.6107. On February 7, total open interest increased by 4,643 contracts, which relative to volume is average. March gasoline will generate a short and intermediate term buy signal on February 10. March gasoline began its rally on February 5 and through February 7, total open interest has increased 14,595 contracts. The important point is that open interest increased each day that prices advanced despite managed money holding 25,895 contracts short along with “Other Reportables” holding 16,364 contracts short. In other words, short sellers have been digging in, which means there is plenty of fuel provided by short sellers to drive gasoline higher. As we pointed out in the February 9 Weekend Wrap, the long to short ratio of gasoline  is at the very low-end of its range. We do not recommend positions in gasoline due to its volatility. However, it appears that prices are headed higher.

Euro:

The March euro advanced 41 pips on volume of 237,579 contracts. Volume shrank from the 311,407 contracts traded on February 6 when the March euro advanced 53 pips and total open interest declined by 282 contracts. On February 7, total open interest declined by 47 contracts. For the past 3 trading sessions beginning on February 5, the March euro has advanced 1.12 cents while open interest has declined 3,683 contracts. This is bearish open interest action relative to the 3 day price advance. On February 6, we recommended the initiation of a short call position and advised to exit this if the low of the day in the March euro was above 1.3651. Continue to hold this position. The March euro remains on a short and intermediate term sell signal.

British pound:

The March British pound advanced 90 pips on volume of 112,203 contracts. The advance on Friday was the largest since January 22 when the March pound gained 98 pips on volume of 130,962 contracts and total open interest increased by 12,587 contracts. On February 7, total open interest declined by 436 contracts, which relative to volume is approximately 80% below average, but an open interest decline on an advance of the magnitude seen on February 7 is unquestionably bearish. As this report is being compiled on February 10, the March pound is trading 5 pips lower on the day. The March pound remains on a short-term sell signal, which was generated on February 4 and an intermediate term buy signal. Stand aside.

Yen:

The March yen lost 17 pips on volume of 195,624 contracts. Total open interest declined by 3,115 contracts, which relative to volume is approximately 35% below average. The March yen has been acting in a very bullish fashion and open interest declines on February 4 through 7 along with price declines is positive. We expect a test of last week’s high of .9927. There is formidable resistance at this level, and if the yen is not able to break through it, it will likely resume its downtrend.

Gold: We have noticed a distinct pattern of precious metal prices advancing when stock indices are declining. Conversely, when index prices advance, we see pullbacks in precious metals.

April gold advanced $5.70 on volume of 146,636 contracts. Total open interest increased by 1,565 contracts, which relative to volume is approximately 50% less than average. As this report is being compiled, April gold is trading $10.50 higher on the day and has made a daily high of 1277.80, which is a bit shy from 1280.10 made on January 27.

From the February 6 report:

“Even though there is a lack of speculative interest in gold, we think it is headed higher, and may be on the verge of a major move. We recommend that bullish positions be initiated immediately, and encourage the use of long call options as a risk mitigation tool. Gold remains on a short-term buy signal, but an intermediate term sell signal.”

Silver:

March silver closed unchanged on volume of 58,158 contracts. Total open interest declined by 172 contracts, which is minuscule and dramatically below average. As this report is being compiled on February 10, March silver is trading 9.9 cents higher and has made a daily high of 20.275.

From the February 6 report:

“Although silver has frequent setbacks, we see a pattern of consistent recoveries, and based upon our calculations, it would not take much for silver to generate a short and intermediate term buy signal. Although silver can be highly volatile, current volatility is at the very low-end of the trading range going back to April 2013. As a result, we recommend the use of options and advise that long straddles or longs strangles be initiated immediately.”

S&P 500 E mini:

The March S&P 500 E mini gained 27.00 points on volume of 2,351,532 contracts. Total open interest increased by 35,564 contracts, which relative to volume is approximately 40% less than average. On February 6 and 7, the E mini advanced a total of 49.50 points and total open interest increased by 40,331 contracts, which is dramatically below average. Conceivably, the E mini can continue to advance for a while longer, but we think lower prices are in store. However, it may take a catalyst (crisis of some sort) to reverse the current move. Maintain long put protection if holding long equity positions. 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. The S&P 500 E mini remains on a short-term sell signal, but an intermediate term buy signal.