Soybeans:

March soybeans advanced 4.75 cents on very heavy volume of 239,757 contracts. Volume was the highest since December 19 when 249,081 contracts were traded and March soybeans closed at $13.27. On January 10, total open interest increased by 7,152 contracts, which relative to volume is approximately 20% above average. The January contract lost 828 of open interest making the total open interest increase more impressive (bullish). As this report is being compiled on January 13, March soybeans are trading 14.00 cents higher and have made a high of 12.94 1/2, which is below 12.97, the high made on January 10. Soybeans remain on a short and intermediate term sell signal. Stand aside.

Soybean meal:

March soybean meal lost 70 cents on heavy volume of 99,518 contracts. Volume was the highest since December 17 when 106,695 contracts were traded and March soybean meal closed at $448.00. On January 10, total open interest increased by 2,535 contracts, which relative to volume is average. The January contract lost 964 of open interest, which makes the total open interest increase somewhat more impressive (bullish). March soybean meal made a high of $424.80 on January 10 and as this report is being compiled on January 13, March soybean meal is trading 7.20 higher and has made a high for the day at 423.70. Soybean meal remains on a short-term sell signal, but an intermediate term buy signal. Stand aside.

Corn:

March corn advanced 20.75 cents on huge volume of 644,921 contracts. Volume was the highest since November 8 when 685,923 contracts were traded and March corn closed at 4.26 3/4. On January 10, total open interest increased by 12,816 contracts, which relative to volume is approximately 20% below average. The March contract lost 1,247 of open interest, which makes the total open interest increase somewhat more impressive (mildly bullish). For information on the USDA report released on January 10, please see the January 12 Weekend Wrap.

As this report is being compiled on January 13, March corn is trading 1.50 cents lower and has made a low for the day at $4.30 1/2. If the low of 4.30 1/2 holds, corn will generate a short-term buy signal. However, we caution clients this is not an opportunity on the long side, rather it is better to be on the sidelines and wait for a spot where bearish positions can be initiated. Corn has to pass above resistance of 4.36, made on December 23 and then 4.38, the high of November 12.

Although the total open interest increase was below average, the fact that it increased at all is quite revealing because we know managed money is massively short corn by a ratio of 1.45:1. Also of note is that the COT report revealed that commercials added 23,631 contracts to their long positions and only added 2960 to their short positions. In short, if today’s low holds and March corn generates a short-term buy signal, we may see a rally fueled by speculative short covering, which will ultimately provide clients with an opportunity to initiate bearish positions.

Chicago wheat:

March Chicago wheat lost 15.25 cents on heavy volume of 187,859 contracts. Volume was the highest since November 11 when 190,029 contracts were traded and March Chicago wheat closed at 6.46 1/4. On January 10, total open interest increased by 1,385 contracts, which relative to volume is approximately 65% less than average. The March contract lost 4,200 of open interest, which makes the total open interest increase more impressive (bearish). March Chicago wheat made a new contract low of $5.60 1/2 and as this report is being compiled on January 13, March Chicago wheat is trading 3.50 cents higher and has not taken out Friday’s low. March Chicago wheat remains on a short and intermediate term sell signal. Stand aside.

Live cattle:

February live cattle advanced 15 points on volume of 64,140 contracts. Total open interest increased by 2,691 contracts, which relative to volume is approximately 55% above average. The February contract lost 8,802 of open interest, which makes the total open interest increase much more impressive (bullish). As this report is being compiled on January 13, February cattle is trading unchanged on the day. Continue to hold bullish positions, higher prices are in store.

WTI crude oil:

February WTI crude oil advanced $1.06 on volume of 643,418 contracts. Total open interest increased by 18,843 contracts, which relative to volume is approximately 20% above average meaning that longs were initiating new positions at an above average rate and driving prices higher. The February contract lost 19,268 of open interest, which makes the total open interest increase much more impressive (bullish). We see the move on Friday as a reaction to the low made on January 9 of 91.24 and the market rebounded to continue its advance on Friday. As this report is being compiled on January 13, February WTI is trading 73 cents lower and has made a low of 91.65. WTI remains on a short and intermediate term sell signal. The market looks terrible, and the long to short ratio remains at elevated at 5.57:1, which means there is plenty of fuel for a continued declines. Continue to hold the short call position in WTI that we recommended on December 30. In order to become more aggressive, we need to see crude oil have a much larger bounce than it did on Friday. The 20 day moving average stands at 96.48 and the 50 day MA is 95.83.

Brent crude oil:

March Brent crude oil advanced 65 cents on heavy volume of 777,428 contracts. Volume was the highest since December 10 when 823,589 contracts were traded and Brent crude lost 26 cents while open interest increased by 11,465 contracts. On January 10, total open interest increased by 6,021 contracts, which relative to volume is approximately 60% below average. However, the February contract lost 24,568 of open interest, which makes the total open interest increase more impressive (bullish). The market structure for Brent crude is considerably more bullish than it is for WTI. For example, the 50 day moving average is 108.05 while the 200 day moving average is 104.38. Contrast this with the February WTI contract in which the 50 day moving average is 95.92 while the 200 day moving average is 96.56. Additionally, year to date WTI is down 5.99% while Brent is -3.54%. In short, the bearish story is all about WTI and to lesser degree Brent crude oil. Brent remain in a state of backwardation and generated a short-term sell signal on January 2, but is on an intermediate term buy signal. Stand aside.

Natural gas:

February natural gas advanced 4.8 cents on volume of 361,323 contracts. Total open interest declined by 13,229 contracts, which relative to volume is approximately 40% above average meaning that liquidation was extremely heavy on a very modest advance. The February contract lost 3,705 of open interest. As this report is being compiled on January 13, February natural gas has rallied 21.6 cents and has made a new high for the move at $4.287. On January 9, February natural gas generated a short-term sell signal, but did not generate an intermediate term sell signal. As is usually the case after the generation of a sell signal, the market has a countertrend rally, which can last from 1-3 days. We view the current rally as an opportunity to consider bearish positions. Keep an eye out for the following pivot points, which should provide significant resistance: 4.293, 4.369, 4.394. It will be important to see what open interest does on today’s rally, and whether volume is close to that traded on January 9 of 467,901 contracts when February natural gas declined 21.1 cents. In short, we want to see higher volume on the advance than on the decline. Remember, volume increases in the direction of the underlying trend.

Euro:

The March euro advanced 70 pips on volume of 232,010 contracts. Interestingly, volume declined from January 9 when 243,416 contracts were traded and the euro advanced only 26 pips while open interest increased by 1653 contracts. In other words, on January 10 the advance was almost 3 times that of January 9, yet volume was approximately 11,000 contracts fewer on January 10. On January 10, total open interest declined by 3275 contracts, which relative to volume is approximately 40% below average. Despite the below average decline of open interest, the fact that it declined in all in our view is bearish. On January 8, the March euro generated a short-term sell signal, but remains on an intermediate term buy signal. Stand aside.

Dollar index:

The March dollar index lost 38.1 points on heavy volume of 38,856 contracts. Total open interest declined by a massive 4,144 contracts, which relative to volume is approximately 320% above average meaning that liquidation was extremely heavy. For those clients who are long futures contracts, we recommended on January 8 to put a stop slightly below the January 6 low of 80.537. As this report is being compiled on January 13, the dollar index has made a low of 80.560. Most of the weakness in the dollar can be attributed to a major rally in the yen, which is up over 1% on January 13. If stopped out, move to the sidelines. On January 13, the March dollar index remains on a short and intermediate term buy signal.

British pound:

The British pound advanced 2 pips on heavy volume of 120,599 contracts. Volume was the heaviest since December 18 when 146,411 contracts were traded and the March British pound closed at 1.6421. The pound has been overbought for quite some time, and a move to the 50 day moving average of 1.6257 seems inevitable at this juncture. As this report is being compiled on January 13, the March pound is trading 89 pips lower and has made a low of 1.6338 which is its lowest price since January 6 when it printed 1.6329. Stand aside. After the correction, we think the long side of GBP/EUR and GBP/CHF will be terrific trades.

Australian dollar:

As we said in the January 12 Weekend Wrap, if the Australian dollar’s daily low is above OIA’s key pivot point of 89.29 it would generate a short-term buy signal. As this report is being written on January 13, the daily low has been 89.48 and the March Australian dollar has made a new high for the move at 90.49,which is close to its 50 day moving average. For more information, please see the January 12 Weekend Wrap.

Gold: February gold has generated a short-term buy signal on January 13, but remains on an intermediate term sell signal.

February gold advanced $17.50 on heavier than normal volume of 187,343 contracts. Volume was the highest since January 8 when 195,183 contracts were traded and February gold declined $4.10 while open interest increased by 5,828 contracts. On January 10, open interest increased by a massive 10,476 contracts, which relative to volume is approximately 120% above average meaning that longs were initiating new positions at a very aggressive pace and driving prices to new highs ($1248.50). A we said in the January 12 Weekend Wrap, gold would generate a short-term buy signal if the daily low was above 1234.10. Additionally, if the daily low was above 1245.20, this would be more confirmation.

As this report is being compiled on January 13, the low for the day has been $1243.00 and February gold has made a new high at 1255.30 on very low volume. Additionally, February gold has closed above the 50 day moving average of 1249.75 on January 13. We rarely recommend initiating new long positions once a short-term buy signal is generated. However, in this case, we have a couple of reasons why new long positions at current levels make sense. (1) At the closing price on January 13, February gold is trading at its 50 day moving average, meaning that it is neither overbought nor oversold. (2) The long to short ratio of managed money is at an extremely low-level, meaning there will be minimal selling pressure from new longs on a setback. Additionally, volume on January 13 is below Friday’s, which means market participants continue to be reluctant to enter new longs and/or do not believe in the rally. With the generation of the short-term buy signal under these circumstances, new bullish positions at current levels are not as risky as they may appear on the surface. Additionally, the gold volatility index (GVZ ) is trading at the lower end of its 52-week range, which means options are very cheap.

Platinum: On January 13, April platinum will generate an intermediate term buy signal, and generated a short-term buy signal on January 2.

April platinum gained $17.00 on fairly light volume of 8,704 contracts. Total open interest declined by 402 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy on the advance. As we said in the January 12 Weekend Wrap, platinum has shown a consistent pattern of open interest declines on advances. In short, the price action is behaving bullishly while open interest action is acting bearishly. 

Silver:

March silver advanced 54 cents on heavy volume of 61,299 contracts. Volume was the heaviest since December 4 when 62,808 contracts were traded and March silver closed at $19.83. As we said in the January 12 Weekend Wrap, silver would not generate a short-term buy signal unless the daily low was above $20.06. On January 13, the low has been 19.955, therefore a short-term buy signal will not be generated on January 13. However, March silver has closed at $20. 385, and we think it will likely generate a short-term buy signal tomorrow, but at the very least some time this week. As we have said in previous reports, silver needs to move to the 20.50 level in order to break out and this probably will occur in today’s evening session.

S&P 500 E mini:

The S&P 500 E mini gained 4.75 points on volume of 1,459,494 contracts. Total open interest increased by 25,223 contracts, which relative to volume is approximately 25% less than average. As this report is being compiled on January 13, the March S&P500 E mini is trading 25.00 points lower. For quite some time, we have been recommending long put protection for those clients who hold long equity positions.