Soybeans:

March soybeans advanced 1.50 cents on light volume of 138,091 contracts. Total open interest increased by 5,389 contracts, which relative to volume is approximately 50% above average meaning that new longs and shorts were aggressively entering the market, but prices advanced only fractionally. Open interest increased in the March 2014 through July 15 contracts. There has been a steady flow of open interest increases for the past several sessions, and the market made its high on January 16 at 13.30 1/2, but March soybeans closed 3.00 cents lower on the day. On January 16, soybeans generated a short and intermediate term buy signal, but we warned clients that we thought the upside was limited. As this report is being compiled on January 21, March soybeans are trading 30.50 cents lower on the day.

From the January 16 report:

“Although there was range expansion on the move yesterday, it was somewhat disappointing to see soybeans close lower at $13.15 after trading 15 cents higher on the day. On the continuation chart the 50 day moving average of 13.14 1/4 is below the 150 day moving average of 13.30 1/2 and the 200 day moving average of 13.39 1/4. On the other hand the March chart the 50 day moving average of 12.97 1/4 is above the 150 day moving average of 12.83 and the 200 day moving average of 12.75 1/2. Though March soybeans have generated a short and intermediate term buy signal, we are a bit skeptical about soybean’s ability to move significantly higher from here. Stand aside.

Soybean meal:

March soybean meal advanced $2.50 on volume of 52,231 contracts. Total open interest increased by 3,622 contracts, which relative to volume is approximately 160% above average meaning that both longs and shorts were aggressively entering the market, but prices moved only fractionally higher. There were open interest increases in the March 2014 through August 2014 contracts. On January 14, March soybean meal generated a short-term buy signal and continues to be on an intermediate term buy signal. As this report is being compiled on January 21, March soybean meal is trading $15.50 lower. We have advised a stand aside posture in soybean meal.

Corn:

March corn lost 4.00 cents on volume of 160,003 contracts. Total open interest increased by 3,254 contracts, which relative to volume is approximately 20% below average. However, the March contract lost 3,265 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on January 21, corn is trading 1.00 cent lower. Possibly, March corn may generate a short-term sell signal on January 21, which would reverse the short-term buy signal generated on January 13. Stand aside.

Chicago wheat:

March Chicago wheat lost 9.25 cents on volume of 60,840 contracts. Total open interest increased by 2,229 contracts, which relative to volume is approximately 50% above average meaning that new shorts were aggressively initiating short positions and driving prices sharply lower. The March and May contracts gained open interest. As this report is being compiled on January 21, March wheat is trading 1.50 cents higher and has made a daily low of $5.60 3/4, which is 0.25 cents above the contract low made on January 10. Wheat remains on a short and intermediate term sell. Stand aside.

Live cattle:

April live cattle advanced 7.5 points on volume of 55,305 contracts. Total open interest increased by a hefty 4,431 contracts, which relative to volume is approximately 210% above average, meaning that both longs and shorts were aggressively entering the market but prices moved only fractionally higher. The February contract lost 4,214 of open interest, which makes the total open interest increase much more impressive (bullish). As this report is being compiled on January 21, April cattle has made a new contract high at 1.40650 and is trading 1.125 higher on the day. The market continues to move in a parabolic fashion, which increases the probability of a very sharp correction.

Under no circumstances should clients add new bullish positions. According to the COT report, which was tabulated on January 14, managed money is long by a ratio of 9.38:1, which is approximately 50% higher than the previous week’s ratio of 6.44:1. In other words, in a correction there will be plenty of fuel for the move lower. Despite new contract highs, we think cattle prices are ultimately headed higher. Additionally, we think the top will occur after a major correction.

We think within a matter of days, the move higher in cattle will become a big consumer news story. In the short-term this could cause consumers to rush to buy beef before prices move even higher. However, as prices continue to rise and news reports continue to emphasize this, consumers will begin to cut their consumption of beef, which will begin counteract the current shortfall. Stay with bullish positions, however, it is wise to take some of money off the table. There will likely be an opportunity to initiate new long positions once the correction has run its course.

WTI crude oil:

March WTI crude oil advanced 49 cents on light volume of 489,563 contracts. Total open interest declined by 14,085 contracts, which relative to volume is average. The February contract lost 31,869 contracts of open interest, and there was sufficient open interest increases in the forward months to bring total open interest down to an average number. WTI continues to act in a bearish fashion, and on a consistent basis we see open interest declining when price advances. For example, on January 14 crude oil advanced 79 cents and total open interest declined by 2,256 contracts. On January 15, WTI advanced $1.58 and total open interest declined by 5,099 contracts. On January 16, WTI declined 25 cents, but in this case, open interest increased by 7,286 contracts, which again is bearish. As this report is being compiled on January 21, March WTI has made a high of 95.46, which is at the 50 day moving average on the continuation chart of 95.43 and slightly below the 50 day moving average on the March chart of 95.81. The advance from the low of 91.24 on January 9 has been thoroughly unimpressive, and it would appear that a retest of this low is inevitable.

Natural gas:

February natural gas lost 5.6 cents on light volume of 291,495 contracts. Total open interest declined by 3,018 contracts, which relative to volume is approximately 50% below average. The February contract lost 12,338 of open interest. As this report is being compiled on January 21, February natural gas is trading 7.1 cents higher on relatively low volume and has made a daily high of $4.447, which is below the high made on January 16 of 4.495. Ever since natural gas topped out on December 23 at 4.578, we have been skeptical of natural gas being able to move considerably higher. Consider that on May 1, 2013 the June contract made a high of 4.444. From December 23 through January 21 during the worst cold spell in a couple of decades when natural gas use is high, the lead contract month was only able to exceed the May 2013 high by approximately 13.4 cents. This is not the kind of action indicative of a major bull market. We suggest to anyone who is long natural gas to begin to take money off the table. We have no recommended position at this juncture.

Euro:

The March euro lost 85 pips on surprisingly light volume of 211,014 contracts. In order to place Friday’s volume in context consider that on January 16, the March euro advanced 15 pips and the range on that day was 68 pips, but volume was 210,129 contracts, while on January 17, the range was 105 pips and volume exceeded the previous day by only 885 contracts. Also revealing was the huge increase of open interest on the decline of 12,312 contracts, which relative to volume is approximately on 120% above average meaning that new short sellers were aggressively entering the market and driving prices to new lows for the move (1.3515). As of the latest COT report, which was tabulated on January 14, managed money is long the euro by a ratio of 1.72:1, which is down from the previous week of 1.94:1 and the ratio of 2 weeks ago of 2.29:1. In short, there is plenty of fuel for a continued downside move, which we think is in the offing. On January 8, the March euro generated a short-term sell signal, and is very close to generating an intermediate term sell signal. Under no circumstances should clients be long the euro. On any rally of approximately 50 pips, we suggest that clients write out of the money calls. The euro should not rally much beyond its 50 day moving average of 1.3612.

Swiss franc: On January 17, the March Swiss franc generated an intermediate term sell signal which confirms the short-term sell signal generated on January 7.

Dollar index:

The March dollar index advanced 34.1 points on volume of 21,298 contracts. Total open interest increased by a massive 4,691 contracts, which relative to volume is approximately 640% above average meaning that new longs were entering the market at an extraordinarily high rate and driving prices to new highs (81.43). As this report is being compiled on January 21, the March dollar index is trading 10 points lower, but has made a new high for the move at 81.525. Continue to hold long positions and if not long look to buy setbacks.

British pound:

The March British pound advanced 62 pips on volume of 111,457 contracts. Total open interest increased by 1,081 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on January 21, the March pound is trading 55 pips higher. We see the pound continuing to work its way higher and like the GBP/EUR cross, however it is massively overbought relative to its 20 day moving average of 1.2038 and the 50 day moving average of 1.1983.

Gold:

February gold advanced $11.70 on light volume of 124,128 contracts. Total open interest increased by 1,642 contracts, which relative to volume is approximately 45% less than average. As this report is being compiled on January 21, gold is trading $9.90 lower and has made a low of $1235.10. We continue to like gold and think it is headed higher. Maintain bullish positions.

Platinum:

April platinum advanced $22.60 on heavy volume of 12,307 contracts. Volume traded was the heaviest of 2014 and from the time when OIA announced that April platinum generated a short-term buy signal on January 2. On January 17, total open interest increased by 462 contracts, which relative to volume is approximately 50% above average meaning that new longs were aggressively entering the market and driving prices higher. This is the 2nd day in a row that open interest has increased along with platinum prices. In the past, we have commented on the fact that managed money was not involved in platinum to any great extent. It appears, based upon the past 2 days activity that this is about the change. Platinum, made a low on January 21 of 1437.00, and has rallied to nearly unchanged on heavier volume than January 17. If long, continue to hold bullish positions.

Silver:

March silver advanced 25 cents on volume of 36,406 contracts. Total open interest increased by 529 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on January 21, March silver is trading 39 cents lower and has made a low of 19.655. Previously, we had recommended to exit silver at the 19.905 area, which was the low on January 15. In the January 20 Weekend Wrap, we voiced our trepidation about how silver has traded, and it appears that our concern was well-founded. We think it is likely the low made on January 21 will be the low, or is not far away from it. It is important for silver to begin trading in a more positive manner for gold to break out to the 1270.00 level. We think it is crucial that open interest decline on January 21.

From the January 20 Weekend Wrap:

“For those holding bullish positions in silver, we recommend that clients exit these if silver penetrates $19.905, which was the low on January 15. If this occurs, we could see silver pullback to 19.53. If silver is truly in the early stages of the bull market, this approximate level should stem any further declines.”

S&P 500 E mini:

The March S&P 500 E mini lost 2.00 point on light volume of 1,185,281 contracts. Total open interest declined by 22,757 contracts, which relative to volume is approximately 20% below average. We continue to advise long put protection for those clients who hold long equity positions.