Soybeans:

March soybeans lost 22.50 cents on volume of 185,240 contracts. Volume was the highest since December 20 when 190,687 contracts were traded and March soybeans advanced 12.00 cents while total open interest declined 8,447 contracts. On January 2, total open interest declined by 4,546 contracts, which relative to volume is average. The January contract lost 3,480 of open interest and March -4585. As this report is being compiled on January 3, March soybeans are trading 2.75 cents lower and will generate an intermediate term sell signal on January 3 after generating a short-term sell signal on December 31.

Export sales were terrific with 943.4 thousand metric tons (tmt) being committed, which brings total commitments to 1.492 billion bushels (bb) against USDA projections for the entire season of 1.450 bb. It will be interesting to see how much the USDA raises projected exports in the January 10 WASDE report. After the generation of a sell signal on December 31, typically a countertrend rally ensues, which is the opportunity to initiate bearish positions. However, if this occurs, and new bearish positions are initiated, clients must be mindful of the potential impact of the January 10 report. There is the potential for a major surprise, which means as the report date nears, caution is in order. For those clients that took our advice on December 22 and wrote out of the money calls, stay with this position.

Soybean meal: On January 2, March soybean meal generated a short-term sell signal, but remains on an intermediate term buy signal.

March soybean meal lost $10.70 on heavy volume of 83,756 contracts. Volume was the heaviest since December 18 when 95,917 contracts were traded and March soybean meal lost $8.90 while total open interest declined by 71 contracts. On January 2, total open interest declined by 2,358 contracts, which relative to volume is average. The January contract lost 1,300 of open interest and March -3363. As this report is being compiled on January 3, January soybean meal is trading $1.30 lower and has made a new low for the move at 404.60. After the generation of a sell signal, there tends to be a countertrend rally lasting 1-3 days and this is the opportunity to initiate bearish positions. However, as we stated in the soybean report, as the January 10 date nears extreme caution should be exercised regarding the potential risk of the position going into the report.

The USDA reported that 123.9 tmt had been sold and total commitments as of the latest report is 6156 tmt versus USDA projections for the season of 9526 tmt.

Corn:

March corn lost 1.50 cents on heavy volume of 215,072 contracts. Volume was the heaviest since December 12 when 235,276 contracts were traded and March corn declined 5.00 cents while total open interest declined 2,437 contracts. On January 2, total open interest increased by 6,290 contracts, which relative to volume is approximately 20% above average. The March contract lost 765 of open interest. For the past 3 days, total open interest has increased by 17,050 contracts while March corn has declined 7.00 cents. This is bearish open interest action relative to the price decline. As this report is being compiled on January 3, March corn has made a new low for the move at 4.17. Corn remains on a short and intermediate term sell signal. Stand aside.

The USDA reported that 154.5 tmt had been sold in the most recent reporting period. This was the lowest weekly sale since the beginning of the season on September 1. Total commitments season to date is 1.123 bb versus USDA projections for the season of 1.450 bb.

Chicago wheat:

March Chicago wheat lost 8.50 on total volume of 59,800 contracts. Total open interest increased by 5,739 contracts, which relative to volume is approximately 200% above average meaning that new short sellers were aggressively entering the market and driving prices lower. March wheat made a new low for the move at 5.95 1/2, which was the lowest price since May 9 2012 when wheat on the continuation chart made a low of $5.89 3/4, which was the low for 2012. In short, wheat is trading in its longer term value zone, and it is possible there will be a bullish surprise in the January 10 report from the USDA with respect to feed usage. As this report is being compiled on January 3, Chicago wheat is trading 9.50 higher while KC +10.25. Both Chicago and KC wheat remain on a short and intermediate term sell signal.

The USDA reported that 248.5 tmt had been sold in the most recent reporting period. This brings total commitments season to date to 899.5 mb versus USDA projections for the entire season of 1.100 bb. The sale just reported was the smallest in 4 weeks.

Live cattle:

February live cattle advanced 1.00 cent on very heavy volume of 70,251 contracts. Volume was the highest since November 19 when 75,455 contracts were traded and February cattle closed at 1.31675. On January 2, total open interest increased by 6,321 contracts, which relative to volume is approximately 250% above average, meaning that new longs were aggressively entering the market and driving prices to new highs (1.35700). There were open interest increases in the December 2013 through April 2015 contracts indicating broad support for the move higher. As this report is being compiled on January 3, February cattle is trading 65 points higher and has made a new high at 1.36375.

 From the December 29 Weekend Wrap:

“We think cattle has begun rallying in earnest after trading in a consolidation pattern for the past couple of months. On December 27, the February contract closed at 1.34950, which took out the recent high weekly close of 1.34800 made the week of November 11, and is the highest weekly close since the week of January 28 when February cattle closed at 1.35150. On the weekly continuation chart, the closing high of 1.33850 on December 27, which reflects the December contract made its highest close for 2013.”

“We think the February contract will gain on the forward contracts, and a more conservative way of trading cattle would be to buy the February 2014 contract and sell June 2014. On Friday, the spread closed at 5.40 cents premium to February, and the high for the spread going back to March 2013 is 5.825 cents premium to February made on October 30 and November 15, 2013 when February cattle made its high at 1.34225 and 1.34800 respectively. The 20 day moving average is 1.33480 and the 50 day moving average,1.33620, therefore we think the downside is limited at this juncture. For option traders we recommend using the April contract, which expires on April 4 because the February option will expire on February 7. During the last 30 days of the option, theta (time decay) begins to increasingly take its toll on the option price.  Aside from purchasing call options, clients should consider bull call spreads, bull put spreads, or writing puts. Cattle is entering its strong seasonal period and it tends to top out in February.”

Lean hogs:

February lean hogs advanced 1.650 cents on heavy volume of 51,160 contracts. Volume was the highest since November 13 when 59,278 contracts were traded and February hogs closed at 90.775. On January 2, total open interest increased by 3,088 contracts, which relative to volume is approximately 120% above average meaning that new longs were aggressively entering the market and pushing prices to new highs for the move (87.400). The February contract lost 1,172 of open interest, which makes the total open interest increase more impressive. For the past 2 days, February hogs have advanced 2.125 cents while open interest has increased by a massive 6,183 contracts. As this report is being compiled on January 3, February hogs are trading 42.5 lower and it looks increasingly probable there will be a retest of the December 30 low of 84.975. We are a bit concerned about the massive open interest increases when prices advanced during the two-day period. Clients who took our advice and initiated bearish positions a couple of weeks ago should be sure to have their buy stops in place in the event of a continued rally. With cattle in a major bull market, we cannot discount the likelihood of this supporting higher hog prices. At the December 30 low, hogs are trading at their lowest level since late August.

WTI crude oil: On January 2, February WTI crude oil generated a short-term sell signal and had already be on an intermediate term sell signal..

February WTI crude lost $2.98 on surprisingly light volume of 544,194 contracts. Total open interest increased by 11,908 contracts, which relative to volume is approximately 20% below average. The February contract lost 6,471 of open interest, which makes the total open interest increase more impressive (bearish). During the past 3 days beginning on December 30, February WTI has declined $1.03, 87 cents, 2.98 while volume has totaled 279,621, 264,754, 533,339  respectively. In short the market has had a major decline and yet volume has been dramatically below average. Additionally, we know that managed money is long WTI by a stratospheric 8.30:1, yet during the past 3 days, open interest has increased by 12,668 contracts indicating that managed money is digging in their heels and refusing to liquidate. As a result, we think prices are headed lower from here. Even though crude oil inventories declined by 7  million barrels in today’s Energy Information Administration report, this was unable to boost prices. We recommend against chasing the market, but would rather wait for a rally before initiating bearish positions. On December 30, we recommended that adventurous traders could short calls, and if this advice has been taken, the trade is working quite well. Continue holding this position.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.0 million barrels from the previous week. At 360.6 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 0.8 million barrels last week, and are in the upper half of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 5.0 million barrels last week but are below the lower limit of the average range for this time of year. Propane/propylene inventories fell 1.5 million barrels last week and are well below the lower limit of the average range. Total commercial petroleum inventories decreased by 6.6 million barrels last week.

Brent crude oil: On January 2, February Brent crude oil generated a short-term sell signal, and will generate an intermediate term sell signal on January 3.

Brent crude oil lost $3.02 on light volume of 533,339 contracts. Total open interest declined by 10,874 contracts, which relative to volume is approximately 20% less than average. The February contract lost 22,857 of open interest. As this report is being compiled on January 3, February Brent is trading 88 cents lower and will generate an intermediate term sell signal on January 3.

Gasoline: On January 2, February gasoline generated a short-term sell signal, but remains on an intermediate term buy signal

Heating oil: On January 2, February heating oil generated a short and intermediate term sell signal.

Natural gas:

February natural gas advanced 9.1 cents on light volume of 228,203 contracts. Total open interest increased by 4,375 contracts, which relative to volume is approximately 20% below average meaning that new longs were entering new long positions, but were doing so at a below than average rate. The February contract lost only 307 of open interest. Although the price and open interest action has been very positive for the past couple of days, we continue to see a pattern of lower highs and lower lows, which has been in evidence since natural gas topped out on December 23. On January 3, natural gas did not get above unchanged until an hour after the release of the storage report by the Energy Information Administration. Keep in mind natural gas has been trading since 5 o’clock CST on January 2. Even then, the rally was confined to a 9 cent advance, which did not take out yesterday’s high of 4.448. The market looks tired and with all the negative news about terrible storm conditions in the Midwest and East, the market doesn’t have the strength to close solidly positive. We think the COT report which will not be released until next Monday will likely show a stratospheric long to short ratio held by managed money. We think this is setting up a major down move, but we will not recommend major bearish positions until such time as a short-term sell signal has been generated. In the meantime, for those who are adventurous on a rally of 10-15 cents, consider writing out of the money calls.

The Energy Information Administration announced that working gas in storage was 2,974 Bcf as of Friday, December 27, 2013, according to EIA estimates. This represents a net decline of 97 Bcf from the previous week. Stocks were 562 Bcf less than last year at this time and 289 Bcf below the 5-year average of 3,263 Bcf. In the East Region, stocks were 226 Bcf below the 5-year average following net withdrawals of 67 Bcf. Stocks in the Producing Region were 27 Bcf below the 5-year average of 1,088 Bcf after a net withdrawal of 13 Bcf. Stocks in the West Region were 36 Bcf below the 5-year average after a net drawdown of 17 Bcf. At 2,974 Bcf, total working gas is within the 5-year historical range.

Euro:

The March euro lost 1.36 cents on volume of 177,360 contracts. Surprisingly volume was light compared to the action of December 27 when the euro advanced 42 pips and volume was 177,105 contracts while open interest increased by 4,763 contracts. On January 2, open interest increased by only 547 contracts, which relative to volume is minuscule and dramatically below average. Surprisingly, with the very large long to short ratio held by managed money (2.30:1), we should have seen an open interest decline, which would’ve been healthy for the market. Instead, the increase tells us that longs are digging in and refusing to liquidate. As this report is being compiled on January 3, the March euro is trading 55 pips lower and has made a new low for the move at 1.3593. Stand aside.

British pound:

The British pound lost 1.44 cents on volume of 76,494 contracts. Open interest declined by a healthy 4,356 contracts, which relative to volume is approximately 110% above average. This is a healthy decline considering that managed money is long by a ratio of 3.10:1. As this report is being compiled on January 3, the March British pound is trading 3 pips lower. On December 31, GBP/EUR generated a short-term buy signal and had been on an intermediate term buy signal. As this report is being compiled on January 3 GBP/EUR continues to move sharply higher. 

Gold:

February gold advanced $22.90 on volume of 153,128 contracts. Total open interest increased by 4,669 contracts, which relative to volume is approximately 20% above average. As this report is being compiled on January 3, gold has made a new high for the move at 1239.60, and has been trading with a firm undertone. Gold remains on a short and intermediate term sell signal.

Platinum: On January 2 April platinum generated a short-term buy signal, but remains on an intermediate term sell signal.

April platinum advanced $30.80 on fairly light volume of 10,378 contracts. Total open interest declined by 1,122 contracts, which relative to volume is approximately 320% above average meaning that liquidation was extremely heavy on the advance. While this is negative, the price action has been very positive and we believe that precious metals likely are in the process of turning from bear to bull.

Silver:

March silver advanced 75.8 points on fairly heavy volume of 50,228 contracts. Total open interest declined by 747 contracts, which relative to volume is approximately 40% below average. It is disappointing to see open interest decline on an advance of the magnitude seen on January 2. As we’ve said before, silver must break out to $20.50 before it is possible to see a further advance. This would set the stage for a short-term buy signal.

S&P 500 E mini:

The March S&P 500 E mini lost 14.50 points on light volume of 1,252,742 contracts. Total open interest declined by 5,242 contracts, which relative to volume is approximately 70% below average. We continue to recommend the initiation of long put protection if this is not been done for those clients who hold long equity positions.