On January 10, the USDA will release its WASDE report, which will have a significant effect on the grain markets.

Soybeans: On January 3, March soybeans generated in intermediate term sell signal after generating a short-term sell signal on December 31.

March soybeans gained 1.25 cents on volume of 154,822 contracts. Total open interest declined by 7,110 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy on the modest advance. The January contract lost 2,989 and March lost 7,597 of open interest. Beginning on December 20, total open interest has declined every day bringing the cumulative decline to 79,014 contracts while March soybeans have lost 47.75 cents or 3.62%. As this report is being compiled on January 6, March soybeans are trading 7.75 cents higher. As is usually the case after the generation of a sell signal, the market has a rally that can last from 1-3 days. On December 22, we advised adventurous clients to short out of the money calls and this trade has worked well. Continue to hold it. If the market continues to rally, and clients are tempted to initiate bearish positions, we highly recommend that options be used instead of futures, especially if speculators intend to hold the position through the January 10 report.

Soybean meal:

March soybean meal gained 80 cents on volume of 60,236 contracts. Total open interest declined by 4,238 contracts, which relative to volume is approximately 185% above average. The following contracts lost open interest on Friday: January -1663, March -3451, May -95 July -195. From December 18 through January 3, total open interest has declined each day and the cumulative decline has been 26,428 contracts while March soybean meal has declined $63.50 or 4.76%. On January 2, March soybean meal generated a short-term sell signal, but has not yet generated an intermediate term sell signal. Stand aside.

Corn:

March corn advanced 3.00 cents on volume of 169,437 contracts. Total open interest increased by a massive 13,817 contracts, which relative to volume is approximately 230% above average meaning that longs and shorts engaged in a battle with a tremendous conviction on both sides, yet corn prices were only able to move fractionally higher. Is important to note that since December 26 through January 3, total open interest has increased every day and each day it has represented a large increase relative to volume. The cumulative increase of open interest has been 44,920 contracts while March corn has declined 11.50 cents, or -2.64%. The heavy open interest increase over the past 7 trading days has moved prices lower, however not by much. Corn remains on a short and intermediate term sell signal. Stand aside.

Chicago wheat:

March Chicago wheat advanced 8.75 cents on volume of 74,989 contracts. Total open interest declined by 4,772 contracts, which relative to volume is approximately 145% above average meaning that liquidation was heavy on the advance. The March contract lost 6,082 of open interest. It is not surprising to see open interest decline on Friday’s advance considering that positive closing days have been rare, and managed money is massively net short. In the January 5 Weekend Wrap, we wrote about wheat and a strategy that could be employed by adventurous clients. Chicago wheat remains on a short and intermediate term sell signal.

Live cattle:

February live cattle advanced 67.5 points on volume of 45,211 contracts. Volume declined approximately 25,000 contracts from January 2 when February live cattle advanced 1.00 cent and open interest increased by 6,321 contracts. On January 3, total open interest increased by 812 contracts, which relative to volume is approximately 25% below average. The February contract lost 6,015 of open interest, and there were open interest increases in the forward months which brought total open interest to a below average number. As this report is being compiled on January 6, February cattle is trading 45 points higher and has made a new high for the move at 1.36875. Continue to hold bullish positions.

Lean hogs:

February lean hogs lost 40 points on volume of 29,347 contracts. Total open interest declined by 2,481 contracts, which relative to volume is approximately 215% above average meaning that liquidation was very heavy on the modest decline. The February contract lost 4,115 of open interest. It appears that participants who may have initiated new long positions on the advance of December 31 and January 2 when open interest increased by a total of 4958, were liquidating on January 3. As this report is being compiled on January 6, February hogs are trading 27.5 points lower and have made a new low for the move at 86.100. Continue to hold bearish positions, but make sure buy stops to close positions are in place because as cattle prices continue to advance, hogs may begin to follow.

WTI crude oil:

WTI crude oil lost $1.48 on volume of 487,577 contracts. Open interest increased only 2,077 contracts, which relative to volume is approximately 85% below average. Remarkably, the February contract lost only 5,399 of open interest. From December 30 through January 3, February WTI prices have fallen a total of $6.36 while open interest has increased only 14,745 contracts.  This is unusual because the COT report tabulated on December 24 revealed managed money was long by a ratio of 8.30:1, which is an extremely high ratio. However, we have not seen the kind of liquidation that would be expected, especially considering the magnitude of decline seen during the past several days. As this report is being compiled on January 6, February crude oil is trading $2.03 lower and has made a new low for the move at 93.33, yet volume is significantly below average. 

Brent crude oil:

February Brent crude oil lost 89 cents on volume of 571,924 contracts. Total open interest increased by 5,458 contracts, which relative to volume is approximately 50% below average. The February contract lost 13,418 of open interest, which makes the total open interest increase more impressive (bearish). Brent crude generated a short-term sell signal on January 2, but as yet has not generated an intermediate term sell signal.

Natural gas:

February natural gas lost 1.7 cents on heavier than normal volume of 306,603 contracts. Volume was the highest since December 21 when 360,146 contracts were traded and February natural gas closed at $4.467. On January 3, open interest increased by 1,807 contracts, which relative to volume is approximately 65% less than average. The February contract lost 1,355 of open interest. As this report is being compiled on January 6, February natural gas is trading 1.6 cents lower, and it continues the pattern of lower highs, or lower lows and a combination of the two. As we have been saying for over a week, natural gas has topped out and in our view is headed lower, perhaps significantly so. The way natural gas has traded during the current frigid weather is revealing its bearish inclinations. Instead of trading at the higher end of the range and making new highs, the market is trading successively lower. Managed money is heavily long and we believe there will be a terrific opportunity to make money on the bearish side. A break below $4.20 will be the catalyst for further downside. As we have suggested before, on any 10-15 cent rally, clients should consider writing out of the money calls.

Euro:

The March euro lost 54 pips on volume of 149,964 contracts. Total open interest declined by 1,328 contracts, which relative to volume is approximately 55% below average. As this report is being compiled on January 6, the March euro is trading 52 pips higher and has made a daily high of 1.3653. As we said in the January 5 Weekend Wrap, the euro would generate a short-term sell signal if the high for the day was below 1.3625. The euro remains on a short and intermediate term buy signal.

British pound:

The March British pound lost one pip on volume of 79,846 contracts. Total open interest declined by 2,569 contracts, which relative to volume is approximately 30% above average meaning that liquidation was fairly heavy. As this report is being compiled on January 6, the March pound is trading 2 pips lower and has made a low of 1.6329 which is its lowest price since December 24 when it reached 1.6314. We still like the long side of GBP/EUR, but as we have said before, the cross is significantly overbought and needs to pullback. The cross generated a short-term buy signal on December 31. After the pullback, we expect GBP/EUR to resume its upward trend.

Gold:

February gold advanced $13.40 on volume of 123,773 contracts. Total open interest increased by 466 contracts, which relative to volume is approximately 80% below average. As this report is being compiled on January 6, February gold is trading unchanged on the day, but has made a new high for the move at 1247.70. Gold remains on a short and intermediate term sell signal. Stand aside.

Platinum:

April platinum advanced $8.50 on light volume of 6584 contracts. Total open interest declined by 576 contracts, which relative to volume is approximately 250% above average meaning that liquidation was extremely heavy on the advance. On Friday, April platinum made a new high for the move at 1418.00, and on January 6 has taken out this high at 1423.80. In the early going, platinum had a sharp pullback to 1390.10, and this would be an ideal area to use as an exit point for any bullish position. However, we would hold back and wait for another day to see if there is a  possible retest of the low.

Silver:

March silver closed unchanged on light volume of 32,019 contracts. Total open interest declined by 1,482 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy. Open interest action relative to price in silver continues to be bearish, and the market has not followed the strength of gold or platinum. Silver remains on a short and intermediate term sell signal. Stand aside.

Cocoa:

March cocoa advanced $63.00 on fairly heavy volume of 29,582 contracts. Total open interest declined by 1,252 contracts, which relative to volume is approximately 50% above average, meaning that there was substantial liquidation on the advance. On January 2, March cocoa generated a short-term sell signal, but remains on an intermediate term buy signal. For more information on cocoa see the January 5 Weekend Wrap. 

S&P 500 E mini:

The March S&P 500 E mini lost 1.00 points on volume of 963,149 contracts. Total open interest declined by 2,252 contracts, which is minuscule and dramatically below average. We continue to advise long put protection for those clients who hold long equity positions.