The USDA will release its WASDE report on January 10.

Soybeans:

March soybeans advanced 5.50 cents on very light volume of 107,518 contracts. Total open interest increased by 262 contracts, which is minuscule and dramatically below average. The January contract lost 644 and March and -291 of open interest, which makes the total open interest increase somewhat more impressive (bullish). As this report is being compiled on January 7, March soybeans are trading 1.25 cents higher. March soybeans remain on a short and intermediate term sell signal, and though March beans of rallied from a low of $12.62 1/2 made on January 2, initiating new bearish positions prior report is not a good idea unless using long put options. Continue to hold the short call position that we recommended for adventurous clients on December 22. The COT report revealed that managed money is long by ratio of 6.42:1, which is down from the previous week of 10.29:1, but is a significantly high ratio considering that soybeans are now on a short and intermediate term sell signal. The hefty long position of managed money will provide additional fuel for the downside move.

Soybean meal:

March soybean meal advanced $6.70 on volume of 54,404 contracts. Total open interest increased by 1,569 contracts, which relative to volume is average. The January contract lost 1,041 of open interest, which makes the total open interest increase more impressive (bullish). On January 2, March soybean meal generated a short-term sell signal, but has not yet generated an intermediate term sell signal. Stand aside. The COT report revealed that managed money is long soybean meal by a ratio of 3.55:1, which is down from the previous week of 3.82:1 and is a fairly large long position considering that soybean meal generated a short-term sell signal on January 2.

Corn:

March corn advanced 4.25 cents on volume of 147,474 contracts. Total open interest declined by 674 contracts, which relative to volume is approximately 60% less than average. The March contract lost 4,203 of open interest and May -215, which makes the total open interest decline impressive (potentially bullish). Corn remains on a short and intermediate term sell signal. Stand aside. The COT report revealed that managed money is short corn by ratio of 1.45:1, which is up somewhat from the previous week of 1.41:1. As matter of fact, managed money has not increased their short position in several weeks. In our view, this signals that managed money is cautious at the lower end of the trading range.

Chicago wheat:

March Chicago wheat closed unchanged on volume of 60,625 contracts. Total open interest increased by 1,726 contracts, which relative to volume is average. We think it is likely that wheat is in a bottoming process, and potentially there could be a surprise in the USDA report released on January 10. For more information on this and the strategy associated with it, please see the January 5 Weekend Wrap. March Chicago wheat remains on a short and intermediate term sell signal. The COT report revealed that managed money is short Chicago wheat by a ratio of 1.78:1, which is up slightly from the previous week of 1.73:1. In the January 5 Weekend Wrap, we discussed that managed money shorts have not increased their position to any great degree over the past several weeks. Additionally, we wrote about commercials reducing their net short position and this continued in the latest report with commercials short by a ratio of 1.02:1, or 1264 contracts net short. For more information on this, please see the January 5 Weekend Wrap.

Live cattle:

February live cattle advanced 52.5 points on volume of 53,030 contracts. Total open interest increased by 2,115 contracts, which relative to volume is approximately 50% above average, meaning that new longs were aggressively entering the market and pushing prices to new highs (1.37050). The February contract lost 3,058 of open interest, which makes the total open interest increase much more impressive (bullish). As this report is being compiled on January 7, February cattle is trading 35 points lower. As we have said before, the move higher in cattle will be a slow grind and not a sprint. Maintain bullish positions. The COT report revealed that managed money is long cattle by ratio of 5.23:1, which is up slightly from the previous week’s ratio of 4.99:1. The high for the ratio is 6.01:1, which in our view indicates the likelihood of additional participants waiting to get long.

Lean hogs:

February lean hogs lost 5 points on volume of 32,509 contracts. Total open interest increased by 570 contracts, which relative to volume is approximately 25% less than average. The February contract lost 2,361 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on January 7, February hogs are trading 1.150 cents lower and has made a new low for the move of 85.200. The most recent low of 84.650 occurred on December 31, and a test of this low is inevitable. Have buy stops in place to close bearish positions, because a significant rally is inevitable, and the catalyst for this may be the bull market in cattle. The problem with hogs is that managed money remains significantly long according to the latest COT report with a long to short ratio of 2.99:1, which is down only slightly from the previous week of 3.18:1. The net long position of manage money is providing fuel for the continued downside move.

WTI crude oil:

February WTI crude oil lost 53 cents on volume of 450,955 contracts. Total open interest declined by 4,108 contracts, which relative to volume is approximately 50% below average. The February contract lost 8,711 of open interest. Remarkably, we continue to see very light liquidation despite the fact that WTI is trading at its lowest level since December 2. On December 3, the COT report revealed the long to short ratio in crude oil was 5.78:1. The latest report, tabulated on December 31 shows that managed money remains long WTI by a ratio of 8.59:1, which is up from the previous week of 8.30:1. February WTI closed at $98.42 on December 31, however, since then, we have not seen any significant liquidation, which means that managed money remains heavily net long. The stratospheric net long position of managed money combined with their refusal to liquidate as prices move lower, tells us crude oil has much further to go on the downside. The large overhang of longs who initiated positions at higher levels will tend to keep a lid on advances, which means speculators may not get the bounce they want in order to initiate bearish positions. The 5 day moving average for the February contract is $95.02 and the 20 day MA is 97.64. We may not see a move much beyond the 5 day moving average.

Brent crude oil:

February Brent crude oil lost 16 cents on volume of 555,837 contracts. Total open interest increased by 1,553 contracts, which is minuscule and dramatically below average. The February contract lost 14,334 of open interest. On January 2, February Brent crude oil generated a short-term sell signal, but as of today, has not generated a intermediate term sell signal. Interestingly, according to the latest COT report, managed money is far less bullish on Brent crude oil than they are on WTI. For example, the long to short ratio of Brent crude is 2.49:1, which is approximately 1/3 of the long to short ratio for WTI. Stand aside. We much prefer the bearish side of WTI.

Natural gas:

February natural gas closed unchanged on light volume of 195,768 contracts. Total open interest declined by 209 contracts, which is minuscule and dramatically below average. The February contract lost 7,336 of open interest. As this report is being compiled on January 7, February natural gas is trading unchanged, and near the lows of the day after making a high of 4.430. As we mentioned in previous reports, we think shorting out of the money calls on a 10-15 cent rally makes sense. The COT report tabulated on December 31 revealed that managed money is long natural gas by ratio of 1.76:1, which is only slightly below the high ratio for the move at 1.79:1. We think the rally in natural gas is over and are awaiting the generation of a short-term sell signal.

Euro:

The March euro advanced 37 pips on volume of 164,501 contracts. Perhaps, the most surprising aspect of yesterday’s rally was that open interest declined by 4,065 contracts, which relative to volume is average. However, this action reveals that market participants may be getting impatient with the performance of the euro and are heading for the exits on any rally. As this report is being compiled on January 7, the March euro is trading 16 pips lower after making a high of 1.3656, which is 3 pips higher than yesterdays high of 1.3653. We expect the euro to generate a short-term sell signal any day now. According to the COT report which was compiled on December 31, managed money remains long the euro by ratio of 2.29:1, which is about the same as the previous week of 2.30:1. This has been the high ratio thus far for the current rally.

British pound:

The March British pound lost 16 pips on volume of 83,677 contracts. Total open interest declined by 5,158 contracts, which relative to volume is approximately 140% above average meaning that liquidation was extremely heavy. The market made a low of 1.6329, which is the lowest price for the pound since December 24 when it made a low of 1.6314. We expect the pound to gain on the euro and Swiss franc and favor the long side of GBP/EUR and GBP/CHF, although sterling Swiss is massively overbought relative to its 20 day moving average of 1.4666. Sterling euro is much less overbought with the 20 day moving average at 1.1956. Due to the overbought condition of sterling Swiss, we would recommend the long side of sterling euro at this juncture.

Gold:

February gold lost 60 cents on volume of 167,023 contracts. Total open interest declined by 3,669 contracts, which relative to volume is approximately 20% below average. Although gold has been trading in a very firm manner for the past 4 days, it has been unable to generate a short-term buy signal. Our thinking is this will occur shortly, however, as we stated in the January 5 Weekend Wrap, the cross current of an advancing dollar may stymie advances in gold and precious metals in general. Additionally, rising interest rates are negative for precious metals and we expect interest rates to continue to rally.

Platinum:

April platinum advanced $2.20 on volume of 11,810 contracts. Total open interest declined by 43 contracts, which is negligible and dramatically below average. April platinum made a high of 1423.80, and as this report is being compiled on January 7, April platinum has made a high of 1421.30. The market is trading in a very firm manner, and platinum generated a short-term buy signal on January 2, but remains on an intermediate term sell signal. The largest producer in North America for platinum and palladium is Stillwater Mining (SWC) and during the 4th quarter the stock advanced 12.08% versus the S&P 500 of +9.92% and the precious metals ETF, GDX -15.65%. Thus far in 2014, SWC is trading +5.59% while the S&P 500 -1.17% and GDX +3.79%. In short the stock is outperforming the S&P 500 in 2 different time frames. This bodes well for a continued move higher in the metal.

Silver:

March silver lost 2.5 cents on volume of 41,497 contracts. Total open interest declined by 1,465 contracts, which relative to volume is approximately 40% above average meaning that liquidation was heavy on a minor decline. As we have pointed out before, open interest action in silver has been terrible and reinforces the negative price action, especially compared to platinum and gold. Silver remains on a short and intermediate term sell signal. Stand aside.

S&P 500 E mini:

The March S&P 500 E mini lost 4.75 points on volume of 1,371,936 contracts. Total open interest declined by 11,873 contracts, which relative to volume is approximately 60% less than average. We continue to advocate for long put protection for those clients who hold long equity positions.