Data from the COT report tabulated on December 31 has been posted to the January 5 Weekend Wrap.

The USDA will release its WASDE report, and we advise clients against initiating new positions prior to the report. Additionally, if any position shows a loss, we would liquidate it by the close of business on January 9. Also, our preference is to hold long option positions as opposed to futures positions.

Soybeans:

March soybeans lost 6.75 cents on volume of 147,485 contracts. Total open interest increased by 5,587 contracts, which relative to volume is approximately 50% above average meaning that new shorts were entering the market and driving prices lower. The January contract lost 1,624 of open interest. As we said in the above paragraph, we discourage the initiation of new positions, and suggest that short calls recommended on December 22 continue to be held. Stand aside with the exception of the short call position.

The USDA reported extremely light sales of 155.5 thousand metric tons (tmt), which brings total commitments to 1.498.5 billion bushels (bb). The USDA projections for the entire season is 1.475 bb.

Soybean meal:

March soybean meal lost $3.30 on volume of 61,228 contracts. Total open interest increased by 908 contracts, which relative to volume is approximately 40% below average. The January contract lost 336 of open interest and March -629. Stand aside

The USDA reported that only 62.78 tmt was sold bringing total commitments to date of 6218.8 tmt against USDA projections for the entire season of 9526 tmt.

Corn:

March corn lost 9.00 cents on heavy volume of 362,560 contracts. Volume was the highest since November 26, 2013 when 401,855 contracts were traded and March corn closed at $4.24 3/4. On January 8, total open interest increased by a massive 33,085 contracts, which relative to volume is approximately 250% above average meaning that new short sellers were aggressively entering the market and driving prices to new contract lows. As this report is being compiled on January 9, March corn is trading 7.25 cents lower and has made a new contract low of $4.08. This is the lowest price for corn on the continuation chart since August 24, 2010 when it made a low of 4.00. The action on January 8 was incredibly bearish both in terms of volume and the magnitude of the increase of open interest. This kind of aggressive short selling looks to be the handiwork of commercial interests rather than speculators. Additionally, it tells us that the trade thinks the USDA report on corn is going to be extremely bearish. Corn remains on a short and intermediate term sell signal. Stand aside.

The USDA reported that only 155.3 tmt was sold bringing commitments to date of 1.127 bb, versus USDA projections for the season of 1.450 bb.

Chicago wheat:

March Chicago wheat declined 13.75 cents on volume of 85,508 contracts. Volume was the highest since December 10 when 101,361 contracts were traded and March Chicago wheat closed at 6.38 3/4. On January 8, total open interest increased by 5,839 contracts, which relative to volume is approximately 160% above average meaning that new short sellers were aggressively entering the market and driving prices to new contract lows (5.86 3/4). The May contract lost 1,146 of open interest, which makes the total open interest increase much more impressive (bearish). As this report is being compiled on January 9, March Chicago wheat is trading 5.75 cents lower and has made a new contract low of 5.78 1/2, which is the lowest price for wheat on the continuation chart since December 8, 2011 when it made a low of 5.75 1/2.

The USDA reported that only 110.8 tmt was sold bringing total commitments to date of 903.5 mb versus USDA projections for the season of 1.100 bb.

In the January 5 Weekend Wrap, we discussed the idea of buying call options in the February option just prior to the USDA report. Based upon the way corn and wheat have been trading during the past couple of days, we no longer think this is a good idea. Stand aside in wheat.

Live cattle:

February live cattle closed unchanged on very heavy volume of 74,367 contracts. Volume was higher than January 2 when 70,251 contracts were traded and February cattle advanced 1.00 cents while open interest increased by a massive 6,321 contracts. On January 8, total open interest increased by 2,366 contracts, which relative to volume is approximately 25% above average meaning that both longs and shorts were entering new positions at an above average rate, but neither side was able to move the market. The February contract lost 8,517 of open interest, which makes the total open interest increase much more impressive (bullish). As this report is being compiled on January 9, February cattle is trading 7.5 points higher and has made a new contract high of 1.37325. Continue to hold bullish positions.

Lean hogs:

February lean hogs advanced 5 points on heavy volume of 52,115 contracts. Volume was higher than January 2 when 51,160 contracts were traded and February hogs advanced 1.65 cents while open interest increased by 3,088 contracts. On January 8, total open interest increased by only 391 contracts, which relative to volume is approximately 60% less than average. As this report is being compiled on January 9, February hogs are trading 22.5 points lower and have made a new low for the move of 84.500, which took out the previous low of 84.650 made on December 31. Continue to hold bearish positions, however keep in mind that as cattle prices continue to rise, hog prices may begin to follow.

WTI crude oil:

February WTI crude oil lost $1.34 on heavier than normal volume of 634,152 contracts. Volume was the highest since December 11 when 700,689 contracts were traded and WTI lost $1.07 while total open interest declined 14,244 contracts. On January 8, total open interest declined only 4,337 contracts, which relative to volume is approximately 65% less than average. The February contract lost 23,150 of open interest, which means there were open interest increases in the forward months that brought total open interest down to a minor number.

From December 31 through January 8, total open interest has declined only 295 contracts while February WTI has declined $6.66, or 6.71%. This is extremely bearish. The December 31 COT report revealed that managed money was heavily long by a ratio of 8.59:1, which is the highest ratio during the bull move which began in late November 2013. In other words, though WTI has declined precipitously, total open interest has not been declining, which means that speculative longs are digging in their heels and refusing to liquidate. As we have said in our recent reports, the refusal by speculative longs to liquidate means the move lower in WTI has much further to go.

As this report is being compiled on January 9, February WTI is trading 52 cents lower and has made a new low for the move at $91.64. This low took out the one made on November 27 of 92.10 and February WTI is now trading at the lowest level since June 27, 2013 when it made a low of 91.98. On January 2, 2014, February WTI generated a short-term sell signal and was already on an intermediate term sell signal. Unfortunately, the market has not had a countertrend rally, which would allow for the initiation of bearish positions. On December 30, we recommended that adventurous traders should write out of the money calls in WTI. Continue to hold these positions.

Brent crude oil:

February Brent crude oil lost 20 cents on big volume of 680,944 contracts. Total open interest increased by 6,716 contracts, which relative to volume is approximately 50% below average. The February contract lost 25,466 of open interest, which makes the total open interest increase more impressive (bullish). As this report is being compiled on January 9, Brent is trading 46 cents lower while WTI is trading 67 cents lower. We much prefer the bearish side of WTI. Brent remains on a short-term sell signal, but an intermediate term buy signal.

Natural gas: February natural gas will generate a short-term sell signal on January 9.

February natural gas lost 8.3 cents on volume of 310,297 contracts. Total open interest declined by 9,095 contracts, which relative to volume is approximately 20% above average, meaning that liquidation was heavier than usual. The February contract lost 783 of open interest, and there was liquidation in the forward months that expanded the total decline. We have been warning clients ever since natural gas topped out on December 23 at $4.578 the party was over in natural gas and that prices would be headed lower.

From December 23 when natural gas prices topped out through January 8, total open interest has increased 6,805 contracts, which is bearish. However, considering the heavy long position of managed money, it would have been expected to see an open interest decline, especially since February natural gas lost 34 cents in this time frame or 7.57%. On December 31, we recommended on any 10-15 cent rally clients should write out of the money calls. For those who took the recommendation, continue to hold this position. As this report is being compiled on January 9, natural gas prices have collapsed and are trading 4.17% lower on the day.

The Energy Information Administration announced that working gas in storage was 2,817 Bcf as of Friday, January 3, 2014, according to EIA estimates. This represents a net decline of 157 Bcf from the previous week. Stocks were 528 Bcf less than last year at this time and 315 Bcf below the 5-year average of 3,132 Bcf. In the East Region, stocks were 239 Bcf below the 5-year average following net withdrawals of 98 Bcf. Stocks in the Producing Region were 40 Bcf below the 5-year average of 1,059 Bcf after a net withdrawal of 42 Bcf. Stocks in the West Region were 35 Bcf below the 5-year average after a net drawdown of 17 Bcf. At 2,817 Bcf, total working gas is within the 5-year historical range.

Euro: On January 8 , the March euro generated a short-term sell signal , but remains on an intermediate term buy signal.

The March euro lost 35 pips on heavier than normal volume of 209,775 contracts.Total open interest increased by 3,704 contracts, which relative to volume is approximately 25% less than average, but this is the 2nd day in a row that open interest has increased on a price decline.

Dollar index: On January 8, the March dollar index generated a short and intermediate term buy signal.

The March dollar index advanced 18.2 points on heavy volume of 38,101 contracts.Volume was the highest since December 13 when 39,340 contracts were traded. On January 8, total open interest increased by a massive 2,257 contracts, which relative to volume is approximately 140% above average meaning that new longs were aggressively entering positions on heavy volume and driving prices to new highs (81.335). As of the latest COT report, managed money is massively short by a ratio of 3.86:1, however this is down from the major high made the previous week of 5.51:1. In short, there will be plenty of fuel for an upside move when managed money begins to cover their short positions. The 20 day moving average in the March contract is 80.582 and the 50 day is 80.777, therefore we don’t think there is much risk in long positions at current levels. We recommend the initiation of bullish positions in the dollar index, because we think setbacks will be shallow. For futures traders, we think sell stops should be placed near the January 6 low of 80.537,which is slightly below the 20 and 50 day moving averages.

British pound:

The March British pound advanced 44 pips on volume of 88,865 contracts. Total open interest increased by 4,645 contracts, which relative to volume is approximately 100% above average meaning that new longs were aggressively initiating positions and driving prices higher. We continue to like the long side of GBP/EUR and GBP/CHF, however both are overbought and are liable to correct at any time.

Gold:

February gold lost $4.10 on heavy volume of 195,183 contracts. Total open interest increased by 5,828 contracts, which relative to volume is approximately 25% above average meaning that new short sellers were aggressively entering the market and driving prices lower.This is the 2nd day in a row when prices declined and open interest increased, which underscores the inability of gold to move higher. Stand aside.

Platinum:

April platinum lost $1.20 on light volume of 7,955 contracts. Total open interest declined by 89 contracts, which is minuscule and dramatically below average. Platinum remains on a short-term buy signal, but an intermediate term sell signal.

Silver:

March silver lost 24.8 cents on volume of 49,312 contracts.Total open interest increased by 805 contracts, which relative to volume is approximately 35% less than average.This is the 2nd day in a row that silver prices have declined and open interest has increased. This is bearish. Stand aside.

S&P 500 E mini:

The S&P 500 E mini advanced 1.75 points on volume of 1,333,302 contracts.Total open interest increased by 5,172 contracts, which relative to volume is minuscule and dramatically below average.We continue to recommend long put protection for those clients who hold long equity positions.