The employment report release was a shocker and as a result, the dollar is trading sharply lower, the 10 year treasury note, sharply higher and equities lower on the day. The lower dollar is giving precious metals a boost, but based upon volume thus far, there doesn’t seem to be much enthusiasm, though price action is positive. 

We will discuss the ramifications of the report released by the USDA in the upcoming Weekend Wrap.

Soybeans:

March soybeans advanced 4.50 on volume of 128,545 contracts. Total open interest increased by 5,324 contracts, which relative to volume is approximately 55% above average, meaning that new longs were aggressively entering the market and driving prices higher. The January contract lost 1,626 of open interest. As this report is being compiled after the release of USDA report, March soybeans are trading 4.75 cents higher and have made a high of $12.97. Soybeans remain on a short and intermediate term sell signal. Continue to hold short call positions recommended on December 22, but otherwise stand aside. 

Soybean meal:

March soybean meal advanced $1.80 on total volume of 55,457 contracts. Total open interest increased by 788 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on January 10, March soybean meal is trading $5.20 higher. March soybean meal remains on a short-term sell signal, but an intermediate term buy signal. Stand aside.

Corn:

March corn lost 5.00 cents on very heavy volume of 402,638 contracts. Volume exceeded the amount that changed hands on November 22 of 400,187 contracts when March corn closed at 4.29 1/4. On January 9, open interest increased by a massive 16,475 contracts, which relative to volume is approximately 55% above average. The March contract accounted for loss of 3,231 of open interest. This is the 2nd day in a row when corn prices declined and open interest increased massively relative to volume. On January 8, March corn lost 9.00 cents and total open interest increased by 33,085 contracts on volume of 362,560 contracts. As this report is being compiled on January 10, March corn is trading 15.50 cents higher and has made a high for the day of $4.33 on heavy volume. Corn remains on a short and intermediate term sell signal. Stand aside.

Chicago wheat:

March Chicago wheat lost 4.50 cents on volume of 106,303 contracts. Volume was the highest since November 22 when 111,408 contracts were traded and March wheat closed at $6.57. On January 9, total open interest declined by 1,338 contracts, which relative to volume is approximately 45% less than average. Chicago wheat made a new contract low on January 9 and as this report is being compiled on January 10, March wheat has made another contract low at $5.60 1/2, and is trading 13.25 cents lower on the day. Kansas City wheat has made a new contract low at $6.24 1/2 and is trading 7.75 cents lower on the day. In yesterday’s report, we stated that clients should stand aside in wheat pending the release of the USDA report on January 10.

Live cattle:

February live cattle gained 2.5 points on heavy volume of 73,855 contracts. Total open interest increased by 1,195 contracts, which relative to volume is approximately 35% below average. The February contract lost 7,827 of open interest, which made the total open interest increase more impressive (bullish). As this report is being compiled on January 10, February cattle is trading 7.5 points higher on the day. Continue to hold bullish positions, although we expect the market to do some backing and filling before it resumes its move higher. 

Lean hogs:

February lean hogs lost 32.5 points on heavy volume of 69,506 contracts. Volume was the highest since September 24 when 77,464 contracts were traded and February hogs closed at 89.700. On January 9, total open interest declined by 1,775 contracts, which relative to volume is average. The February contract lost 7,824 of open interest. February hogs made a new low for the move at 84.500, which took out the low of 84.650 made on December 31. We think there is a good chance that an interim low has been made, and suggest clients take profits on their bearish positions. With an interim low in place, and rising cattle prices, a healthy rebounded hogs is more than likely. We think the easy money has been made for now.

WTI crude oil:

February WTI crude oil lost 67 cents on volume of 628,554 contracts. Total open interest declined by 11,171 contracts, which relative to volume is approximately 25% below average. The February contract lost 24,487 of open interest. We continue to be surprised by the low decline of total open interest. On January 9, February crude oil made a new low for the move at 91.24, which is the lowest price since June 26 when February WTI made a low of $91.11. In the past 2 days, February crude oil has declined $2.01 yet total open interest has declined only 15,508 contracts. It will be interesting to see what the long to short ratio is for WTI when the COT report is released today. As this report is being compiled on January 10, February WTI is trading 90 cents higher and has made a high for the day at 93.38. Continue to hold the short call positions recommended on December 30, otherwise stand aside.

Brent crude oil:

March Brent crude oil lost 75 cents on volume of 673,986 contracts. Total open interest declined by 13,215 contracts, which relative to volume is approximately 20% below average. The February contract accounted for loss of 17,197 contracts.  It is likely that Brent crude will generate an intermediate term sell signal on January 10. Stand aside.

Natural gas: On January 9, February natural gas generated a short-term sell signal, but remains on an intermediate term buy signal.

February natural gas lost 21.1 cents on heavy volume of 467,901 contracts. Volume was the highest since December 19 when 586,225 contracts were traded and February natural gas closed at $4.489. Amazingly, total open interest declined only 8,156 contracts, which relative to volume is approximately 25% less than average. The February contract accounted for loss of only 3,469 of open interest. During the past 2 days, February natural gas has lost 29.4 cents, but open interest during this 2 day period has declined only 17,251 contracts. We know that managed money is heavily long natural gas, and they continue to  dig in and refuse to liquidate. We will have more information once the COT report is released. Stand aside except for those clients who wrote out of the money calls per our recommendation of December 31.

Euro:

The March euro advanced 26 pips on heavier than normal volume of 243,416 contracts. Total open interest increased by 1,653 contracts, which relative to volume is approximately 65% less than average. As this report is being compiled on January 10, the March euro is trading 77 pips higher and has made a high of 1.3687. On January 8, the March euro generated a short-term sell signal, and after the generation of a sell signal, the market tends to have a countertrend rally lasting 1-3 days. Stand aside.

British pound:

The March British pound advanced 20 pips on volume of 82,152 contracts. Total open interest increased by 832 contracts, which relative to volume is approximately 50% below average. We continue to like the long side of GBP/EUR and GBP/CHF. However, both are overbought, and we recommend waiting until they have corrected close to their 20-50 day moving averages.

Dollar index:

The March dollar index lost 2.7 points on volume of 28,089 contracts. Total open interest declined by 1,844 contracts, which relative to volume is approximately 160% above average meaning that liquidation was heavy. As this report is being compiled on January 10, the March dollar index is trading 40 points lower. Yesterday, we recommended bullish positions in the dollar index and for futures traders suggested placing stops slightly below the January 6 low of 80.537.

Gold:

February gold advanced $3.90 on volume of 166,233 contracts. Total open interest increased by 3,528 contracts, which relative to volume is approximately 20% below average. A pattern is beginning to emerge whereby we are seeing open interest increases on price advances. For example, the previous time gold closed higher occurred on January 3 when it advanced $13.40 and total open interest increased by 466 contracts. On January 2, February gold advanced 22.90 and total open interest increased by 4,669 contracts. This is a positive development, and as this report is being compiled on January 10, February gold is trading 12.30 higher and has made a new high for the move at 1248.50 which took out the previous high of 1247.70 made on January 6. It will be important for gold to show an open interest increase for Friday’s trading and on Monday, that gold consolidate at the upper end of its trading range, at the very least. Also, we want to see volume pickup. Gold remains on a short and intermediate term sell signal.

Platinum:

April platinum advanced $5.70 on volume of 9,758 contracts. Total open interest declined by 570 contracts, which relative to volume is approximately 140% above average meaning that liquidation was very heavy on the advance. April platinum made a new high for the move the $1427.60, and as this report is being compiled on January 10, platinum has made another new high at 1439.00 and closed at 1436.90. Of the precious metals, we have been most bullish on platinum after it generated a short-term buy signal on January 2. Despite the terrific price performance, open interest action has been negative. We are beginning to think this is reflective of a downbeat view of precious metals in general. According to last week COT report, managed money was long platinum by only 1.97:1, and this has been the approximate level for holding long positions during the 2 prior weeks.

Silver:

March silver advanced 14.4 cents on volume of 39,095 contracts. Total open interest increased by 1,662 contracts, which relative to volume is approximately 55% above average. This is the 1st time in 2014 that open interest has increased on a price advance. As this report is being compiled on January 10, March silver is trading 39 cents higher and has made a daily high at 20.25. As we’ve said before, silver must break out to at least 20.50 before it becomes a candidate for a short-term buy signal.

S&P 500 E mini:

The S&P 500 E mini gained 0.50 points on volume of 1,327,000677 contracts.Total open interest increased by 14,294 contracts, which relative to volume is approximately 50% below average.We continue to recommend long put protection for those clients who hold on equity positions.