January soybeans advanced 7.00 cents on very light volume of 117,947 contracts. Total open interest increased by 3,999 contracts, which relative to volume is approximately 35% above average meaning that new longs and shorts were fairly aggressive about initiating new positions. The January contract lost 1,250 of open interest, which makes the open interest increased more impressive (bullish). Despite the positive price and open interest action on Monday, we continue to think soybeans are headed lower. It is likely that January soybeans will generate a short and intermediate term sell signal on November 19. With managed money long by a ratio of 6.24:1, there will be a significant amount of fuel for a further downside move.
December soybean meal advanced $5.30 while January gained 4.80 on total volume of 68,681 contracts. Total open interest increased by 746 contracts, which relative to volume is approximately 50% below average. The December contract lost 2,152 of open interest, which makes the total open interest increase more impressive (bullish). Like soybeans, the increase of open interest is positive, but we think soybean meal prices are headed lower. It is likely that January soybean meal will generate a short-term sell signal on November 19.
December corn lost 10.00 cents on very heavy volume of 480,267 contracts. Volume was the highest since November 13 when 481,024 contracts are traded and total open interest increased by 589 contracts while December corn lost 2.50 cents. On November 18, total open interest increased by 19,120 contracts, which relative to volume is approximately 55% above average meaning that new short sellers were aggressively entering the market and driving corn prices down to new lows. As this report is being compiled on November 19, corn is trading 2.25 cents higher and has made a new low for the move the $4.10 3/4. Corn is massively oversold and as a consequence we recommend a stand aside posture.
December Chicago wheat lost 2.25 cents on total volume of 92,284 contracts. Total open interest increased by a massive 14,700 contracts, which relative to volume is approximately 440% above average, meaning that new short sellers were extremely aggressive about initiating new positions, however they were only able to drive prices fractionally lower. The December contract lost 6,282 of open interest, which makes the total open interest increase much more impressive. The series of large open interest increases on price declines have been nothing short of astounding considering the bullish fundamentals of wheat. We know that managed money is short Chicago wheat by a stratospheric ratio of 1.55:1, which was up from the previous week’s ratio of 1.23:1. We would not be surprised to see the short to long ratio expand in the next COT. The massive short position of manage money is going to set up the next rally and will add fuel to the upside move. December Chicago wheat remains on a short and intermediate term sell signal. Stand aside.
December Kansas City wheat lost 4.25 cents on volume of 15,844 contracts. Volume was the lightest since November 4 when 15,092 contracts were traded and total open interest declined by 1,468 and KC wheat lost 4.25 cents. On November 18, total open interest declined by 200 contracts, which relative to volume is approximately 45% less than average. The December contract accounted for loss of 2,335 of open interest. The December Kansas City-December Chicago wheat spread has narrowed to 51.75 cents premium to Kansas City, which is down from its high of 73.00 cents on October 31. From October 31 through November 18 December Chicago wheat has declined 25.25 cents or -3.78% while December KC wheat has declined 46.50 cents or – 6.28%. Remarkably, managed money is long KC wheat by a ratio of 3.52:1 as of the latest COT report. KC wheat remains on a short and intermediate term sell signal.
Live cattle: On November 18, February cattle generated a short-term sell signal, and will likely generate an intermediate term sell signal on November 19.
February live cattle lost 1.60 cents on volume of 51,175 contracts. Volume was light considering the magnitude of the move and it only increased by approximately 8,500 contracts from November 15 when February cattle gained 27.5 points and open interest increase by 331 contracts. On November 18, total open interest declined only 111 contracts, which is minuscule and dramatically below average. The December contract accounted for loss of 4,743 of open interest. On the decline of the magnitude seen on November 18, volume should have expanded and total open interest should have been down sharply. The fact that this did not occur tells us there is more liquidation ahead, especially since managed money is long cattle by a stratospheric 5.74:1, which is down only slightly from the record high of 6.01:1 of the previous week. As this report is being compiled on November 19, February cattle is trading 1.375 cents lower and has made a new low for the move at 1.31625.
From the November 17 Weekend Wrap:
“We have made this point before, but we think it’s worth emphasizing again. From October 29, when the long to short ratio was 4.84:1 through November 12 when the ratio increased to 5.74:1, February 2014 cattle prices declined 70 points, or – 0.52%. During this time frame, open interest increased 7,101 contracts. In short, managed money continues to increase their long position, and this is not moving prices higher. Additionally the increase of open interest of 7,101 contracts, which is the total increase of participants in all categories is not providing a boost to prices, and in fact is weighing on prices. We continue to think higher prices are in store in the first quarter, but we think a wash out is on the horizon, after which cattle will resume its move higher.”
January crude oil lost 81 cents on volume of 492,427 contracts. Total open interest declined by 15,115 contracts, which relative to volume is approximately 20% above average. For the past 4 trading sessions beginning on November 13, open interest has declined each day and as of November 18 totals 90,935 contracts while crude oil has declined by 1 cent. In other words, even though prices are essentially unchanged for the past 4 days, open interest has declined by a significant amount. This confirms the disillusionment with crude and explains why rallies are short lived. We think it is likely that the long to short ratio of crude oil will decline in the next COT report and as of the most recent report stood at 4.22:1. Crude oil remains on a short and intermediate term sell signal. We cannot recommend bearish positions until such time that we see a decent size rally. Stand aside.
Platinum: On November 18, January platinum generated a short and intermediate term sell signal
January platinum lost $27.90 on volume of 10,427 contracts. Volume was light considering the magnitude of the decline as platinum made a new low of 1410.50. On November 18 total open interest declined by 691 contracts, which relative to volume is approximately 160% above average meaning that both longs and shorts were liquidating massively as prices move lower.
From the November 17 Weekend Wrap:
The massive long position of managed money when prices are moving lower is another cautionary sign that platinum is likely headed south. From October 29, when the long to short ratio stood at 5.54:1 through November 12 when it increased to 10.18:1, January platinum lost $26.20 or -1.79%. In this time frame, open interest increased by 1,078 contracts, which means that new short sellers were in control. Corroborating this is the short to long ratio by commercial interests, which went from 6.09:1 on October 29 to 9.01:1 on November 12. In other words, commercial interests were taking advantage of higher prices to increase their short positions.
Year to date, January platinum is trading 7.24% lower and the 50 day moving average of 1432.40 is below the 150 day moving average of 1451.50 and the 200 day moving average of 1490.90. The bearish moving average configuration also is in evidence on the continuation chart. Although platinum remains on a short and intermediate term buy signal, we think it is imminent that short and intermediate term sell signals will be generated. The abysmal performance of gold and silver and the general deflationary trends in commodities are other factors dragging down platinum prices, even though automobile sales have been fairly robust. A more conservative way of trading platinum is to write out of the money calls in the January contract which expires on December 18. Strike prices should be based upon your risk tolerance. The erosion of the time value of the option begins to work for the benefit of the option seller in addition to any declines in price.
The December euro advanced 10 pips on light volume of 123,014 contracts. Total open interest increased by 1,691 contracts, which relative to volume is approximately 40% less than average. The euro made a high for the move at 1.3543, and as this report is being compiled on November 19, the euro has made a high 5 pips higher at 1.3548 on heavier volume than November 18. The euro appears to be struggling at the upper end of the range and since November 13 the high has ranged from 1.3499 to 1.3548. During this time, the December euro advanced 88 points while open interest increased 2,085 contracts. While this is bullish price and open interest action, we question the ability of the euro to move significantly higher from here. Despite the move higher, the December euro remains on a short-term sell signal, but an intermediate term buy signal.
The December British pound lost 1.4 pips on light volume of 66,751 contracts. Total open interest increased by 2,413 contracts, which relative to volume is approximately 45% above average meaning that new longs and shorts were aggressively entering the market, but shorts could only drive the pound fractionally lower. Although open interest increased by 3,762 contracts on a price advance of 1.32 cents on November 13, the open interest increases from November 14 through November 18 have been fairly heavy, but price has barely moved. For example, from November 14 through November 18 the December British pound has advanced only 7 pips, but open interest has increased 7,948 contracts. In short, there is a battle between longs and shorts for dominance, and neither side was able to move the market much one way or the other. As we have pointed out in previous reports, the December British pound is at a critical juncture and for it to generate a short-term buy signal, the daily low must be above 1.6118. A short-term buy signal will not be generated on November 19.
The December Australian dollar advanced 15 pips on light volume of 65,645 contracts. Total open interest increased by 298 contracts, which relative to volume is approximately 75% below average. As this report is being compiled on November 19, the December Australian dollar is trading 42 pips higher and has made a new high for the move at 94.32. The RBA kept interest rates unchanged, which most likely explains the rally on November 19. The Australian dollar remains on a short-term sell signal, but an intermediate term buy signal. Stand aside.
S&P 500 E mini:
The S&P 500 E mini lost 4.75 points on volume of 1,565,017 contracts. Total open interest declined by a minuscule 761 contracts. Interestingly, there are a number of major figures in the financial world who are warning about the stratospheric prices of equities and of a possible major decline. This was the alleged reason for the decline yesterday, but the market is massively overbought, which is why we continue to recommend long put protection for those who hold equity positions.