Soybeans: On November 25, January soybeans generated a short-term buy signal, and remains on an intermediate term buy signal

January soybeans advanced 9.75 cents on volume of 208,908 contracts. Volume declined approximately 35,000 contracts from November 22 when January soybeans advanced 28 cents and open interest increased by 11,825 contracts. On November 25, total open interest increased by 4,569 contracts, which relative to volume is approximately 20% less than average. The January contract accounted for loss of 1,863 of open interest. Usually, after the generation of a buy signal, the market has a tendency to pullback from 1-3 days, and as this report is being compiled on November 26, January soybeans are trading 4.50 cents lower and have made a low of 13.16 3/4. On November 25, January soybeans made a high of 13.34 1/2, which is the highest price for January soybeans since September 20 when the high was 13.42 1/4. Looking at the candlestick chart, is clear that soybeans find resistance at the 13.30 area. Therefore, we cannot rule out that the short term buy signal may be false. Though soybeans should be traded from the long side, caution should be exercised about position sizing and stop loss parameters. A variety of option strategies can be employed, which mitigates risk. The January 2014-March 2014 bean spread continues to widen, which is positive and the open interest and price action of the past 2 days is bullish as well. This being a holiday week, the market is going to be subject to somewhat more volatility due to the lack of trading volume.

Soybean meal: On November 25, January soybean meal generated a short-term buy signal and remains on an intermediate term buy signal.

December soybean meal advanced $9.40 while January gained 7.40 on volume of 138,857 contracts. Volume declined approximately 32,000 contracts from November 22 when December soybeans advanced $16.80 and January gained 15.50 and total open interest increased by 1,658 contracts and the December contract lost 15,650 of open interest. On November 25, total open interest declined by 4,573 contracts, which relative to volume is approximately 30% above average meaning that liquidation was fairly heavy on the advance, which is bearish open interest action relative to the price advance. However, the December contract lost 9,224 of open interest, which is a mitigating factor with respect to the total open interest decline. As we said in yesterday’s report, January soybean meal needed to get through the 422.00 level in order to move higher, and it did that in short order. January soybean meal closed at 428.40, which is the highest close since September 13 when January meal closed at 440.20. After the generation of a buy signal, the market tends to pullback from 1-3 days, and we would be cautious about entering new long positions until we see more of a pullback, especially since this is a holiday shortened week.

Corn:

March corn gained 2 cents on volume of 261,068 contracts. Volume fell approximately 139,000 contracts from November 22 when March corn lost 0.25 cents and total open interest declined by 80,131 contracts. On November 25, total open interest declined by 35,485 contracts, which is due to the December contract entering 1st notice day on November 29. The December contract lost 65,617 of open interest. As this report is being compiled on November 26, March corn is trading 8.25 cents lower and has made a daily low of 4.22 3/4. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat:

March Chicago wheat advanced 2.25 cents on total volume of 87,407 contracts. Volume declined approximately 24,000 contracts from November 22 when March wheat advanced 2.25 cents and total open interest declined by 11,276 contracts. On November 25, total open interest declined by 6,220 contracts, which is due to the December contract entering 1st notice day on November 29. The December contract lost 21,625 of open interest. March Chicago wheat remains on a short and intermediate term sell signal. Stand aside.

March Kansas City wheat gained 0.75 cents on volume of 21,591 contracts. Volume fell approximately 7,000 contracts from November 22 when March KC wheat advanced 6.25 cents and total open interest increased by 1,131 contracts. On November 25, total open interest declined by 1,250 contracts, and the December contract lost 4,620 of open interest and will enter 1st notice day on November 29. As this report is being compiled on November 26, March KC wheat is trading 5.50 lower and has made a daily low of 6.95 1/4 while March Chicago wheat is trading 4.75 lower and has made a daily low of 6.53 1/4. March KC wheat remains on a short and intermediate term sell signal. Stand aside.

Live cattle:

February live cattle advanced 12.5 points on extremely light volume of 28,312 contracts. Total open interest declined by 1,363 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy on the fractional advance. The December contract lost 1,811 of open interest and 1st notice day is November 29 for the December contract. As this report is being compiled on November 26, February cattle is trading 1.025 higher on low volume. It will be important to see whether open interest increases on the advance of November 26. February cattle remain on a short and intermediate term sell signal.

WTI Crude oil:

January WTI crude oil lost 75 cents on volume of 532,391 contracts. Total open interest increased by 15,765 contracts, which relative to volume is approximately 20% above average. The open interest increase was a fairly substantial percentage of volume, and the shorts were in control and driving prices lower. The spot month of January gained open interest. This is the first open interest increase on a price decline since November 12 when WTI lost $2.10 and open interest increased by a mere 5,172 contracts on volume of 804,101 contracts. In the past, we have commented on the lack of open interest increases on price declines. Although it would be easy for us to join the bearish side of the market, we are unable to join the pack due to gasoline being on a short and intermediate term buy signal, Brent crude on a short and intermediate term buy signal, heating oil on a short-term buy signal, and it appears that heating oil will generate in intermediate term buy signal on November 26. As this report is being compiled on November 26, January WTI is trading 9 cents lower and has made a daily low of 93.55, which is above the November 25 low of 93.08. WTI remains on a short and intermediate term sell signal.

Brent crude oil:

January Brent crude oil lost 5 cents on volume of 708,363 contracts. Volume increased approximately 47,000 contracts from November 22 when Brent crude advanced 97 cents and open interest increased 16,498 contracts. On November 25, total open interest increased by 5,606 contracts, which relative to volume is approximately 60% less than average. The announcement of an initial agreement between the United States (and allied countries) and Iran was most likely the impetus for the sharp move lower Sunday night, but the market made its low approximately 12:30 AM CST and then rallied for the rest of the session. This is bullish price action and although the total open interest increase was modest, it is positive nonetheless, especially compared to WTI. As this report is being compiled on November 26, January Brent is trading 34 cents higher while WTI is trading 13 cents lower. On November 21, January Brent generated a short and intermediate term buy signal. Generally speaking after the generation of buy signals, the market tends to pullback, and it is likely the pullback overnight to the low of $108.05 may be the extent of it.

Natural gas: On November 25, January natural gas generated a short-term buy signal, but remains on an intermediate term sell signal.

January natural gas advanced 3.1 cents on volume of 338,976 contracts. Volume was the highest since November 7 when 399,001 contracts were traded. On November 25, total open interest declined by 10,455 contracts, which relative to volume is approximately 20% above average meaning that liquidation was heavier than usual on the price advance.

From November 5 when the rally in natural gas began through November 25, January natural gas advanced 31.8 cents or approximately 9.25% while total open interest declined by 37,798 contracts. With managed money short by a ratio of 1.32:1 according to the most recent COT report, the consistent liquidation seen since November 5 is not a big surprise. Natural gas has had a habit of generating a buy and sell signals, then shortly reversing them. We have no way of knowing whether this is going to be the case presently, but we have a couple of key areas to watch that should confirm whether or not natural gas prices can continue to move higher.

The first would be a close above $3.851, then 3.888 and 3.946. We see it as a positive that managed money has been short during the rally, and due to this being a holiday week, we may see natural gas continue to move higher because liquidity is drying up and the path of least resistance is for higher prices. Usually, after the generation of a buy signal, the market pulls back for 1-3 days. However, the natural gas storage report (which is usually released by the Energy Information Administration on Thursday), will be released at 12 noon on Wednesday, November 27. We recommended standing aside until after the release of the report.

Euro:

The December euro lost 35 points on very low volume of 137,965 contracts. Total open interest declined by 1,443 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on November 26, the euro is trading 50 points higher and has made a high of 1.3573. On November 26, the euro is trading at its 50 day moving average of 1.3559, therefore the market is neither overbought nor oversold. The euro remains on a short-term sell signal, but an intermediate term buy signal. We recommend that long put positions and short calls continue to be held.

British pound:

The December British pound lost 58 points on volume of 91,547 contracts. Total open interest increased by 6,637 contracts, which relative to volume is approximately 185% above average, meaning that new short sellers were entering the market in heavy numbers and driving prices lower.The price and open interest action on November 25 is the most bearish we have seen in quite a while.The 50 day moving average on the December contract is 1.6073, and the current price on November 26 is 1.6198, therefore the market is overbought relative to the 50 day moving average, and can set back further from here. We continue to like the long side of GBP/EUR, but this currency pair is overbought relative to its 50 day moving average of 1.1859.

S&P 500 E mini:

The S&P 500 E mini gained 1.25 points on very low volume of 1,117,473 contracts. Despite the move to new highs at 1809.25, volume was the lowest since November 11 when 960,010 contracts were traded. There has been a consistent pattern of lower volume days when the E mini advances compared to higher volume days when the E mini declines. In a healthy market, we should see the reverse. Maintain long put protection if holding long equity positions. Keep your sight on the December 6 employment report as this could be a game changer.