The daily report will be truncated until the government resumes operations.

Soybeans:

November soybeans advanced 0.25 cents on heavier than normal volume of 281,870 contracts. Total open interest increased by 6,777 contracts, which relative to volume is average. The November contract accounted for loss of 7,018 contracts, which makes the total open interest increase more impressive (bearish). As this report is being compiled on October 11, November soybeans are trading 19.50 cents lower and have made a low of $12.67, which is above the low for the move of 12.63 1/2 made on October 1. The market has been trading in a lackluster fashion, and is unable to mount a sustained rally. It now appears likely the October 1 low will be taken out and that soybeans are following their seasonal tendency to trade lower into October, which sets up the seasonal rally for the remainder of the 4th quarter. As we mentioned from time to time, it is impossible to ascertain the bullish and bearish stance of manage money and commercial interests due to the lack of COT reports. Normally, the COT report would be released on Friday, and this is the 2nd week in a row of no reports.

If clients are short futures, stay with the position, and we suggest that buy stops be lowered. The high on October 11 has been $12.88, and soybeans closed at 12.88 on October 10. In short the market has not been able to move above 12.88 since the beginning of the evening session on October 10. This would be a reasonable point to execute a buy stop. One factor to keep in mind is that we may see more weakness in soybeans because soybean meal generated a short-term sell signal on October 10. This will serve to weigh on soybean and soybean oil prices.

From the October 8 report:

“In the absence of USDA reports, we think the path of least resistance for soybeans is lower. On October 7, November soybeans made a high of $13.05 and on October 8, a high of 13.05 3/4. For short futures positions, exit the trade slightly above 13.05. November soybeans remain on a short-term sell signal, but an intermediate term buy signal.”

Soybean meal: On October 10, December soybean meal generated a short-term sell signal, but remains on an intermediate term buy signal.

December soybean meal lost $2.10 on volume of 70,028 contracts. Total open interest increased on the decline by 3,541 contracts, which relative to volume is approximately 100% above average, meaning that new shorts were aggressively entering the market and driving prices lower. The October contract lost 385 of open interest and December lost 2,849, which makes the total open interest increased much more impressive (bearish). October 10 was the 1st day that open interest relative to the price decline performed in a bearish fashion. As this report is being compiled on October 11, December soybean meal is trading $6.20 lower and has made a new low for the move at $402.50. The short-term sell signal is confirming the downtrend in the soybean complex, and we look for lower prices ahead. However, we advise against entering bearish positions at current levels because the market is likely to rally, especially after generating a short-term sell signal.

Corn:

December corn lost 5.25 cents on volume of 160,312 contracts. Total open interest increased by 7,464 contracts, which relative to volume is approximately 75% above average meaning that new shorts were aggressively entering the market and driving prices lower. As this report is being compiled on October 11, December corn is trading 5.25 cents lower and has made a new low for the move at $4.32 1/2. As we have pointed out in numerous reports, the fundamentals for corn are terrible and that prices may to drift lower. Unfortunately, with the absence of data from the COT report, we have no idea to what extent managed money is short corn. Without being able to calibrate this, it is difficult to make recommendations the current environment.

Wheat:

December Chicago wheat lost 5.00 cents while Kansas City wheat lost 3.50 cents. Total volume for Chicago wheat was 60,104 contracts and open interest declined by 2,291 contracts, which relative to volume is approximately 50% above average meaning that liquidation was fairly heavy on the decline, which is positive open interest action. It is to be expected that open interest would decline as prices decline due to previous open interest increases. Total volume in Kansas City wheat was 19,192 contracts and in this case, open interest increased by a substantial amount: 885 contracts, which relative to volume is approximately 75% above average, meaning that new shorts were entering the market and driving prices lower, though the decline was minor.

As this report is being compiled on October 11, December Chicago wheat is trading 8.25 cents higher and has made a daily high of $6.95 1/2, which is a couple of cents below the high made on October 8 of 6.99 3/4. KC wheat is trading 8.50 higher and has made a daily high of 7.64 1/4, which is 0.50 cents below the high of 7.64 3/4 made on October 3. Both Chicago and KC wheat pulled back overnight and made lows of $6.82 1/4 and $7.52 1/4 respectively. The lows made overnight are points where sell stops can be placed. However, as we pointed out in yesterday’s report, there is significant evidence of commercial selling, and this may continue to keep a lid on prices. Additionally, we think that wheat has more backing and filling to do before it can move significantly higher from here. The hefty increase in open interest for Kansas City wheat on October 10 confirms the likelihood of trade selling. Chicago and Kansas City wheat remain on short and intermediate term buy signals.

Cotton:

December cotton lost 3 points on volume of 14,991 contracts. Open interest declined by 375 contracts, which relative to volume is  average. This is the lowest decline of open interest since cotton prices began their decline on October 4. As this report is being compiled on October 11, December cotton is trading 36 points higher and has made a daily high of 84.09, which is shy of its high yesterday of 84.26. Cotton remains on a short and intermediate term sell signal. We recommend waiting for a rally before initiating bearish positions.

Live cattle:

December live cattle advanced 22 1/2 points on low volume of 31,530 contracts. Open interest increased by a massive 3,539 contracts, which relative to volume is approximately 240% above average, meaning that heavy numbers of longs and shorts were entering the market and longs were able to move prices only fractionally higher. The October contract lost 742 of open interest, which makes the total open interest increase more impressive (bullish). As this report is being compiled on October 11, December cattle is trading 50 points higher and has made a new high for the move at 1.32850 which takes out the previous high for the move of 1.32600 made on October 7. We have discouraged the initiation of bullish positions despite the fact that we are bullish on cattle and it is on a short and intermediate term buy signal long. It remains overbought, yet on the other hand, pullbacks have been shallow and the market has not corrected anywhere near to its 50 day moving average of 1.30000. We may not get this correction until the USDA starts issuing reports. We advise against chasing cattle at current levels.

Crude oil: 

November crude oil advanced $1.40 on heavy volume of 764,384 contracts. Volume was the heaviest since October 2 when 773,444 contracts were traded and November crude oil advanced $2.06 while open interest increased 21,962 contracts. On October 10, open interest declined by 9323 contracts, which relative to volume is approximately 45% below average, but the fact that open interest declined at all is very negative for crude oil prices. The November contract lost 23,820 of open interest, which means there was insufficient buying in the forward months to offset this decline. In yesterday’s report, we outlined why it was possible that crude oil had reached a temporary bottom. However, our analysis was incorrect because as October 11, November crude is trading $1.54 lower and has made a new low for the move at $100.60. Continue to hold short futures positions, and we think it is wise to lower buy stops to protect profits. Continue to hold the short call position as well.

Natural gas: On October 10, November natural gas generated a short-term buy signal, but remains on an intermediate term sell signal.

November natural gas advanced 4.4 cents on heavy volume of 456,019 contracts. Volume was the highest since October 8 when 476,985 contracts were traded and November natural gas advanced 8.7 cents while open interest declined by 21,423 contracts. On October 10, total open interest increased by 6,221 contracts, which relative to volume is approximately 45% less than average. The November contract accounted for loss of 25,887 contracts, which makes the total open interest increase more impressive (bullish). October 10 is the first day that open interest has increased on the recent price advance. 

Since the rally began in earnest on October 7, November natural gas has advanced 21.7 cents while open interest has declined by 31,488 contracts. This is bearish open interest action during the 4 day rally. As this report is being compiled on October 11, November natural gas is trading 5.1 cents higher but has not taken out yesterday’s high of $3.795. Additionally, volume on October 11 has shrank dramatically from yesterday. With natural gas on a short-term buy signal, we would expect prices to advance, but question the degree to which the market has the wherewithal to move significantly higher from here. The key area to watch is $3.892, which was the high made on September 19. Another factor to keep in mind, is that we are through the worst part of the hurricane season, which removes the likelihood of major tropical storms that could shut down natural gas rigs in the Gulf of Mexico. Continue to hold the short call position that we recommended, which should have been written out of the money in near dated options.

Euro:

The December euro advanced 13 points on volume of 157,428 contracts. Total open interest increased by a massive 8,161 contracts, which relative to volume is approximately 110% above average meaning that new longs and shorts were entering the market aggressively, but longs were able to move prices only fractionally higher. During the recent period of consolidation after the euro made its high at 1.3649 on October 3, open interest action relative to price has been acting in a bullish congruent fashion. The euro remains on a short and intermediate term buy signal.

Australian dollar:

The December Australian dollar advanced 13 points on volume of 87,143 contracts.Volume was the highest since October 1 when the December Australian dollar advanced 62 points on volume of 99,213 contracts and open interest declined 5,247 contracts.On October 10, open interest increased by a substantial 5,307 contracts, which relative to volume is approximately 140% above average, meaning that new longs and shorts were aggressively entering the market and longs were able to move prices only fractionally higher. As this report is being compiled on October 11 the Australian dollar is trading 7 points higher and has taken out the high of 94.41 by 5 points made on October 8. Since October 7, the December Australian dollar has been acting in a bullish congruent fashion with respect to price and open interest. The next target is the high of 94.71 made on September 19. The Australian dollar remains on a short and intermediate term buy signal.

S&P 500 E mini:

The S&P 500 E mini advanced a massive 36.25 points on surprisingly light volume of 2,295,217 contracts. Volume on October 10 shrank by approximately 200,000 contracts from October 9 when the S&P 500 E mini lost 1.75 points and the range on October 9 was 18.25 points versus the range on October 10 of 39.75 points. In other words,the range was twice what it was on October 9 and the advance was one of the largest for the year yet volume could not attain a new high, let alone match the volume on September 18 when 2,998,256 contracts were traded and the E mini advanced 19.50 points while open interest increased 30,661 contracts.

However, it gets worse…Total open interest declined by 22,260,which is 50% below average, but on a move of this magnitude to see open interest decline at all is a major negative. This comes on the heels of negative open interest action relative to prices going back to October 2. As this report is being compiled on October 11, the E mini is trading 10.75 points higher and volume in the December contract as of this writing is 1,258,525 contracts. In short, the E mini continues to move higher, but volume is shrinking fairly dramatically from the average of the past 3 trading sessions beginning on October 8. We have no idea what will or will not occur over the weekend, but we continue to suggest that long put protection be in place, especially if clients hold long equity positions.