The daily report will be truncated until such time that the government resumes operations. It appears that the government shutdown may be coming to an end, which means that once USDA employees return to work, agriculture reports will be released. We suggest that clients move to the sidelines in agricultural commodities once it is confirmed that government operations will resume.
November soybeans lost 6.00 cents on volume of 175,771 contracts. Total open interest declined by 3,770 contracts, which relative to volume is approximately 20% below average. The November contract accounted for loss of 7,561 of open interest. As this report is being compiled on October 16, November soybeans are trading 9.50 cents higher on low volume. Soybeans remain on a short-term sell signal, but an intermediate term buy signal. The grains have been trading in a lackluster fashion due to the lack of reports issued by the USDA, but we expect volatility to increase significantly once these are released. We recommend a stand aside posture .
December soybean meal lost $5.00 on light volume of 51,300 contracts. Total open interest declined by 363 contracts, which relative to volume is approximately 60% less than average. As this report is being compiled on October 16, December soybean meal is trading unchanged on the day on low volume. Soybean meal remains on a short-term sell signal, but an intermediate term buy signal. We recommend a stand aside posture.
December corn advanced 6.50 cents on heavier than normal volume of 214,167 contracts. Volume was the highest since October 7 when 256,394 contracts were traded and open interest increased by 3,891 contracts while December corn advanced 6.00 cents. On October 15, total open interest increased by 5,178 contracts, which relative to volume is average. The December contract lost 517 of open interest, which makes the total open interest increase more impressive. This is the 2nd day in a row that corn has advanced along with open interest, which should give pause to anyone who is short the market. As we stated before, corn remains on a short and intermediate term sell signal, and the fundamentals are terrible, but we think a short covering rally is likely to occur at any moment. The increase of open interest on October 14 and 15 likely had commercial interests on the buy side and speculative interests on the short side. We recommend a stand aside posture.
December Chicago wheat lost 6.75 cents on light volume of 50,024 contracts. Total open interest declined by 3264 contracts, which relative to volume is approximately 150% above average, meaning that liquidation was extremely heavy on the decline. This is very constructive due to the open interest increases that have occurred over the past couple of weeks. December Kansas City wheat lost 5.25 cents on very light volume of 9,780 contracts. Volume was the lightest since May 14, 2013 when 7,787 contracts were traded and December Kansas City wheat closed at $7.91 3/4. On October 15, total open interest in KC wheat increased by a massive 900 contracts, which relative to volume is approximately 260% above average, meaning that new longs and shorts were aggressively initiating new positions, but shorts were driving prices lower.
We have been warning about the open interest build up in Chicago and Kansas City wheat and how this was not moving prices to new highs. Additionally, we pointed out, it was likely that heavy commercial selling was keeping a lid on prices and as a result Chicago and KC wheat have traded in a sideways pattern since October 3. From October 3 through October 14, open interest in Chicago wheat increased by 8,779 contracts, and 3,264 of these were liquidated in trading on October 15. The increase of open interest in Kansas City wheat has been significantly greater, and the last COT report, which was tabulated on September 24, showed that managed money was long KC by a ratio of 1.55:1 while they were short by 1.55:1 in Chicago wheat. As a result, we may see considerably more selling pressure in KC wheat than in Chicago. As we have pointed out in previous reports, Chicago and KC wheat are in a corrective mode and we have no downside target in Kansas City wheat because the market literally went straight up without a setback. December Chicago wheat should find support at $6.68 1/2 – $6.72 1/2.
As this report is being compiled on October 16, December Chicago wheat is trading 4.50 cents lower and has made a new low for the move at $6.78 1/4. December Kansas City wheat is trading 9.50 cents lower and has made a new low for the move at $7.42 1/4. We think the market has more to go on the downside and we want to see much more liquidation in the KC contract before recommending bullish positions.
December cotton advanced 10 points on volume of 12,232 contracts. Total open interest declined by 263 contracts, which relative to volume is approximately 20% below average. Since October 7, open interest has declined every day through October 15 and the total decrease is 8,324 contracts. During this time, cotton prices have declined 3.47 cents. In our view, what we have been seeing is liquidation of speculative interests and based upon the current total outstanding amount of open interest, there is more liquidation ahead. Thus far, we have not seen open interest increase on price declines. This tells us that market participants are not convinced that prices are headed lower. We disagree with this, and on October 8, December cotton generated short and intermediate term sell signals. As this report is being compiled on October 16, December cotton is trading 43 points lower and has made a new low for the move at 82.93, which is the lowest price since September 9 when December cotton reached 82.91. Our next downside targets are 82.11, the low made on September 5 and 81.72, the low on June 3. Since generating the sell signals on October 8, cotton has not had a 1-2 countertrend rally, which would allow clients to initiate bearish positions. This may not occur until the USDA begins issuing reports.
December live cattle lost 40 points on fairly heavy volume of 46,474 contracts. Volume increased approximately 12,000 contracts from October 14 when December cattle advanced 67 1/2 points and open interest increased by 3,665 contracts. On October 15, open interest declined by 1,163, which relative to volume is average. The October contract lost 2,231 of open interest. It is healthy to see open interest declined when prices decline, especially since there has been a massive build of open interest during the past couple of weeks. December cattle made a new high for the move at 1.33225, and this high is being taken out on October 16. Cattle remains massively overbought, but this does not mean the market cannot move higher before it corrects. December cattle generated a short-term buy signal on September 23 and had already been on an intermediate term buy signal. We remain bullish cattle, but think it is unwise to chase the market at the current level.
November crude oil lost $1.20 on volume of 593,836 contracts. Total open interest declined by a massive 14,422 contracts, which relative to volume is average. The November contract lost 26,150 of open interest. Despite the move lower on October 15, November crude was unable to penetrate the low of $100.60 made on October 11. In yesterday’s report, we advised clients who were short crude oil futures to lower their buy stops to slightly above $102.62, which was the high on October 14. As this report is being compiled on October 16, November crude oil has made a high of $102.97, which means short positions should have been liquidated. We continue to recommend that clients who hold short out of the money call positions stay with these. We will be looking for another spot to recommend bearish positions, but the short side of the trade may be played out, at least for now.
November natural gas lost 3 cents on volume of 318,614 contracts. Total open interest declined by 5,499 contracts, which relative to volume is approximately 30% less than average. The November contract accounted for loss of 14,095 contracts. It is positive to see open interest decline when prices decline and as this report is being compiled on October 16, November natural gas is trading 1.9 cents lower and has made a low of $3.763 and a high of 3.869, which took out the previous high of 3.855. Despite the positive performance, natural gas will not generate an intermediate term buy signal on October 16. Natural gas has gotten close to generating an intermediate term buy signal, but does not have this strength to take out the September 19 high of $3.892. In previous reports, we have commented that natural gas has not had a setback of any magnitude since generating the short-term buy signal on October 10. The failure of natural gas to generate an intermediate term buy signal may be confirmation that the market is about ready to correct. We recommend a stand aside posture until such time the market has a pullback to the $3.67 level basis November.
The December euro lost 57 points on fairly heavy volume of 208,930 contracts. Volume was the highest since October 2 when the December euro advanced 52 points on volume of 231,480 contracts and open interest increased by 8,919 contracts. On October 15, total open interest declined by a massive 15,119 contracts, which relative to volume is approximately 185% above average. The euro has seen massive increases of open interest during the rally, and it is healthy to see a significant decline of it when price declines more than usual. The December euro made a low of 1.3482, which took out the previous low of 1.3488 on October 9. Without knowing the makeup of speculative interest from the COT report, it is difficult to calibrate the degree to which the current setback is just a correction, or the beginning of a major move lower. We recommend a stand aside posture.
The Australian dollar advanced 29 points on volume of 69,750 contracts. Total open interest increased by 2,098 contracts, which relative to volume is approximately 20% above average meaning that new longs were initiating new positions and driving prices higher. On October 15, the Australian dollar made a new high for the move at 95.10, which took out the previous high of 93.76 made on September 18. Again, without the COT report, we are unable to determine the extent to which the market is overbought based upon the position of manage money. As such, we recommend a stand aside posture.
S&P 500 E mini:
The S&P 500 E mini lost 12.25 points on volume of 1,878,707 contracts. Total open interest increased by 1,430 contracts, which is essentially an unchanged number. As this report is being compiled on October 16, the E mini is trading 20.25 points higher on low volume and has made a new high for the move at 1717.00. We still think it is wise to maintain long put protection and with the upcoming earnings season , there could be some significant disappointments. Additionally, without government reports, we do not know the true condition of the economy.
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