As new government reports are made available, we will provide an analysis of them as quickly as possible.
November soybeans gained 9.50 cents on healthy volume of 236,303 contracts. Volume surpassed the 203,691 contracts traded on October 14 when November soybeans advanced 6.25 and open interest increased by 6,041 contracts. On October 15, soybeans declined and open interest declined by 3,770 contracts. On October 16, open interest increased by a massive 11,546 contracts, which relative to volume is approximately 100% above average, meaning that new longs were aggressively entering the market and pushing prices higher. The November contract lost 7,832 of open interest, which makes the total open interest increase much more impressive. For the past 3 sessions, open interest has been acting in a bullish congruent fashion. As this report is being compiled on October 17, November soybeans are trading 16.75 cents higher and are within 7 cents of the $13.00 level. Although we do not have US export data to confirm it, there are rumors of strong export demand for soybeans. We continue to advise clients to stand aside pending the release of export data. There is a seasonal tendency for soybeans to bottom in October and rally through the 4th quarter. By the end of the week, the USDA will decide when they will release the WASDE report which was supposed to be released on October 11. Soybeans remain on a short-term sell signal, but an intermediate term buy signal. The fact that soybeans were unable to generate an intermediate term sell signal is very positive, especially with the price and open interest action of the past 3 days.
December soybean meal advanced $1.40 on volume of 55,777 contracts. Total open interest increased by 2,437 contracts, which relative to volume is approximately 75% above average, meaning that new longs and shorts were aggressively entering the market, but longs were only able to move the market fractionally higher. We remain far more bullish on soybean meal than soybeans, however we continue to advise a stand aside posture pending the release of export reports. As this report is being compiled on October 17, December meal has advanced $8.40 with a high of $413.80.
December corn lost 0.75 cents on volume of 204,153 contracts. Volume shrank approximately 10,000 contracts from the previous day when corn advanced 6.50 cents and open interest increased by 5,178 contracts. On October 17, total open interest increased by a hefty 7,348 contracts, which relative to volume is approximately 50% above average. The December contract lost 1,484 of open interest, which makes the total open interest increase much more impressive. For the past 3 trading sessions beginning on October 14, total open interest has increased by 18,294 contracts and December corn has advanced 9.50 cents. This is bullish open interest action relative to the price advance. We suspect the buy side is dominated by commercial interests and the sell side mostly by speculative interests. We do not know the extent to which managed money is short corn, but would guess that they have substantial position. Assuming this is most likely the case, and when this is combined with the positive price and open interest action of the past 3 days, we have a potential set up for a major short covering rally. In short, it is more than likely the market has discounted much of the negative news that will be coming out of the USDA. We recommend a stand aside posture.
December Chicago wheat lost 4.25 cents on volume of 57,769 contracts. Total open interest declined by 3,251 contracts, which relative to volume is approximately 120% above average, meaning that liquidation was extremely heavy on a rather modest decline. This is the 2nd day in a row that open interest has declined along with prices. This is extremely positive price and open interest action. Volume in Kansas City wheat totaled 28,128 contracts, which was the highest volume since October 1 when 35,076 contracts were traded and total open interest declined by 1,273 contracts. On October 16, total open interest in KC wheat declined by 574 contracts, which relative to volume is approximately 20% less than average. The contrast between the open interest decline relative to volume in Chicago compared to Kansas City wheat is different as night and day. Market participants have much more conviction in KC wheat than Chicago. Chicago wheat made a new low for the move at $6.78 1/4 and the low KC wheat was $7.42 1/4. The lows made on October 16 are potential stop-loss points for long positions, but we want to see Chicago and KC wheat breakout of their consolidation patterns. We may get this once the USDA releases its export reports.
From October 3 through October 14, total open interest in Chicago wheat increased by 8,779 contracts. During the past 2 days of October 15 and 16, open interest has been reduced by a total of 6,515 contracts, or approximately 2/3 of the increase from October 3 through October 14. During this time, Chicago wheat advanced a total of 3.25 cents. In short, both longs and shorts have gotten very skittish about holding on to positions in Chicago wheat during minor declines. The picture in Kansas City wheat is vastly different. From October 3 through October 14, open interest in Kansas City wheat increased by 4,864 contracts and during the past 2 days, open interest has increased by 326 contracts. The liquidation in Chicago wheat makes it more suitable for long positions because a portion of the selling pressure has been relieved. However, this is not the case with Kansas City wheat.
December cotton lost 55 points on volume of 16,026 contracts. Volume was the highest since October 9 when 22,831 contracts were traded and December cotton lost 49 points while open interest declined 1,622 contracts. On October 16, open interest increased by 299 contracts, which relative to volume is approximately 20% below average. This was the first open interest increase since cotton prices collapsed beginning on October 7. In yesterday’s report, we commented that open interest had been declining instead of increasing as prices declined. With the decline on October 16, we have the first evidence that market participants are getting bearish. As this report is being compiled on October 17, December cotton is trading 5 points higher as it moves into the close after reaching a new low for the move at 82.57. Thus far, cotton has not had a rally that would enable clients to initiate bearish positions. We continue to advise waiting for a rally.
From the October 15 report:
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.
December live cattle advanced 50 points on volume of 40,429 contracts. Total open interest increased by 2,876 contracts, which relative to volume is approximately 185% above average. The October contract lost 133 of open interest. The market made a new high for the move at 1.33350, and made a new closing high of 1.33250. As this report is being compiled on October 17, December cattle has made another new high for the move at 1.34000, but it appears cattle may be having a key reversal day because the December contract is currently trading 1.550 lower on the day on heavy volume as the pit session closes. We have been cautioning clients to wait for a setback before entering new long positions, and the very large build up in open interest over the past couple of weeks makes cattle vulnerable to a much larger correction. Continue to stand aside. Cattle remains on a short and intermediate term buy signal.
November crude oil advanced $1.08 on heavy volume of 752,832 contracts. Volume was the highest since October 11 when 801,524 contracts were traded and November crude lost 99 cents while open interest declined 5,163 contracts. On October 16, total open interest declined by 769 contracts, which is minuscule and dramatically below average. The November contract lost 22,706 of open interest.
However, that open interest declined at all on the rally just confirms the bearish condition of crude oil. Yesterday, crude oil made a high of $102.97, which would have stopped out some clients because we advised placing a protective buy stops slightly above the 102.62 level. We continue to advise holding the short call positions that were recommended in the September 30 report. As this report is being compiled on October 17, December crude oil is trading $1.60 lower and has made a new low for the move at $100.21. The November contract has made a low for the move of 100.03. Interestingly, the dollar sharply lower, which should boost crude oil prices, but the opposite is occurring even though equity prices are higher as well as grains and precious metals.
November natural gas lost 2.1 cents on heavy volume of 375,654 contracts. Volume was the highest since October 10 when natural gas advanced 4.4 cents on volume of 456,019 contracts and open interest increased by 6,221 contracts. On October 16, total open interest declined by 8,952 contracts, which relative to volume is approximately 5% below average. The November contract lost 15,320 of open interest. During the past 2 sessions beginning on October 15 natural gas has declined 5.1 cents while open interest declined 14,451 contracts. This comes close to wiping out the entire open interest increase of 15,547 contracts on October 11. Open interest did not start increasing until October 10, therefore the market is much more in balance from an open interest point of view. However, from a price stand point we would like to see natural gas drift down to the $3.67 area. As this report is being compiled on October 17, natural gas is trading 1.7 cents lower and has made a low of $3.727.
The December euro gained 12 points on heavier than normal volume of 208,849 contracts. Total open interest increased by 1,772 contracts, which relative to volume is approximately 55% less than average. As this report is being compiled on October 17, the December euro is trading 1.35 cents higher and has made a new high for the move at 1.3685, which takes out the previous high of 1.3649 made on October 3. The euro remains on a short and intermediate term buy signal.
The December Australian dollar advanced 48 points on light volume of 62,869 contracts. Total open interest increased by 185 contracts, which relative to volume is approximately 85% below average. The Australian dollar made a new high for the move on October 16 of 95.20, and as this report is being compiled on October 17 it is trading 79 points higher and has made another new high of 96.13. The Australian dollar remains on a short and intermediate term buy signal.
S&P 500 E mini:
The S&P 500 E mini advanced 21.25 points on volume of 1,802,354 contracts. Remarkably, volume was approximately 76,000 contracts below that of October 15 when 1,878,707 contracts were traded and the E mini declined 12.25 points while open interest increased 1,430 contracts. On October 16, total open interest increased only 6,749 contracts, which is minuscule.Open interest action in the E mini continues to be very negative. For example, since October 10, when the market began its rally the E mini advanced 36.25 points, but open interest declined 22,260 contracts. The following day (October 11), the E mini advanced 14.00 point and open interest declined 4,974 contracts. With advances of this magnitude, it would be expected that open interest would increase. On October 14, the E mini advanced 5.25 points, but open interest increased only 3,576 contracts, again a minuscule increase compared to volume of 1,514,133 contracts. In short, during 4 days of advances totaling 76.75 points, open interest has declined a total of 16,909 contracts. In short, when looking at each individual day’s advance, open interest action is negative and when combined is very negative. Due to this, we must continue to advise long put protection.
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