November soybeans advanced 7.75 cents while the January contract gained 6.50 on total volume of 287,182 contracts. Volume was higher than October 10 when 281,870 contracts were traded and November soybeans advanced 0.25 cents while open interest increased 6,777 contracts. In short, total volume in soybeans on October 23 is the highest for the month of October thus far. On October 23, total open interest increased by 3,114 contracts, which relative to volume is approximately 50% below average. However, one mitigating factor justifying the less than average total open interest was the loss of 18,156 contracts in the November contract. There was sufficient buying in the back months to bring total open interest to a positive number. November soybeans remain on a short-term sell signal, but an intermediate term buy signal. However, it seems only a matter of time before a short-term buy signal is generated. The pace of exports continues at a rapid rate with 929.75 thousand tons sold for the week of October 3. Total commitments are 1.010 billion bushels versus the USDA projection of 1.385 bb for the 2013-2014 season.
Soybean meal: On October 23, December soybean meal generated a short-term buy signal, which reversed the short-term sell signal generated on October 10. December meal remains on an intermediate term buy signal.
December soybean meal advanced $5.30 on volume of 69,964 contracts. Total open interest increased by 4,090 contracts, which relative to volume is approximately 130% above average meaning that new longs were aggressively entering the market and driving prices higher. As this report is being compiled on October 24, soybean meal is trading $5.10 higher and has made a new high for the move at $427.40. The export pace for soybean meal continues at a rapid rate. For the week of October 3, 15.11 thousand tons were sold and total commitments for the season which began on October 1 is 3868.55 thousand tons, versus USDA projections for the season (through September 30, 2014) of 8,618 thousand tons. Remarkably, 45% of total projected sales for the crop year have already been committed.
In the October 21 report, we suggested that clients initiate long calls in January or March contracts. When the market pulls back, we would suggest adding to the position. Our target for December meal is the September 13 high of 451.20. Usually, after the generation of a buy signal, the market pulls back for 1-3 days, however with the 50 day moving average at $432.70 on the continuation chart and 416.30, the 50 day moving average on the December chart, soybean meal may not see much of a pullback. For those clients who took our recommendation and initiated long call positions in the January or March contracts, stay with the position.
December corn advanced 4.50 cents on volume of 269,260 contracts. Volume increased 121,491 contracts from October 22 when December corn lost 5.75 cents and open interest increased by 12,269 contracts. Additionally, volume was the highest since September 30 when 320,558 contracts were traded and December corn lost 12.50 cents while open interest increased by 12,957 contracts. On October 23, total open interest increased by 7,861 contracts, which relative to volume is approximately 20% above average. The December contract lost 7,043 of open interest, which makes the total open interest increase more impressive (potentially bullish). Open interest continues to build at a rapid rate, and this signifies a vast difference between the opinions of longs and shorts as to the direction of the market.
From October 18 through October 23 open interest has increased every day and totals 47,349 contracts and the corn price declined 0.25 cents. In other words, the massive increase of open interest has been unable to move prices in either direction. This tells us a potential explosive situation maybe in the offing. Remember, open interest increases when there is disagreement between longs and shorts and declines when both sides are in agreement. For the week of October 3, corn had its best week of the season with exports totaling 1,341.4 thousand tons. This brings total commitments to 629 million bushels versus the USDA projection of 1.225 billion bushels. We advise against shorting the market and if short suggest that positions be covered. Corn remains on a short and intermediate term sell signal.
December Chicago wheat advanced 1 cent on light volume of 62,236 contracts. Total open interest increased by 1,497 contracts, which relative to volume is approximately 5% below average. The December contract lost 881 of open interest. December Kansas City wheat advanced 5.25 cents on volume of 18,744 contracts while open interest increased by 140 contracts, which relative to volume is approximately 60% below average. December Chicago wheat made a high of $7.10 1/2, which is shy of the high for the move of 7.11 1/4 made on October 21. Kansas City wheat made a new high for the move at $7.761/4, which took out the high of 7.74 made on October 21. As this report is being compiled on October 24, December Chicago wheat is trading 2.25 lower and December KC wheat -3.25.
The blistering pace of exports continued during the week of October 3 when 653.6 thousand tons in all wheat categories were sold, which brings total commitments for the season which began on June 1 at 704.8 million bushels versus the USDA projection for the entire season which ends on May 31 2014 of 1.100 billion bushels. 64% of the crop has already been committed and the season has a long way to go. We think Chicago and KC wheat have more work to do on the downside, and it is likely that if corn breaks sharply lower, wheat will follow. However, we see breaks as buying opportunities and suggest using the lows of $6.78 1/4 and 7.42 1/4 as potential exit points for long futures positions. December Chicago wheat should find support at the 20 day moving average of $6.90 3/4 and KC wheat at 7.55 5/8.
December cotton lost 1.76 cents on heavy volume of 38,840 contracts. Volume was the highest since October 7 when 39,380 contracts were traded. On October 23, total open interest declined by 1,495 contracts, which relative to volume is approximately 50% above average, meaning that both longs and shorts were liquidating heavily as prices moved sharply lower. Despite the poor performance of cotton from October 18 through October 23, open interest has declined only a total of 3685 contracts while December cotton has declined 3.13 cents. Total open interest on October 23 is 200,869 contracts, which is above the total outstanding number of contracts on September 30 of 200,456 contracts.
As we discussed in the October 22 report (see below) the fact that total outstanding open interest remains at a lofty level when prices are declining to multi-month lows tells us there is more liquidation ahead. Remarkably, total open interest is above the level of September 30 when December cotton closed at 87.21 and on October 23, December cotton closed at 80.69, or approximately 7 cents below the close of September 30. In the October 18 report, we suggested to clients who wanted to short cotton to maintain a stop at 84.40 and on October 22, suggested they lower the stop to a break even. This trade has proven to be rather lucrative, especially taking into account the performance on October 24 when December cotton is trading 1.51 cents lower and has made a new low for the move at 78.76. Stay with the short position, but realize the market is massively oversold and can have a sharp rally at any moment. Buy stops should be placed based upon sound money management.
From the October 22 report:
In order to provide more perspective on the potential downside in cotton consider the following: Total open interest as of October 22 is back to the level of September 30 and October 1 of 200,436 and 203,616 respectively. The close on September 30 was 87.21 and on October 1 closed at 86.60. Again, December cotton closed more than 4 cents lower than it did on September 30 and October 1 yet total open interest on October 22 is at the same approximate level. This is another data point that confirms there is considerable liquidation ahead.
December live cattle lost 22 1/2 points on very heavy volume of 62,685 contracts. Volume was the highest since October 17 when 75,383 contracts were traded and total open interest increased by 2,841 contracts while December live cattle lost 1.475 cents. On October 23, total open interest declined only 237 contracts, which is minuscule and dramatically below average. However, the October contract lost 1,585 of open interest and December lost 2,722. Cattle had a range of a little bit more than 1 cent, yet volume was high and liquidation was evident. We continue to advise a stand aside posture until such time that cattle trades close to its 50 day moving average of 1 30650.
December crude oil lost $1.44 on heavy volume of 727,146 contracts. Volume was approximately 2,500 contracts below that of October 22 when December crude oil lost 1.38 and open interest declined by 6,767 contracts. On October 23, total open interest declined by 10,364 contracts, which relative to volume is approximately 40% below average. The November contract lost 1,211 of open interest. As of October 23, gasoline, heating oil and WTI crude are on short and intermediate term sell signals. This means that the complex should be traded from the short side, but only on rallies with appropriate stop protection based upon sound money management. Our preference is to trade the energies with options, but the main problem trading product options is the liquidity is poor. Do not initiate new short positions in crude oil or any of the products. Stay with the short call position in crude oil originally recommended on September 29.
Heating oil: On October 23, December heating oil generated an intermediate term sell signal, which confirmed the short-term sell signal generated on September 20.
Natural gas: On October 23, December natural gas generated a short-term sell signal, which reversed the short-term buy signal generated on October 10. December natural gas remains on an intermediate term sell signal.
November natural gas advanced 3.8 cents on volume of 273,693 contracts. Total open interest declined by 334 contracts and the November contract lost 13,884 of open interest. Generally speaking, after a sell signal is generated, the market has a tendency to rally, however on the continuation chart the 50 day moving average is $3.60 and December natural gas is trading at$3.745, therefore it is overbought which may limit any rally.
According to the Energy Information Administration working gas in storage was 3,741 Bcf as of Friday, October 18, 2013, according to EIA estimates. This represents a net increase of 87 Bcf from the previous week. Stocks were 92 Bcf less than last year at this time and 77 Bcf above the 5-year average of 3,664 Bcf. In the East Region, stocks were 80 Bcf below the 5-year average following net injections of 50 Bcf. Stocks in the Producing Region were 106 Bcf above the 5-year average of 1,139 Bcf after a net injection of 33 Bcf. Stocks in the West Region were 51 Bcf above the 5-year average after a net addition of 4 Bcf. At 3,741 Bcf, total working gas is within the 5-year historical range.
December silver lost 17.3 cents on volume of 28,818 contracts.Total open interest declined by 762 contracts, which relative to volume is average. On October 23, the 50 day moving average (22.54) crossed above the 150 day moving average (22.52) on the December chart. The 50 day moving average on the continuation chart is $22.34. The technical picture of all precious metals is improving, and we think it is only a matter of time before they break out to a higher level. We want to see silver close above $22.760 and gold close above 1349.70. The good thing about the long side of the precious metals at this juncture is that managed money is on the sidelines and trading volumes corroborate this From a seasonal point of view, precious metals are entering a very strong period, which coincides with the Indian wedding season.
For clients who prefer not to wait for a confirmed buy signal from OIA, we suggest initiating long call positions. At this juncture, the risk is limited, especially since December silver is trading only slightly above its 50 and 150 day moving averages. Although silver is our preferred vehicle, the 50 day moving average in gold is 1342.80, and the current price for December gold is 1348.60,which means gold is not overbought. The advantage of entering positions at this point is when professionals begin to get bullish, we could see some explosive moves, and we want our clients on board before for this.
The December euro lost 4 points on volume of 168,321 contracts.Total open interest increased by 628 contracts, which relative to volume is approximately 60% less than average. As this report is being compiled on October 24, the December euro is trading into new high territory and has made a new high of 1.3827. The market is massively overbought, and therefore a correction is likely to be a fairly deep when it occurs. Stand aside.
The Australian dollar lost 86 points on heavy volume of 99,607 contracts. Volume was the highest since September 18 when 102,172 contracts were traded and the December Australian dollar closed at 94.48. On October 23, total open interest increased by 873 contracts, which relative to volume is approximately 50% below average, but the fact that open interest increased is bearish. Market participants have never believed in the rally and open interest relative to price has shown this on a fairly consistent basis.We think the Australian dollar can pull back further possibly to the 20 day moving average of 94.56.The December Australian dollar remains on a short and intermediate term buy signal.
S&P 500 E mini:
The December S&P 500 E mini lost 7.75 points on volume of 1,523,718 contracts.Total open interest increased by 9,535 contracts, which relative to volume is approximately 45% less than average, but the fact that open interest increased on the decline is negative. We continue to advise long put protection, especially for those clients who hold long equity positions.