The COT report, which was tabulated on October 1 will be released today after the close. Two more reports will be released next week and two additional the following week. By November 8, the reports will be up-to-date.
November and January soybeans both lost 0.25 cents on total volume of 224,547 contracts. Total open interest declined by 955 contracts, which relative to volume is approximately 75% below average. The November contract accounted for loss of 17,568. November and January beans made a new high for the move at 13.18 and 13.11 1/4 respectively. As this report is being compiled on October 25, November beans are trading 3 cents lower and January -5.cents. The November 2013-January 2014 spread continues to widen, which is bullish for soybeans. First notice day is next week and we anticipate strength in the coming week, but soybeans need a catalyst to move significantly higher. The USDA will be releasing reports from the weeks when the government shutdown occurred, and this may provide impetus for higher prices. Do not short soybeans. Soybeans remain on a short-term sell signal, but an intermediate term buy signal.
December soybean meal advanced $4.60 on volume of 75,419 contracts. Total open interest increased by 4,703 contracts, which relative to volume is approximately 140% above average meaning that new longs were very aggressive about initiating new long positions and driving soybean meal prices higher. As this report is being compiled on October 25, December soybean meal is trading 70 cents higher while January is +20 cents. On October 21 we recommended long call positions in the January or March contract, and this trade continues to work well. Stay with the position. Our target is the September 13 high of $451.20. Soybean meal remains on a short and intermediate term buy signal.
December corn lost 2.75 cents on volume of 249,782 contracts. Total open interest increased by 2,606 contracts, which relative to volume is approximately 50% less than average. The December contract accounted for loss of 4,242 of open interest. From October 18 through October 24 open interest has increased every day and totals 49,955 contracts and corn declined 3 cents. In other words, the massive increase of open interest has only moved corn prices 3 cents lower. As we said in yesterday’s report, a potentially explosive situation may be in the offing. Keep in mind that open interest increases when there is disagreement between longs and shorts and declines when both sides are in agreement. We have no doubt that commercials are on the long side of the market. Corn remains on a short and intermediate term sell signal. Do not enter new short positions and if short, we recommend these be covered.
December Chicago wheat lost 5.25 cents on volume of 74,564 contracts. Total open interest increased by 131 contracts and the December contract accounted for loss of 3,731 of open interest. Kansas City wheat lost 6.50 cents on volume of 15,819 contracts and open interest increased by a whopping 931 contracts, which relative to volume is approximately 140% above average. The performance of price and open interest in Chicago wheat is healthier than Kansas City wheat, which has seen steady increases of open interest. We find this troubling. concerning.
Once we obtain the data from the COT reports, we can better judge the extent to which Kansas City wheat is overbought. As this report is being compiled on October 25, December Chicago wheat is trading 3.75 cents lower while Kansas City wheat is trading 2.50 lower. December Chicago wheat has made a new low for the move at $6.92 and KC at $7.60 3/4, which is close to the 20 day moving average of $6.91 1/8 and $7.57 respectively. The major lows are 6.78 1/4 for Chicago and 7.42 1/4 for Kansas City wheat. Both December Chicago and KC wheat remain on a short and intermediate term buy signal. We see wheat in a corrective mode and suggest that clients stand aside and wait for lower prices before contemplating bullish positions.
December cotton lost 1.48 cents on heavy volume of 34,861 contracts. Volume declined from the 38,840 contracts traded on October 23 when December cotton lost 1.76 cents and open interest declined by 1,495 contracts. On October 24, open interest declined only 703 contracts, which relative to volume is approximately 20% below average. This is astonishing considering the huge outstanding open interest of 200,166 contracts as of October 24. This compares to the September 30 total open interest of 200,456 when December cotton closed at 87.21.
We hate to sound like a broken record, but the fact remains there are large numbers of speculative longs who have not liquidated. Until there is a substantial reduction of open interest, rallies will be tepid because longs who have positions at higher levels will liquidate in order to trim their losses, which will cap advances. On October 24, December cotton made a new low for the move at 78.76, which is the lowest price since January 22, 2013 when the low of 78.22 was made on the continuation chart. Additionally, December cotton took out the low of 79.32 made on June 3, 2013 on the cotton continuation chart. On October 18, we suggested short positions to for aggressive clients. This trade has worked out well, and though we expect a short-term rally due to cotton’s oversold condition, we expect that cotton will resume its down trend.
December live cattle advanced 12 1/2 points on volume of 39,100 contracts. Total open interest increased by 537 contracts, which relative to volume is approximately 40% less than average. The October contract lost 755 of open interest and December -1737, which makes the total open interest increase more impressive. As this report is being compiled on October 25, December cattle is trading 32 1/2 points higher, however it took out the high for the move of 1.34000 made on October 17 and has made another new high at 1.34575. Although, we very much like the fundamentals of cattle, the market has not had much of a setback, which makes it vulnerable for a correction. Stand aside.
WTI Crude oil:
December crude oil advanced 25 cents on light volume of 529,559 contracts. Volume was the lightest since October 18 when 510,007 contracts were traded and December crude oil advanced 24 cents while open interest increased 1,025 contracts. On October 24, total open interest increased by 6,678 contracts, which relative to volume is approximately 45% less than average. The November and December contracts lost 170 and 833 of open interest respectively. Crude oil made a new low for the move at 95.95, which is the lowest price on the continuation chart since June 27 when crude made a low of 95.35. The market is massively oversold and due for a good-sized rally, which we think will be met by further selling by new shorts and by longs looking to trim their losses. Crude oil, gasoline and heating oil are on short and intermediate term sell signals. Product weakness will continue to weigh on WTI prices. On the continuation chart and the December chart, crude oil closed below their 200 day moving averages of 98.63 and 97.42 respectively.
December natural gas advanced 1 cent on volume of 315,612 contracts. Total open interest declined by 3,245 contracts, which relative to volume is approximately 50% below average. The November contract accounted for loss of 16,965 contracts. On October 23, December natural gas generated a short-term sell signal, which reversed the short-term buy signal of October 10. Additionally, natural gas remains on an intermediate term sell signal. Usually, after the generation of a sell signal, the market has a rally that lasts from 1-3 days. As this report is being compiled on October 25, December natural gas is trading 6.4 cents higher on very low volume. We suggest waiting until Monday before contemplating bearish positions. This will give us an opportunity to see how open interest performed in conjunction with the price advance on Friday. The problem with natural gas is that it has a consistent pattern of generating false signals. The short-term buy signal on October 10 was false as was the September 25 short-term sell signal. This reversed the short-term buy signal generated on August 29. We interpret this to mean that natural gas is trading in a value zone defined by the price parameters of the buy signal and sell signal. Stand aside.
December silver advanced 20.5 cents on light volume of 34,665 contracts. Total open interest increased by 1,291 contracts, which relative to volume is approximately 50% above average meaning that new longs were entering the market aggressively and pushing prices higher. On October 24, December silver closed over a key pivot point of $22.760 (close 22.822) and December gold closed at 1350.30, which is above the key pivot point of 1349.70. As we mentioned in yesterday’s report, December silver’s 50 day moving average has crossed above the 150 day moving average, which is positive. The performance of October 24 is not being replicated on October 25 as December silver is trading 26.7 cents lower and has made a low for the move at 22.26. On the other hand, gold is trading $1.10 higher and has made a new high for the move at 1356.40. Neither gold nor silver will generate short-term buy signals on October 25, but both are getting very close. We think precious metals are headed higher and clients should be positioning themselves for this.
The December euro advanced 23 points on volume of 177,315 contracts. Total open interest increased by 903 contracts, which relative to volume is approximately 75% below average. As this report is being compiled on October 25, the December euro is trading unchanged, but has made another new high for the move at 1.3834. The market remains overbought, and we advise a stand aside posture.
The Australian dollar lost 5 points on volume of 86,502 contracts. Total open interest increased by 1,171 contracts, which relative to volume is approximately 40% less than average. The Australian dollar is in a corrective mode, and we expect more on the downside before the market resumes its upward climb. We want to see a correction down to its 20 day moving average of 94.70 before contemplating bullish positions.
S&P 500 E mini:
The S&P 500 E mini advanced 6.75 points on very low volume of 1,256,490 contracts.Volume was the lowest since October 21 when the E mini advanced 1.75 points on volume of 1,142,529 contracts and open interest increased by 13,692 contracts. On October 24, open interest declined by 10,181 contracts, which relative to volume is approximately 60% less than average.The fact that open interest declined as prices advanced continues negative open interest action relative to the price advance that began on October 10. In the upcoming Weekend Wrap, we will perform a further analysis of price and open interest action since the beginning of the rally. In the meantime, we strongly suggest that those holding long equity positions protect themselves with long puts.