November soybeans lost 9.75 cents while January lost 10.25 on total volume of 236,036 contracts. Total open interest declined by 26,530 contracts, which relative to volume is approximately 240% above average. The November contract accounted for loss of 42,106 contracts. The November contract is within a couple of days of 1st notice day, which means that speculators must liquidate their positions, and therefore open interest should decline for the rest of the week. As this report is being compiled on October 28, November soybeans are trading 22.25 cents lower while January is -20.25. The January contract has made a low of $12.70 on October 28 and the recent previous low was 12.61 1/4 on October 14. It appears likely that January beans will break below this and the next area of support is the 11.69 area, which is the 52-week low. On October 28, all grains are trading lower and corn has made a new low for the move. Soybeans remain on a short-term sell signal, but an intermediate term buy signal.
December soybean meal lost $2.50 on volume of 63,945 contracts. Total open interest increased by 2,691, which relative to volume is approximately 55% above average. December meal made a high of $428.00 on October 25 and the high on October 24 was 428.10. As this report is being compiled on October 28, December meal made a high of $424.20 and is currently trading $8.40 lower. On October 21, OIA recommended the purchase of calls in January or March contracts. It appears that the entire grain complex is headed lower, and as a result, we suggest that positions be liquidated until we get more clarification about the ultimate price direction. At this juncture, clients should have small profits or small losses. In any event, we do not believe in letting small profits turn into losses, nor small losses turn into larger losses. Soybean meal remains on a short and intermediate term buy signal.
December corn lost 0.25 cents on volume of 215,991 contracts. Total open interest declined by 545 contracts, which is minuscule and dramatically below average. The December contract accounted for loss of 6,226 of open interest. As this report is being compiled on October 28, December corn is trading 9.50 cents lower and is made a new low for the move at $4.30 1/2. We been advising clients to be on the sidelines. We do not have hard data from the COT report for the most recent period, and corn is liable to have a short covering rally, especially if farmers continue to hold grain off the market. There are numerous reports of farmers putting grain in storage and awaiting higher prices. While this is a double-edged sword: prices can continue to decline, with farmers eventually capitulating, or the lack of farmer selling begins to firm prices up, which sets the stage for a short covering rally. The fundamentals of corn look terrible, but this has been discounted by the market. Continue to stand aside. Corn remains on a short and intermediate term sell signal.
December Chicago wheat lost 5.75 cents on volume of 66,664 contracts. Total open interest declined by a massive 8,331 contracts, which relative to volume is approximately 280% above average, meaning that both longs and shorts were massively liquidating as prices moved lower. This is positive price and open interest action, and should be expected when prices decline after open interest increases during price advances. This is setting the stage for a much healthier market after wheat has bottomed. December Kansas City wheat lost 5.25 cents on volume of 11,667 contracts and total open interest declined by 35 contracts, which is minuscule and dramatically below average. The December contract accounted for loss of 1,333 of open interest. During the past 2 days, KC wheat has declined 11.75 cents while total open interest has increased 966 contracts. We consider this to be bearish price and open interest action. As this report is being compiled on October 28, December KC wheat is trading 7 cents lower and has made a new low for the move at $7.51 1/2. December Chicago wheat is trading 9.25 lower and has made a new low for the move the $6.81 1/2. We have advised clients to remain on the sidelines until we see signs of a bottom. Both Chicago and KC wheat remain on short and intermediate term buy signals.
December cotton declined 13 points on healthy volume of 28,214 contracts. Total open interest increased by a massive 2,397 contracts, which relative to volume is approximately 230% above average, meaning that new longs and shorts were aggressively entering the market, but shorts were only able to move cotton fractionally lower. The open interest increase is more bad news for cotton prices and terrible for anyone long cotton. As this report is being compiled on October 28, December cotton is trading 25 points lower and has made a new low for the move at 78.52. On October 18 we recommended short positions for aggressive traders, and the trade has proven to be rather lucrative. Buy stops should be placed at appropriate points to protect profits because cotton is overdue for a technical rally.
December live cattle advanced 10 points on huge volume of 77,415 contracts. Volume was higher than the 75,383 contracts traded on October 17 when December cattle advanced 1.475 and open interest increased by 2,841 contracts. The October contract lost 716 and December lost 939 of open interest, which means there was sufficient buying in the forward months to bring total open interest to a positive number. The market had a wild day on Friday with nearly a 2 cent daily range as prices moved to new highs at 1.34575. We think the market is likely to trade in a consolidation pattern, which would be one way of relieving its overbought condition. The 20 day moving average is 1.32467 and the 50 day is 1.30944. The lean hogs market is on fire and is supportive to higher cattle prices. As this report is being compiled on October 28, December live cattle is trading 1.025 cents higher. Continue to stand aside. Cattle remains on a short and intermediate term buy signal.
December crude oil advanced 74 cents on very light volume of 390,150 contracts. Open interest declined by 4,670 contracts, which relative to volume is approximately 55% below average. The December contract lost 5,670 of open interest. The lackluster volume on the tepid advance along with the decline of open interest confirms the downward trend in crude, although we expect periodic rallies, especially since crude oil is oversold at this juncture. We envision a move to the 20 day moving average of $101.05 before the market be resumes its downtrend. For those of you who took our advice on September 29 and wrote out of the money calls, stay with this position.
December natural gas advanced 6.9 cents on very light volume of 201,410 contracts. Total open interest declined by 6,915 contracts, which relative to volume is approximately 40% above average meaning that longs and shorts were liquidating as the market moved higher. This is bearish open interest action relative to price. The November contract lost 8,809 of open interest. On October 23, December natural gas generated a short-term sell signal which reversed the short-term buy signal of October 10. As noted in the extract from the October 23 report, we expected the rally to be muted due to the relationship between the price of the December contract to the 50 day moving average on the continuation chart. As it turned out, this was exactly the right call, and natural gas advanced 1 cent on October 24 and 6.9 cents on the 25th. As this report is being compiled on October 28, natural gas is trading 13.2 cents lower. Although, it appears natural gas prices are headed lower, based upon the way it has traded over the past couple of months, natural gas could reverse and easily generate another buy signal.
From the October 23 report:
“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.”
December gold advanced $2.20 on light volume of 127,854 contracts. Total open interest increased by 46 contracts. Gold made a new high for the move at 1356.40, which is the highest price since September 20 when December gold reached $1368.40. As this report is being compiled on October 28, December gold is trading $1.60 higher and has made a new high for the move at $1361.80. Platinum is the star performer on October 28 and is trading $17.80 higher and will likely generate a short and intermediate term buy signal on October 28. Gold continues to trade on the cusp of generating a short and intermediate term buy signal. We are positive on gold prices, and it is apparent based upon the tepid volumes that the speculative community has not caught on to the impending move higher.
December silver, lost 18.3 cents on light volume of 39,908 contracts. Total open interest increased by 674 contracts, which relative to volume is approximately 25% less than average. On October 28, as this report is being compiled, silver is the weakest of the precious metals complex and is trading 10.4 cents lower. Silver will not generate a short or intermediate term buy signal on October 28.
The December euro advanced 3 points on light volume of 148,848 contracts. Total open interest increased by 5,371 contracts, which relative to volume is approximately 40% above average meaning that new longs and shorts were aggressively entering the market, but neither side was able to move prices much. The euro made a new high for the move at 1.3834 which took out the previous high of October 24 of 1.3827. The euro is massively overbought and a move down to the 20 day moving average of 1.3635 would be healthy, and even more so to the 50 day moving average of 1.3473. Stand aside.
The Australian dollar lost 28 points on volume of 61,011 contracts. Total open interest increased by 330 contracts, which relative to volume is approximately 75% less than average. The Australian dollar remains overbought relative to its 50 day moving average of 92.82 and the 20 day moving average of 94.83. Volume and open interest action indicate that market participants are bearish on the Australian dollar, however it remains on a short and intermediate term buy signal. Stand aside and wait for further correction before initiating long positions.
S&P 500 E mini:
The S&P 500 E mini gained 5.50 points on light volume of 1,256,262 contracts. Total open interest increased by 23,874 contracts, which relative to volume is approximately 20% below average. The open interest increase on October 25 was the largest since the rally began on October 10 and the previous high open interest increase was 17,016 contracts on October 17 when the S&P 500 E mini gained 14.50 points on volume of 1,671,076 contracts. As this report is being compiled on October 28, the E mini has made a new high for the move at 1762.25 and is currently trading 5.50 points higher on very low volume. Long put protection continues to be recommended for those clients who hold long equity positions.