Soybeans:

November soybeans advanced 14.50 cents on volume of 198,257 contracts. Total open interest increased by 949 contracts, which relative to volume is approximately 75% below average. The November contract accounted for loss of 6,384 of open interest. The tepid increase in total open interest and the decline of open interest in the November contract is testament to the internal weakness of soybeans. As this report is being compiled on October 4, November soybeans are trading 7.25 cents higher and has made a new high for the move at $12.95 3/4. As we have said in previous reports, we think November soybeans will struggle above the $13.00 level, and see a possible high of approximately 13.12, before the market turns lower. The big fly in the ointment is the fact that statistics issued from the USDA have ground to a halt, and therefore the market does not have new information from which it can conduct price discovery. Conceivably, the World Agriculture Supply Demand Report due for release on October 11, will be postponed. Due to the lack of information flow from the USDA, we think it is unwise to initiate new bearish positions. Soybeans remain on a short-term sell signal, but in intermediate term buy signal. 

Soybean meal:

December soybean meal advanced $3.60 on volume of 83,567 contracts. Total open interest increased by 2,957 contracts, which relative to volume is approximately 40% above average, meaning that new longs were entering the market fairly aggressively and driving prices higher. The October contract lost 1,313 of open interest, which makes the total open interest increase much more impressive. The behavior of price and open interest for about past 2 sessions has been bullish, whereas the price and open interest action in beans has been bearish. As this report is being compiled on October 4, October soybean meal is trading $3.10 higher while December is +3.70. Soybean meal remains on a short and intermediate term buy signal.

Corn:

December corn advanced 0.25 cents on very light volume of 148,475 contracts. Total open interest increased by 7,926 contracts, which relative to volume is approximately 110% above average meaning that both longs and shorts were aggressively entering new positions, but were unable to move the market beyond a fractional gain. Remarkably, open interest has increased every day without exception from September 12 through October 3. The last time open interest declined occurred on September 11 when corn advanced 3.50 cents and open interest declined 8,027 contracts. The COT report will be released today, and we expect to see a massive increase in the short position of managed money. Seasonally, corn prices tend to rally into mid October before turning down. We advise against initiating new positions, and if short from higher levels, buy stops should be in place.

Wheat:

December Chicago wheat advanced 3.25 cents while December Kansas City wheat gained 1 cent. Volume in Chicago wheat totaled 100,562 contracts and open interest increased by a very healthy 2,975 contracts, which relative to volume is approximately 20% above average. For the past 2 days, December Chicago wheat has advanced 8 cents while open interest has increased both days by a total of 4,786 contracts. This is bullish price and open interest action. Volume in Kansas City wheat totaled 24,034 contracts and open interest increased by 102 contracts, which relative to volume is approximately 75% below average. On October 3, December Chicago wheat made a new high for the move the $6.98 and the KC December contract made a new high for the move at 7.64 3/4. As this report is being compiled on October 4, December Chicago wheat is trading 1.25 cents lower while December Kansas City wheat is trading – 2.25. We believe wheat is in a corrective mode, and should see further downside before it is prudent to initiate new long positions. Like other grains, our concern is the lack of information flow from the USDA due to the government shutdown, which makes initiating new positions riskier than usual.

Cotton:

December cotton advanced 57 points on volume of 17,872 contracts. Total open interest increased by 3,814 contracts, which relative to volume is approximately 635% above average, meaning that new longs were entering the market at a very aggressive pace and moving prices higher. Yesterday, we alerted clients there has been a massive increase of open interest during the prior 3 sessions, yet the market had advanced only a total of 24 points. Beginning on September 30 through October 3, open interest has increased 14,195 contracts, but cotton prices have advanced only 81 points, or 19 points short of one cent. This tells us it is likely that heavy commercial selling has been taking place against speculative buying. Another important factor is that cotton has been making fractional new highs since September 30 while open interest has been increasing massively. For example the daily highs beginning on September 30 through October 3 are respectively: 87.50, 87.38, 87.21, 87.78. On October 4, cotton has not taken out the high of October 3 of 87.78. This shows that new buying is not propelling cotton to new highs.

We have been skeptical of the advance, despite the fact that cotton remains on a short and intermediate term buy signal. We discourage the initiation of new long positions at the current level, and for those long at lower prices, the October 1 low of 85.48 should be used to exit these positions. We recommend a stand aside posture. Seasonally, cotton has a tendency to peak in late September and decline into November. 

 Live cattle:

December live cattle lost 5 points on light volume of 33,985 contracts. Total open interest increased by 1,286 contracts, which relative to volume is approximately 50% above average, meaning that longs and shorts were entering the market aggressively but were unable to move prices much one way or the other. The October contract lost 1,997 of open interest, which makes the total open interest increase much more impressive. The cattle market has been unbelievably firm, and as this report is being compiled on October 4, December cattle is trading 65 points higher and has made another new high for the move at 1.32450, which takes out the previous high of 1.32250 made on September 27. On September 23, December cattle generated a short-term buy signal which reversed the short-term sell signal generated on September 10. During this time, cattle was on an intermediate term buy signal. As the extract from the September 23 report shows, we thought there would be a setback that would enable clients to add to their positions. We recommended a minimal size position after the buy signal was generated. Unfortunately, setbacks have been minor, which has made it difficult to add new positions. December cattle has made a daily low of 1.31400 on September 27, 30 and October 3. For those clients who want to buy today’s breakout, use 1.31400 as an exit point for new long positions 

From the September 23 report:

“Although we think the worst is over on the downside, especially since managed money cut their net long position in half during the past 3 weeks, if positions are initiated at current levels, they should be minimal in size. There will always be time to add to the position in accordance with sound money management principles.”

Crude oil:

November crude oil lost 79 cents on volume of 538,850 contracts. Open interest increased on the decline by 6,207 contracts, which relative to volume is approximately 45% less than average. The November contract lost 6,887 of open interest, which makes the total open interest increase more impressive (bearish). In yesterday’s report, we recommended that short futures positions be covered somewhat above the high of October 3 of $104.38. As this report is being compiled on October 4, November crude oil has made a high of $104.19 and is currently trading 13 cents higher at 103.46. On September 23, November crude generated a short-term sell signal, but remains on an intermediate term buy signal. We see prices continuing to erode from the current level. For those clients who wrote out of the money calls as we have suggested, continue to hold these positions.

 Natural gas:

November natural gas lost 4.03 cents on volume of 267,982 contracts. Total open interest increased by 3,053 contracts, which relative to volume is approximately 50% low average. The November contract showed an increase of 119 of open interest. On September 25, natural gas generated a short-term sell signal and remains on an intermediate term sell signal.

In yesterday’s EIA Report, working gas in storage was 3,487 Bcf as of Friday, September 27, 2013, according to EIA estimates. This represents a net increase of 101 Bcf from the previous week. Stocks were 155 Bcf less than last year at this time and 49 Bcf above the 5-year average of 3,438 Bcf. In the East Region, stocks were 106 Bcf below the 5-year average following net injections of 58 Bcf. Stocks in the Producing Region were 102 Bcf above the 5-year average of 1,056 Bcf after a net injection of 33 Bcf. Stocks in the West Region were 52 Bcf above the 5-year average after a net addition of 10 Bcf. At 3,487 Bcf, total working gas is within the 5-year historical range.

Euro:

The December euro advanced 39 points on volume of 165,057 contracts. Total open interest declined by 625 contracts, which relative to volume is approximately 70% below average. The December euro made a new high for the move at 1.3649, which is its highest level since February 2013. Open interest declined on the price advance on low volume, which indicates that the market is unable to attract sufficient numbers of new buyers to continue to move prices higher. This makes the euro vulnerable to a sharp setback, especially since open interest has increased every day from September 27 through October 3 as prices have advanced each day. The most recent COT report which was released last Friday showed that managed money was long the euro by a ratio of 2.91:1, which is its highest ratio in at least several months. We have no doubt the ratio will be significantly higher in today’s report. The euro remains on a short and intermediate term buy signal.

Australian dollar:

The December Australian dollar advanced 17 points on light volume of 65,649 contracts. Total open interest declined 11 contracts. As this report is being compiled on October 4, the Australian dollar is trading 28 points higher and has made a daily high of 94.15, which is short of 94.71, the high made on September 19. The Australian dollar remains on a short and intermediate term buy signal,, and it appears it is going to test the September 19 high.

S&P 500 E mini:

The S&P 500 E mini lost 13.75 points on fairly heavy volume of 2,267,647 contracts. Volume was the highest since September 19 when 2,281,127 contracts were traded and the E mini los 0.25 points while open interest increased 18,049 contracts. On October 3, open interest increased by a massive 45,538 contracts, which relative to volume is approximately 20% below average, but a large number nonetheless.During the past 2 days open interest has increased by 82,160 and the E mini has declined 20.25 points. This is bearish price and open interest action.We continue to advise long put protection, especially for those clients who hold long equity positions.