On October 31, the dollar is trading sharply higher on a fairly sharp setback in the euro. This is hammering precious metals, grains and the petroleum complex.

Soybeans:

November soybeans advanced 8.50 cents while January gained 5.75 on total volume of 204,925 contracts. Total open interest declined by 12,736 contracts, which relative to volume is approximately 140% above average. The November contract accounted for loss of 20,936 of open interest and October 31 is 1st notice day, which means that speculators are required to liquidate positions. The USDA released the total export sales for the weeks of October 10, 17 and 24 and in this time frame, exports totaled 4742.01 thousand tons and as of October 24, total commitments amount to 808.3 million bushels versus USDA projections for the entire season of 1.225 billion bushels. The current export pace is the best since the 2007-2008 season. Despite this, soybeans look tired at current levels, and we expect further downward pressure on prices. The crucial area for January soybeans is $12.60 and a break below this would generate an intermediate term sell signal. Soybeans are already on a short-term sell signal. Additionally, we are seeing uncharacteristic weakness in soybean meal, which will further pressure soybeans. Stand aside.

Soybean meal:

December soybean meal advanced $1.00 on volume of total volume of 63,482 contracts. Total open interest declined by 905 contracts, which relative to volume is approximately 40% less than average. The USDA announced that for the weeks of October 10, 17 and 24, 545.94 thousand tons were sold and commitments as of October 24 totaled 4,673.8 thousand tons versus USDA projections of 8,618 thousand tons for the entire season. With 54% already committed versus USDA projections, the export sales pace is the strongest since the 2007-2008 season. Despite this, for the past 2 days, we have been seeing uncharacteristic weakness of soybean meal versus soybeans. This continues on October 31 as December meal is trading 1.8% lower while January soybeans are trading 0.49% lower. Soybean meal will likely generate a short-term sell signal on October 31, but will remain on an intermediate term buy signal.

Corn:

December corn lost 1.75 cents on volume of 267,296 contracts. Total open interest declined by 344 contracts and the December contract accounted for loss of 8,990 of open interest. The USDA reported for the week of October 10, 17 and 24 total sales of 4,555.5  thousand tons and this brings total commitments as of the 24th to 808.3 million bushels versus USDA projections for the season of 1.225 billion bushels. Export sales are the best since the 2010-2011 season for this time of year. As this report is being compiled on October 31, corn along with the rest of the grain complex is trading lower and has made a new low at $4.27. We continue to advocate a stand aside position.

Wheat:

December Chicago wheat lost 6.25 cents on volume of 69,031 contracts. Total open interest increased by 3,097 contracts, which relative to volume is approximately 75% above average meaning that new shorts were aggressively entering the market and driving prices lower. The December contract lost 2,094 of open interest, which makes the total open interest increase much more impressive (bearish). Kansas City wheat lost 4.00 cents on volume of 16,210 contracts. Total open interest declined by 203 contracts, which relative to volume is approximately 45% less than average. The December contract accounted for loss of 2,500 of open interest. For the past 4 sessions beginning on October 25, the December KC contract has seen a decline of 8,509 of open interest, which indicates liquidation in the most heavily traded contract, however this has been offset by open interest increases in the forward months.

Export sales continued their blistering pace with total sales for October 10, 17 and 24 of 1308.8 thousand tons, which is the strongest export pace through October 24 since the 2007-2008 season. As of the most recent report, commitments total 752.9 million bushels versus USDA projections of 1.100 billion bushels. In short, 68% of the USDA projected export sales have already been committed. Despite this, both Kansas City and Chicago wheat are in a corrective mode, and as this report is being compiled on October 31, December Chicago wheat is trading 4.75 cents lower and has made a new low for the move at $6.67. December KC wheat is trading 3.75 cents lower and has made a new low for the move the $7.39 1/2. As clients know, we are bullish on wheat and think higher prices are in the future, but for now there is a bearish zeitgeist surrounding the grain complex. Additionally, December Chicago wheat is close to generating a short and intermediate term sell signal. Stand aside.

Cotton:

December cotton lost 50 points on fairly heavy volume of 31,842 contracts. Total open interest declined by 6,121 contracts, which relative to volume is approximately 550% above average, meaning that liquidation was off the charts. As a result of the massive decline of open interest on October 30, total open interest now stands at 196,039 contracts, which is the lowest since September 27 when total open interest stood at 195,370 contracts. On September 27, December cotton closed at 86.63, but cotton is currently trading approximately 9 cents lower.

To give you an idea of how much more liquidation needs to occur consider this: The lowest close prior to October 22 (close 82.45), before the rally in cotton began, was on September 5 when December cotton closed at 82.30 and total open interest stood at 170,339 contracts. In short, in order for open interest to return to levels one day before the rally began, approximately 25,000 contracts need to be liquidated. As this report is being compiled on October 31, December cotton is trading 36 points lower and has made a new low for the move at 77.11. Continue to hold the short positions recommended on October 18, but buy stops should be in place to protect profits, because the market is massively oversold and could rally at any time. A technical rally could take cotton back up to the 80-81 level.

Live cattle:

December live cattle lost 1.15 cents on fairly heavy volume of 64,246 contracts. Total open interest increased by 1,802 contracts, which relative to volume is average. The October contract lost 290 and December 2,292 of open interest, which makes the total open interest increase much more impressive (bearish).  During the past 2 days, December cattle has been unable to take out the high of 1.34575 made on October 25. The market remains overbought and we suggest that clients continue to stand aside and wait for correction.

Crude oil:

December crude oil lost $1.43 on heavier than normal volume of 637,985 contracts. Total open interest declined by 15,081 contracts, which relative to volume is average. Open interest declined in the December 2013 through March 2014 contracts. December crude made its low for the move at $95.95 on October 24, and thus far, it has been unable to penetrate it. We think the downside in crude may be limited at this juncture and that a short-term rally may be in the offing. Continue to hold the short call position recommended on September 29. Do not short crude at current levels. Crude oil remains on a short and intermediate term sell signal.

Natural gas:

December natural gas lost 9 ticks, which is essentially unchanged on low volume of 198,355 contracts. Total open interest increased by 14,271 contracts, which relative to volume is approximately 185% above average meaning that new shorts were aggressively entering the market, but were unable to move prices much beyond unchanged. The November contract lost 299 of open interest. As this report is being compiled on October 31, December natural gas has made another new low for the move at $3.560 and is trading 3.2 cents lower. On October 23, December natural gas generated a short-term sell signal and remains on an intermediate term sell signal. We have not recommended bearish positions because of the tendency for natural gas to rapidly flip from a sell signal to a buy signal.

Platinum:

January platinum advanced $18.00 on volume of 11,864 contracts. Total open interest increased by 143 contracts, which relative to volume is approximately 45% less than average. On October 29, platinum generated a short and intermediate term buy signal, and as this report is being compiled on October 31, January platinum is trading $29.80 lower along with the weak precious metals complex. Usually, after the generation of buy signals, there is a pullback that lasts from 1-3 days. Before recommending bullish positions, we want to see how open interest performs on October 31. The spread between December gold and January platinum has been widening and as recently as October 2 closed at $72.70 premium to January platinum and by October 30 closed at 130.60 premium to January platinum. We expect to see continued strength in platinum and at this juncture is the only precious metal suitable for a trade on the long side.

Gold:

December gold advanced $3.80 on heavier than normal volume of 166,085 contracts. Total open interest increased by 2,105 contracts, which relative to volume is approximately 45% less than average. As this report is being compiled on October 31, December gold is trading $25.60 lower and has made a new low for the move at $1318.70. Gold never generated a short or intermediate term buy signal, and its reaction to the advance in the dollar index shows that gold has much more work ahead before it can generate a short and or intermediate term buy signal. Stand aside.

Silver:

December silver advanced 49.1 cents on heavier than normal volume of 55,473 contracts. Total open interest increased by 1,012 contracts, which relative to volume is approximately 25% less than average. Unlike gold, silver made a new high for the move at $23.095, which is the highest price since September 20 when December silver reached $23.18. As this report is being compiled on October 31, December silver is trading $1.063 lower and has made a new low for the move at 21.73. Like gold, silver never generated a short or intermediate term buy signal, which underscores its inability to attract new participants. For a time, we thought silver might be ready to make a decent size move to the upside, but it’s inability to generate buy signals revealed its internal weakness. Stand aside.

Euro:

The December euro lost 21 points on volume of 200,527 contracts.Total open interest increased by 2,958 contracts, which relative to volume is approximately 40% less than average. As this report is being compiled on October 31, the December euro is trading 1.29 cents lower and has made a new low for the move at 1.3585 on heavy volume. We have been encouraging clients to stand aside because the euro was massively overbought and it was apparent that massive increases of open interest was making it vulnerable to a sharp setback. Continue to stand aside.

Australian dollar:

The December Australian dollar lost 14 points on volume of 81,344 contracts. Total open interest declined by 489 contracts, which relative to volume is approximately 75% below average. Stand aside.

S&P 500 E mini:

The S&P 500 E mini lost 7.00 points on heavier than normal volume of 1,787,050 contracts. Volume was the highest since October 22 when the E mini advanced 11.25 points on volume of 1,852,132 contracts and open interest increased by 3,796 contracts. On October 30, open interest increased by 24,483 contracts, which relative to volume is approximately 45% less than average. However, the open interest increase on October 30 was the largest increase of the past three weeks, but this occurred when the market declined. In short, the open interest increase was larger than any open interest increases when prices advanced. Again, this as bearish, and we continue to recommend long put protection for those clients who hold long equity positions.