Due to the government shutdown, daily reports will be truncated.
November soybeans advanced 1.50 cents on volume of 193,398 contracts. Total open interest increased by 286 contracts, which is minuscule and dramatically below average. The November contract lost 11,779 of open interest, which makes the total open interest increase a little more impressive. On October 7, November soybeans made a high of $13.05 and on October 8, as this report is being compiled, November beans have made a high of 13.05 3/4 and trading 11.75 cents lower on the day. In the absence of information from the USDA, the path of least resistance is to the downside, especially since soybeans remain on a short term sell signal. For short futures positions, exit the trade slightly above 13.05.
December soybean meal advanced $2.30 on volume of 61,036 contracts. Total open interest increased 1,394 contracts, which relative to volume is approximately 10% below average. The October contract accounted for loss of 625 of open interest, which makes the total open interest increase more impressive (bullish). As this report is being compiled on October 8, December soybean meal is trading $7.30 lower. Soybean meal remains on a short and intermediate term buy signal.
December corn advanced 6 cents on fairly heavy volume of 256,394 contracts. Volume was the highest since September 30 when 320,558 contracts were traded and December corn lost 12.50 cents while open interest increased 12,957 contracts. On October 7, total open interest increased by 3,891 contracts, which relative to volume is approximately 40% below average. Although it was positive to see higher than usual volume and that open interest increase as corn advanced, the market remains on a short and intermediate term sell signal. As this report is being compiled on October 8, December corn has reversed yesterday’s action and is trading 7.00 cents lower and has made a low of $4.39 3/4.
December Chicago wheat advanced 7.75 cents while December Kansas City wheat gained 6.25. Volume in Chicago wheat totaled 72,982 contracts and total open interest increased by a substantial 4,385 contracts, which relative to volume is approximately 140% above average. Volume in Kansas City wheat totaled a very light 13,775 contracts and open interest increased by 214 contracts, which relative to volume is approximately 40% less than average. The open interest increase in Chicago wheat was the largest since it generated a short-term buy signal on September 25 and the intermediate term buy signal generated on October 2. This may signify a short-term top because the massive open interest increase indicates that new buyers are entering the market at the upper end of the trading range.
As this report is being compiled on October 8 December Chicago wheat is trading fractionally lower and has made a low for the day of 6.88 and a high of 6.99 3/4, which took out the old high of 6.98 made on October 3. As we said in previous reports, we think with the absence of data from the USDA that the path of least resistance is higher. It is important to note that price and open interest in Chicago wheat has been acting in a bullish congruent fashion since October 2. Due to the government closure we do not know the extent to which managed money remains short Chicago wheat, which hampers our ability to determine the degree of potential short covering before wheat has a major setback. Both Chicago and Kansas City wheat are overbought relative to their 50 day moving averages, and we recommend that clients wait for a setback before initiating new long positions. Conceivably, this may not occur until we start getting reports from the USDA, or there is a broad market meltdown.
December cotton lost 3.16 cents on volume of 39,380 contracts. Volume was the highest since August 21 when 51,773 contracts were traded. On October 7, total open interest declined by 2,155 contracts, which relative to volume is approximately 120% above average, meaning that liquidation was heavy, but considering the magnitude of the decline and the massive build up in open interest over the past 2 weeks, the decline was actually quite small. The total outstanding open interest for all delivery months stands at 209,987 contracts as of October 7, which is above the total open interest on October 3 of 209,565 contracts.
From the time that cotton generated a short and intermediate term buy signal on September 27 total open interest stood at 195,370 contracts and as mentioned earlier, 209,987 contracts on October 7. During this time, December cotton closed closed 2.61 cents lower, but open interest is 14,617 contracts higher than it was on September 27. This overhang of open interest is going to be additional fuel for the downside as prices continue to move lower and managed money longs are forced to liquidate. Unfortunately, due to the government closure, we cannot ascertain the extent to which managed money is long cotton. However, we know as of September 24 managed money was long by a ratio of 5.56:1. Based upon the massive increase of open interest since September 24, it is a safe to say the ratio is considerably higher.
From the October 3 report:
“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.”
From the October 6 Weekend Wrap:
“Unfortunately, we are unable to determine to what degree managed money expanded their long positions due to the closure of the government and therefore there is no COT report to guide us. However, there has been a very important development with respect to spread action in the near versus deferred months. For example, the December 2013-March 2014 spread closed on Friday at 5 points premium to December. This is the lowest close for the spread since June 11 when the spread closed at 5 point premium to March. On August 19, the December 2013- March 2014 spread topped out at 3.28 cents premium December. On August 19 December cotton closed at 93.32. In short, the inversion continues to narrow, and it is only a matter of time before December sells at a discount to March. In our view, the impending change in trend of the spread is bearish for cotton prices. In our experience, spreads often foretell the direction of the market.”
December live cattle lost 12 points on total volume of 40,363 contracts. Total open interest declined by 652 contracts, which relative to volume is approximately 35% less than average. The October contract, which is about to expire lost 2,971 of open interest, but the December 2013 through February 2015 contracts all gained open interest. December cattle made a new high for the move at 1.32600, which is the highest price for December cattle since the week of February 11, 2013. On September 23, December cattle generated a short-term buy signal which confirmed the intermediate term buy signal. For clients wishing to initiate new long positions, we have suggested an exit point of 1.31400, which was the low of September 30. However, we discourage this because cattle is significantly overbought relative to its 50 day moving average on the December chart of 1.29730 and 1.24550 on the continuation chart. Within the past 2 days, the 50 day moving averages on the December and continuation charts have moved above the 200 day moving averages for the first time in over a year. We think cattle prices are headed significantly higher, but with the absence of data from the USDA, prices may consolidate at the upper end of the trading range. Cattle prices are at historical highs, and we think it is highly likely there is going to be a major wash out before prices make another leg higher.
November WTI crude oil lost 81 cents on heavier than normal volume of 687,107 contracts. Volume was the highest since October 2 when 773,444 contracts were traded and November crude oil advanced $2.06 while open interest increased 21,962 contracts. On October 7, total open interest declined by 13,780 contracts, which relative to volume is approximately 20% less than average. The November contract accounted for loss of 18,637 of open interest. November crude made a low of $101.86 on October 7, but this is 80 cents above the low for the move of 101.06 made on October 1. As we mentioned in yesterday’s report, crude oil like the major stock market indices has had an amazing amount of resilience considering the negative fundamentals and the lack of market participants. On September 23, November crude oil generated a short-term sell signal, but remains on an intermediate term buy signal. For those clients who are short futures we have recommended an exit point slightly above the October 3 high of $104.38.
November natural gas advanced 12.3 cents on heavy volume of 436,988 contracts. Volume was higher than the 407,418 contracts traded on September 26 when November natural gas closed at $3.567, but below the 486,993 contracts traded on September 19 when November natural gas closed at 3.795. On October 7, total open interest declined by 12,440 contracts, which relative to volume is average. The November contract accounted for loss of 26,146 of open interest. The hefty decline of open interest when prices advanced is negative. As this report is being compiled on October 8, November natural gas is trading 8.6 cents higher on the day and has made a new high for the move at $3.730.
Despite the sharp rally of the past 2 days, natural gas will not generate a short or intermediate term buy signal on October 8. Tomorrow, if the daily low in November natural gas is above 3.676, a short-term buy signal will be generated. However, natural gas has been trading in a range bounded by 3.450 and 3.850, since August 15 and the market is going to have to do much more backing and filling before we consider it to be a prime candidate for long positions. The 50 day moving average on the continuation chart of 3.520 remains below the 200 day moving average of 3.680. The 150 day moving average of 3.790 on the continuation chart should provide resistance as will the 150 day moving average on the December chart of 3.910 and the 200 day moving average of 3.870. If natural gas is to continue moving higher, it will be crucial for open interest to increase on the October 8 rally. However, if the increase is above average, this may signify a top.
The December euro gained 22 points on very light volume of 110,705 contracts. Total open interest increased by 1838 contracts, which relative to volume is approximately 35% less than average. The euro remains on a short and intermediate term buy signal.
The December Australian dollar advanced 8 points on very light volume of 52,571 contracts. Total open interest increased by a substantial 3,028 contracts, which relative to volume is approximately 130% above average meaning that new longs and shorts were entering the market aggressively, and longs had a slight edge. As this report is being compiled on October 8, the December Australian dollar is trading 7 points lower, and has made a daily high of 94.41, which is 35 points shy of the high for the move of 94.76 made on September 18. According to the last COT report of September 24, managed money was short by a ratio of 1.81:1 and at this juncture we do not have a reading on the extent to which managed money has liquidated or added to their short positions. Without this data, it is difficult to ascertain whether the Australian dollar is close to making a top or whether it has the wherewithal to take out the September 18 high. With the exception of October 7, price and open interest action has been negative since the Australian dollar generated a short and intermediate term buy signal on September 5 and 18 respectively.
S&P 500 E mini:
The December S&P 500 E mini lost 17.00 points on volume of 1,606,065 contracts.Volume increased from October 4 when 1,519,276 contracts were traded and the E mini advanced 15.00 while open interest declined by 24,469 contracts. On October 7, total open interest increased by 18,545 contracts, which relative to volume is approximately 45% below average,but is very negative. October 7 was the 4th day in a row that open interest relative to price has been acting very negatively.We have been advising clients to initiate long put protection, especially if they hold long equity positions Thus far, the decline in the major indices has been orderly, but we would not take comfort in this continuing.
From the October 4 report:
“For the past 3 sessions, open interest has been acting very bearishly relative to price declines on October 2 and 3 and the price advance on October 4. It is prudent for investors who hold long equity positions to have long put protection in the event of an accident due to the insanity that is going on in the Congress. What makes this more hazardous than usual is that volumes have declined precipitously, which will tend to exaggerate moves in either direction.”
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