The daily report will be truncated due to the government closure.
November soybeans lost 1 cent on volume of 264,199 contracts. Total open interest increased by 1,334 contracts, which relative to volume is approximately 75% less than average. The November contract accounted for loss of 14,521 contracts, which makes the total open interest increase more impressive (neutral). On October 1, November beans made their low for the move at $12.63 1/2, and since that time have rallied to a high of $13.05 3/4. The market is in a holding pattern until such time that the USDA begins to release reports. On Thursday, export reports are released and thus far two export reports have been missed and the World Agriculture Supply Demand Report will not be released as scheduled on October 11. November beans remain on a short-term sell signal, but an intermediate term buy signal. We don’t expect there to be much movement one way or the other until the government is back in operation. For this reason, we suggest a stand aside posture.
December soybean meal lost $3.20 on volume of 76,422 contracts. Open interest declined by 2,740 contracts, which relative to volume is approximately 40% above average, meaning that liquidation was fairly substantial on the rather modest decline. The October contract lost 400 of open interest. Soybean meal remains on a short and intermediate term buy signal, and the open interest action relative to price has been very bullish, but until the USDA is back in operation, we don’t see much movement, although there is a bias to the downside due to the weakness in soybeans. Stand aside.
December corn lost 1.75 cents on volume of 175,299 contracts. Total open interest increased by 549 contracts, which relative to volume is approximately 85% less than average. The December contract lost 4,645 of open interest, which makes the total open interest more impressive (bearish). As this report is being compiled on October 10, December corn is trading 5 cents lower on low volume and has made a low of $4.37 1/4, which is above the low for the move of $4.35 made on October 2. Corn remains on a short and intermediate term sell signal, but as we have advised in previous reports, we think the short side has been played out and though prices may move lower, market participants may be reluctant to press the short side at current levels.
December Chicago wheat lost 3 cents while Kansas City wheat lost 1.50. Volume in Chicago wheat totaled 60,712 contracts and open interest increased by 2,397 contracts, which relative to volume is approximately 55% above average, meaning that longs and shorts were entering the market aggressively, but shorts were only able to move wheat 3 cents lower. Volume in Kansas City wheat totaled 18,779 contracts, but the big story was the massive increase of open interest of 1,881 contracts, which relative to volume is 295% above average, a huge increase, but despite this KC wheat closed 1.50 cents lower.
During the past 3 trading sessions beginning on October 7, total open interest in KC wheat has increased by 2,749 contracts while Kansas City wheat prices have advanced 8.75 cents. While this is bullish open interest action relative to the price advance, our concern is that it is taking massive increases of open interest to move the market a bit more than 1%. This tells us there is fairly substantial commercial selling, which is acting to keep a lid on prices. On October 3, KC wheat topped out at $7.64 3/4 and from October 3 through October 9, open interest has increased by 2,581 contracts, yet the October 3 high has not been taken out. Again, this is confirmation of heavy selling keeping the advance in check. Both Chicago and Kansas City wheat are on short and intermediate term buy signals, but they are overbought and we suggest that clients stand aside until a healthy correction occurs.
December cotton lost 49 points on volume of 22,831 contracts. Total open interest declined by 1,622 contracts, which relative to volume is approximately 185% above average, meaning that liquidation was heavy on the decline. On October 8, December cotton generated a short and intermediate term sell signal, and as this report is being compiled on October 10, December cotton is trading unchanged on the day. Although we have seen 3 days of open interest declines beginning on October 7, which totals 6369 contracts, the fact remains that total open interest for all delivery months as of October 9 is 205,773 contracts. This takes total open interest back to October 2 of 205,751 contracts. On September 25, when cotton began to make its move higher, total open interest stood at 185,171 contracts. On September 25, December cotton closed at 84.65 and on October 9 closed at 83.20. In short, it is obvious that a large amount of open interest has yet to liquidate and will do so as prices continue to move lower. Additionally, this overhang will serve to limit rallies because longs will be selling into this to trim their losses. After the generation of sell signals, there tends to be a rally that lasts from 1-3 days although in this case rallies may muted for the aforementioned reason. As this report is being compiled on October 10, cotton has made a high of 84.26, but has not been able to hold the gain despite stock market indices trading sharply higher along with other commodities. We recommend waiting for a rally before considering the initiation of bearish positions.
December live cattle lost 37 1/2 points on volume of 35,668 contracts. Total open interest increased by 1,752 contracts, which relative to volume is approximately 100% above average, meaning that longs and shorts were entering the market aggressively, but shorts were only able to drive the market fractionally lower. The October contract accounted for loss of 1,085 contracts, which makes the total open interest increase more impressive (neutral). The market continues its consolidation pattern, and this may continue until the USDA begins releasing reports. We think the market is going higher, but as we have said before, we would like to see a wash out and see what the COT stats say about the long position of managed money. Stand aside.
November crude oil lost $1.88 on volume of 637,412 contracts. Surprisingly, volume was approximately 50,000 contracts less than trading on October 7 when crude oil lost 81 cents and open interest declined by 13,780 contracts. In other words, crude oil declined more than twice as much on October 9 than October 7, but volume traded was approximately 8% less. On October 9, total open interest declined by 9,263 contracts, which relative to volume is approximately 40% less than average. Again, compare the open interest action on October 9 to October 7. The open interest decline on October 7 was 50% greater than October 9 despite the sharply lower move on October 9. Additionally, the low on October 9 was $101.18, which is above the low of 101.06 made on October 1.Also, the S&P 500 E mini made a new low for the move, but this did not drive crude oil prices to new lows.
As this report is being compiled on October 10, the daily low has been 101.16 and November crude is trading $1.78 higher on the day and has made a high of 103.57. Product prices on October 10 are trading sharply higher with November gasoline up 3.09% and heating oil +1.87%, which is definitely supportive to crude oil prices. However, gasoline remains on a short and intermediate term sell signal and heating oil remains on a short-term sell signal. In short, it looks like crude oil has bottomed temporarily and has run out of sellers at least temporarily. Crude oil remains on a short-term sell signal, but an intermediate term buy signal. Continue to hold short futures positions with an exit point slightly above $104.38 and the short call position. It is important to see how crude trades when the stock market indices are not trading sharply higher.
November natural gas lost 3.7 cents on total volume of 336,639 contracts. Total open interest declined by 3,846 contracts, which relative to volume is approximately 50% below average. The November contract accounted for loss of 22,174 of open interest. Interestingly, natural gas is rallying on October 10 despite the 90 bcf build, which is above last years build of 73 bcf and the 5 year average of 85 bcf. Working gas in storage was 3,577 Bcf as of Friday, October 4, 2013, according to EIA estimates. This represents a net increase of 90 Bcf from the previous week. Stocks were 138 Bcf less than last year at this time and 55 Bcf above the 5-year average of 3,522 Bcf. In the East Region, stocks were 101 Bcf below the 5-year average following net injections of 51 Bcf. Stocks in the Producing Region were 102 Bcf above the 5-year average of 1,086 Bcf after a net injection of 30 Bcf. Stocks in the West Region were 54 Bcf above the 5-year average after a net addition of 9 Bcf. At 3,577 Bcf, total working gas is within the 5-year historical range.
In yesterday’s report, we recommended writing out of the money calls in near dated options because we believe that natural gas is in a trading range bounded by $3.450 on the low and 3.850 on the high side. As this report is being compiled on October 10, November natural gas is trading 5.9 cents higher and has made a high of $3.795. It appears likely that November natural gas will generate a short-term buy signal on October 10, but we see it as a weak buy signal.
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 November chart of 3.910 and the 200 day moving average of 3.870. If natural gas is to continue moving higher, it needs to show an open interest increase on October 10. If there is a decline of open interest, this will confirm the internal weakness of the market and substantiate the weak short-term buy signal. Continue to hold short call positions on near dated options based upon your risk tolerance. The time decay of near dated options begins to work in the favor of option sellers as the option gets closer to expiration. We think the market will struggle to move higher. Additionally, natural gas is significantly overbought based upon its 50 day moving average and that after the generation of a buy signal, the market is by our definition overbought.
The December euro lost 44 points on volume of 198,846 contracts. Volume was the highest since October 2 when 231,480 contracts were traded and the December euro advanced 52 points while open interest increased 8,919 contracts. On October 9, open interest declined by a massive 9,411 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy on the decline. The euro made a new low for the move at 1.3488 and remains on a short and intermediate term buy signal.
The December Australian dollar gained 22 points on volume of 69,723 contracts. Open interest increased 810 contracts, which relative to volume is approximately 45% less than average. For the past 3 days beginning on October 7, the Australian dollar has been acting in a bullish congruent fashion with open interest increasing on the advance and declining when prices decline. As this report is being compiled on October 10 the December Australian dollar is trading 15 points higher, but has not taken out the high of 94.41 made on October 8. The Australian dollar remains on a short and intermediate term buy signal.
S&P 500 E mini:
The December S&P 500 E mini lost 1.75 points on heavy volume of 2,495,030 contracts.Volume was the heaviest since September 18 when 2,998,256 contracts were traded and the E mini advanced 19.50 points while open interest increased 30,661 contracts. On October 9, open interest declined by 18,913 contracts, which relative to volume is approximately 65% below average. As this report is being compiled on October 10, the E mini is trading 29.25 points higher due to the appointment of the new chairman of the Federal Reserve and the anticipation of the resolution of the government shutdown. We continue to advise long put protection, especially for those who hold long equity positions.