The World Supply and Demand Report will be issued by the USDA on September 12.

Soybeans:

September soybeans lost 0.50 cents while the November contract lost 1.50 on total volume of 141,337 contracts. Total open interest declined by 809 contracts, which relative to volume is approximately 70% below average. The September contract lost 198 of open interest. Everyone is waiting for the USDA report to be released on Thursday. Soybeans remain on a short and intermediate term buy signal.

Soybean meal:

September soybean meal lost $3.30 while the October contract lost 2.20 on total volume of 55,545 contracts. Total open interest increased by 2,076 contracts, which relative to volume is approximately 50% above average. The September contract lost 368 of open interest. Soybean meal remains on a short and intermediate term buy signal.

Soybean oil: On September 10, December soybean oil generated a short-term sell signal, which reversed the short-term buy signal generated on August 27. Soybean oil remains on an intermediate term sell signal.

December soybean oil lost 10 points on volume of 73,447 contracts. Total open interest increased by 1,890 contracts, which relative to volume is average. The September contract lost 134 of open interest. The rally in soybean oil was tepid and open interest action was negative, ergo it is not surprising that soybean oil generated a short-term sell signal. Rallies should be sold.

Corn:

December corn advanced 5.50 cents on volume of 170,036 contracts. Surprisingly, total open interest increased by a massive 9,316 contracts, which relative to volume is approximately 120% above average, meaning that new longs were heavily entering the market and driving prices higher. The price and open interest action is anomalous because the market has been characterized by open interest declines when prices advance and open interest increases when prices decline. Although this is one day’s action, clients should be aware of these kinds of anomalies because often they indicate the next direction for a market. We suspect that commercial buyers were on the long side of the trade. The most recent low occurred on September 5 when December corn reached $4.57. Corn remains on a short and intermediate term sell signal.

Wheat:

December Chicago wheat advanced 5.25 while the December KC contract gained 6.25 cents. Total Chicago volume was 52,717 contracts and total open interest declined by a massive 2,527 contracts, which relative to volume is approximately 80% above average, meaning that liquidation was heavy on the advance. The September contract lost 96 of open interest. The price and open interest action in wheat was the direct opposite of corn. Both Chicago and Kansas City wheat remain on short and intermediate term sell signals.

Cotton:

 December cotton advanced 97 points on light volume of 13,591 contracts. Volume was the lightest since September 4 when 11,012 contracts were traded and cotton gained 4 points. On September 10, open interest increased by 125 contracts, which relative to volume is approximately is 50% below average. Additionally, it was the first increase of open interest since before August 19. In yesterday’s report, we stated that the market had run out of sellers, and that a rally was overdue. As this report is being compiled on September 11, December cotton is trading 5 points higher and has made a high of 84.84. December cotton should find resistance at 85.00, 85.76 and 86.51. December cotton remains on a short and intermediate term sell signal.

Live cattle: On September 10, October cattle generated a short-term sell signal, but remains on an intermediate term buy signal.

October live cattle lost 32 points on heavy volume of 58,776 contracts. Total open interest declined by 1,303 contracts, which relative to volume is approximately 10% below average. The October contract lost 9,664 of open interest, and there were open interest increases in the December 13 through December 14 contracts. If cattle can continue to trade in the 1.24852 area, and not close below it, this may be the extent of the decline. However, if cattle decisively moves below this level, an intermediate term sell signal will be generated. According to last week’s COT report, managed money was long cattle by a ratio of 2.75:1, which was just off the high made the previous week of 2.90:1. As we have stated in a number of reports, managed money is going to add fuel for a further downside move. Despite being on a short and intermediate term buy signal since August 8, we cautioned against initiating bullish positions. Going forward, we think cattle is going to have a major move to the upside, but the market is not ready to make the move.

WTI Crude oil:

October crude oil lost $2.13 on heavy volume of 672,581 contracts. Volume slightly exceeded trading on August 28 when 669,695 contracts were traded and crude oil advanced $1.09 while open interest declined 560 contracts. On that day, crude oil made its top at $112.24 and had a range of over $3.00. However, on September 6, crude oil advanced $2.16 and volume was only 602,870 contracts. In short volume increases on declines and shrinks on rallies. This is bearish volume action. The big surprise was that open interest increased only 415 contracts, which is minuscule and dramatically below average. The October contract lost 21,450 of open interest. We think the major move in crude is over, unless there is a reversal in the current situation in Syria and it worsens. Absent a crisis in the Middle East, we think crude oil has topped. Additionally, gasoline generated a short-term sell signal on September 10, and this will serve to weigh on crude oil prices. Crude remains on a short and intermediate term buy signal.

 U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.2 million barrels from the previous week. At 360.0 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 1.7 million barrels last week and are in the upper half of the average range. Finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 2.6 million barrels last week but remain near the lower limit of the average range for this time of year. Propane/propylene inventories decreased by 0.1 million barrels last week and are in the middle of the average range. Total commercial petroleum inventories increased by 4.1 million barrels last week.

Gasoline: on September 10, October gasoline generated a short-term sell signal, but has not yet generated an intermediate term sell signal

Natural gas:

October natural gas lost 2.1 cents on light volume of 221,120 contracts. Total open interest declined by 5,555 contracts, which relative to volume is average. During the past 3 days, open interest has declined 18,578 contracts while natural gas has gained nearly one cent. This is negative open interest action relative to the 3 day minor advance. Although, natural gas remains on a short-term buy signal, and an intermediate term sell signal, we are waiting to see if the buy signal reverses, or whether natural gas can stage a rally.

As this report is being compiled on September 11, October natural gas is trading 1.6 cents lower, but the important aspect of trading on September 11 is that natural gas has been unable to breach the high of $3.629 made on September 10 and the September 9 high of 3.621 A couple of days ago, we advised clients to liquidate positions that they had initiated when natural gas generated a short-term buy signal, and move to the sidelines. Perhaps, the natural gas storage report released by the Energy Information Administration tomorrow will serve as a catalyst for a move higher, or confirm the weak state of the short-term buy signal.

Platinum: On September 10, October platinum generated a short-term sell signal, but remains on an intermediate term buy signal.

Gold:

December gold lost $22.70 on fairly light volume of 140,899 contracts. Total open interest increased by 551 contracts, which relative to volume is approximately 85% less than average. Gold remains on a short and intermediate term buy signal.

Silver:

December silver lost 70.1 cents on volume of 46,660 contracts. Open interest declined by 1,157 contracts, which relative to volume is  average. The open interest action in silver was healthy and in keeping with a bull market, whereas the open interest increase in gold was slightly negative.

Euro:

The September euro gained 80 points on volume of 254,070 contracts. Open interest increased by 1,249 contracts, which relative to volume is approximately 75% below average. The euro remains on a short and intermediate term buy signal.

Australian dollar:

The Australian dollar advanced 86 points on volume of 134,593 contracts. Volume was the highest since September 3 when 172,165 contracts were traded and the September Australian dollar closed at 90.46. On September 10, open interest increased by a massive 7,316 contracts, which relative to volume is approximately 120% above average, meaning that new longs were aggressively entering the market and pushing the Australian dollar significantly higher on fairly heavy volume. This may indicate that the move has farther to go before it fades. On September 5, OIA announced that the September Australian dollar had generated a short-term buy signal. We correctly called the move up to the 93.30 area, which is where the Australian dollar is trading on September 11, having made a high of 93.36. The market is at a crucial juncture and if it can break significantly above the current price, an intermediate term buy signal would be generated. We think the market is going to struggle at the current level due to its overbought status. However, it appears we have more shorts to blowout, which may move the Australian dollar higher in the short-term.

From the September 8 Weekend Wrap:

The Australian dollar is traditionally the favorite of managed money, and we expect the market to continue its rally up to the 93.30 area, where we think it will run into trouble. During its journey higher, it will be important to see managed money shorts get blown out before it is wise to initiate bearish positions.

S&P 500 E mini: On Sptember 10, the S&P 500 E mini generated a short term buy signal. which reverses the short term sell signal generated on August 27. It remains on an intermediate buy signal.

The S&P 500 E mini advanced 13.00 points on volume of 1,999,566 contracts. Total open interest increased by 21,457 contracts, which relative to volume is approximately 50% below average. Since the rally began on September 3, open interest has increased by 80,253 contracts while the E mini has advanced 50.75 points. This is positive open interest action relative to the price advance, and it indicates that the market is likely to test the August 2 high of 1705. Despite the rally, we continue to believe that clients should have long put protection because we see many cross currents that can derail the rally.

We think much of the rally is due to the decreasing tensions regarding Syria and it appears the Chinese economy is on the mend. The Shanghai Composite Index has been rallying ever since it made its low in July and this may be signaling that an economic rebound may be in the offing. Additionally, the Baltic Dry Index shows increasing freight rates, which also supports the positive reading of the Chinese economy. For more on this, see the September 8 Weekend Wrap. Also note, volume has picked up on the rallies and for the last 5 days of positive closes volume has averaged 2,043,988 contracts versus the average daily volume in August of 1,586,637 contracts and volume year to date of 1,849,716 contracts. This is a major change from the way the E mini has been trading on rallies prior to this time.