Soybeans:

November soybeans advanced 5.25 cents on volume of 151,763 contracts. Total open interest increased by 2,991 contracts, which relative to volume is approximately 20% less than average. The USDA reported that export sales for the most recent week totaled 923.34  thousand metric tons for 2013-2014, which is a healthy number. As this report is being compiled on September 19, November beans are trading 10.75 cents lower. The spread between November and January has moved into contango and at the close on Wednesday, the November-January spread settled at 2.50 cents premium to January. As we have mentioned before in previous reports, we consider this to be a bearish indicator. November soybeans remain on a short and intermediate term buy signal, but we would avoid the long side of the market. We think the generation of a short-term sell signal is imminent.

Soybean meal:

December soybean meal lost 80 cents on volume of 49,886 contracts. Total open interest declined by 1,150 contracts, which relative to volume is approximately 10% below average. Meal sales as reported by the USDA totaled 26.26 thousand metric tons. The spread between October and December maintains the premium to October. Soybean meal remains on a short and intermediate term buy signal.

Corn:

December corn gained 2.25 cents on volume of 158,969 contracts. Total open interest increased by 14,428 contracts, which relative to volume is approximately 250% above average, meaning that new longs and shorts were aggressively entering the market, but the market moved only fractionally higher. This action is reminiscent of the previous day when corn declined 2.50 cents and open interest increased by 18,458 contracts. During the past 3 days, beginning on September 16 December corn has declined 2.75 cents while open interest has increased by a massive 40,241 contracts. In short, neither side has been able to move the market significantly in either direction. As indicated in yesterday’s report, we believe commercials are on the long side of the trade while speculators are taking the short side. December corn made a new low for the move at $4.52, which took out the low made on September 17 of 4.53 1/4. We think the short side has been pressed, and that making money being short is going to be difficult at this juncture. The USDA reported that sales of corn for the 2013-2014 season totaled 437.4 thousand metric tons. Corn remains on a short and intermediate term sell signal.

Wheat:

December Chicago wheat advanced 3.50 while the Kansas City contract gained 2.25 cents. Volume in Chicago wheat totaled 35,396 contracts. Total open interest declined by 1267 contracts, which relative to volume is approximately 40% above average meaning that liquidation was substantial on a minor rally in the Chicago contract. The USDA reported that sales of all wheat totaled 704.4 thousand metric tons and that sales totaled 57% of the USDA projection of 1.1 billion bushels. Thus far in the 2013-2014 season, sales of wheat in all categories exceed those of 2010-2011 and is the best since 2007-2008. Since late June, sales have exceeded the USDA projected sales on a weekly basis. Kansas City wheat has been an outstanding performer from an export point of view, and there has only been one week since June 1, (the beginning of the 2013-2014 season) when export sales were below the weekly average needed to meet USDA projections. We are probably one of the few that think wheat can move higher from here. A base has been built for the past couple weeks, and we expect wheat to generate a short-term buy signal in the very near future. Managed money is significantly short Chicago wheat while it is considerably long Kansas City wheat. Chicago and KC wheat remain on short and intermediate term sell signals.

Cotton:

December cotton gained 1.10 cents on volume of 15,561 contracts. Volume was the highest since September 16 when 15,584 contracts were traded. On September 18, total open interest increased by a massive 4,779 contracts, which relative to volume is approximately 620% above average, meaning that masses of new longs were entering the market and driving prices higher. On September 18, cotton made a high of 85.59, which is 5 ticks above the high of 85.54 made on August 26. As this report is being compiled on September 19, cotton has made a high of 85.78. As a result, short positions should have been liquidated, and this is especially appropriate considering the massive build of open interest on a rather minor advance. We recommend that clients move to the sidelines. Cotton remains on a short and intermediate term sell signal.

Live cattle:

October live cattle gained 10 points on volume of 47,844 contracts. Total open interest increased by 3,496 contracts, which relative to volume is approximately 185% above average meaning that new longs and shorts were entering the market in massive numbers, but could only move the market fractionally higher. The October contract accounted for loss of 2,259 of open interest. Cattle remains on a short-term sell signal, but an intermediate term buy signal. It is positive that cattle has not generated an intermediate term sell signal thus far. This indicates there is support at the lower end of the trading range. Remain on the sidelines.

WTI Crude oil:

November WTI crude oil advanced 2.46 on heavy volume of 732,026 contracts. Volume was the highest since September 17 when 760,447 contracts were traded and crude oil declined $1.17 while open interest increased only 957 contracts. On September 18, total open interest increased by 8,774 contracts, which relative to volume is approximately 50% below average. The October contract accounted for loss of 17,802 of open interest. 

When looking at the action on September 18 a couple of things jump out. First, volume was below trading on September 17 despite the fact that the range on September 18 was $3.16 versus the range on September 17 of $1.49. Additionally, volume was higher on a day when crude prices declined (-$1.17) than the advance of $2.46 on September 18. Second, the total open interest increase was abysmal, especially considering the magnitude of the advance. As this report is being compiled on September 19, November crude is trading $1.02 lower. We think crude prices are headed lower, but considering the massive decline in the dollar index, periodic rallies are to be expected, but we think these will fade quickly. Additionally, we think gasoline will weigh on crude oil prices. Gasoline remains on a short-term sell signal, but has not yet generated in intermediate term sell signal.

Natural gas:

October natural gas lost 3.2 cents on volume of 292,658 contracts. Open interest declined by 8,754 contracts, which relative to volume is approximately 20% above average, meaning that liquidation was higher than usual on a minor decline. The October contract accounted for loss of 13,176 of open interest. As this report is being compiled on September 19, October natural gas is trading 1.3 cents lower after making a new high for the move at $3.820. Maintain bullish positions.

The Energy Information Administration reported that gas in storage was 3,299 Bcf as of Friday, September 13, 2013, according to EIA estimates. This represents a net increase of 46 Bcf from the previous week. Stocks were 187 Bcf less than last year at this time and 18 Bcf above the 5-year average of 3,281 Bcf. In the East Region, stocks were 122 Bcf below the 5-year average following net injections of 41 Bcf. Stocks in the Producing Region were 90 Bcf above the 5-year average of 1,010 Bcf after a net injection of 1 Bcf. Stocks in the West Region were 50 Bcf above the 5-year average after a net addition of 4 Bcf. At 3,299 Bcf, total working gas is within the 5-year historical range.

Copper: On September 18, December copper generated a short-term buy signal, which reversed the short-term sell signal generated on September 16. Copper remains on an intermediate term buy signal.

Platinum: On September 18, platinum did not reverse the short-term sell signal generated on September 10, but remains on an intermediate term buy signal.

Gold: On September 18, December gold generated a short-term buy signal, which reversed the short-term sell signal on September 12. On September 12, December gold generated an intermediate term sell signal, but this was not reversed on September 18.

December gold lost 1.80 on heavy volume of 254,644 contracts. Volume was the highest since July 17 when 269,803 contracts were traded and December gold closed at $1278.80. Though volume was impressive, open interest action was negative with total open interest declining 701 contracts, which relative to volume is dramatically below average. However, in a bullish scenario open interest should have increased, perhaps dramatically so. Gold made a daily high of $1367.80, and as this report is being compiled on September 19, December gold has made another new high of 1375.40. The action of September 18 indicates that gold has much more work to do backing and filling before speculators feel confident about entering en masse into the long side of the market.

Silver: Silver did not generate a short-term buy signal that would have reversed the short-term sell signal generated on September 12. Silver remains on an intermediate term buy signal.

December silver lost 22 cents on volume of 73,542 contracts. Total open interest increased by 1,816 contracts, which relative to volume is average. Like gold, silver has much backing and filling to do before speculators feel confident about entering new long positions. On September 18, silver made a high at 23.25, and as this report is being compiled on September 19 December silver is made another new high at 23.445.

Euro:

The December euro advanced 1.47 cents on unimpressive volume of 230,010 contracts. On September 13, the December euro advanced 2 points on volume of 240,766 contracts while open interest declined by 3,496. The range on the 13th was 68 points versus September 18 range of 205 points (2.05 cents). On September 18, total open interest declined by 37,871 contracts, which relative to volume is huge, but this is due to the September contract going off the board.  The euro remains on a short and intermediate term buy signal.

Australian dollar: On September 18, the December Australian dollar generated an intermediate term buy signal, which confirms the short-term buy signal generated on September 5.

The Australian dollar advanced 1.48 cents on volume of 102,172 contracts. Total open interest declined by 65,386 contracts, which is due to the September contract expiring. Although the Australian dollar is now on a short and intermediate term buy signal, we think it is premature to approach the market from the long side and recommend that clients remain on the sidelines.

S&P 500 E mini:

The S&P 500 E mini gained 19.50 points on heavy volume of 2,998,256 contracts. Total open interest increased by 30,661 contracts, which relative to volume is approximately 50% less than average. The Federal Reserve decided to put off its bond tapering program, and the market reacted predictably by rallying sharply on heavy volume. It would appear with the threat of tapering off the table, the market is free to continue its bubble like behavior and continue to rise ever higher. This may continue until the debt ceiling issue becomes contentious, and possibly threatening to the US economy. Although, we are uncomfortable with the market at current levels, this does not change the fact that the insanity can continue with the market can staying irrational longer than any of us can stay solvent.

We continue to think a defensive posture is in order, and while some may not want to initiate out right put positions, it may be wise to take some profits, trim some positions on individual equities or ETF’s, especially if they are losing positions. Investors should keep in mind that the decision not to taper was based upon a weak economy, and the only thing that quantitative easing programs have shown is that they will raise asset prices, but not necessarily improve the real economy. This disconnect between equity prices and the real economy is very troubling. We think it is crucial to keep an eye on the 10 year note and whether the rally was a short-term correction in a downtrend, or that the market has in fact turned. The 10 year note yield is currently trading at its 50 day moving average of 2.716. Market participants will be watching this level to see whether the yield can hold above it.