November soybeans lost 24.25 cents on volume of 168,083 contracts. Total open interest increased by 6,115 contracts, which relative to volume is approximately 40% above average, meaning that new longs and shorts were entering the market at rates considerably above average and shorts were driving prices lower. This is the second day in a row that soybean prices declined and open interest increased. This is extremely bearish because managed money is long soybeans by a ratio of 7.83:1, and these speculators will add considerable fuel to the downside move. As this report is being compiled on September 23, November soybeans are trading 4.75 cents lower and have made a new low for the move at $13.05 1/2. Although November soybeans will not generate a short-term sell signal on September 23, it is getting very close to it. Additionally, it is only a matter of time before the 50 day moving average (12.87 1/2) crosses below the 200 day moving average of 12.75. The two moving averages represent the first downside targets. We strongly advise against trading soybeans from the long side.
December soybean meal lost $8.80 on volume of 71,344 contracts. Open interest declined by 1,602 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on September 23, December meal is trading $1.80 lower and has made a new low for the move at $408.80 Soybean meal remains on a short and intermediate term buy signal, but we discourage trading soybean meal from the long side.
December corn lost 8.50 cents on volume of 163,198 contracts. Total open interest increased by 243 contracts, which is minuscule and dramatically below average. As this report is being compiled on September 23, corn is trading unchanged and has made a new low for the move at $4.48 1/4. Corn remains on a short and intermediate term sell signal, and we discourage new short positions because we feel the short side has been pushed hard, and the potential reward does not merit the risk. Additionally, we think wheat will be generating a short-term buy signal, and higher wheat prices will serve to support corn.
December Chicago wheat lost 10.75 cents while Kansas City wheat lost 9.25. Volume in Chicago wheat totaled 59,674 contracts and open interest increased by 925, which relative to volume is approximately 40% below average. As this report is being compiled on September 23, Chicago wheat is trading 5.75 cents higher while KC wheat is +3.50. Chicago and KC wheat remain on short and intermediate term sell signals. Stand aside.
December cotton lost 20 points on very light volume of 8,733 contracts. Volume was the lowest since July 22 when 8,738 contracts were traded. On September 20, open interest increased by 251 contracts, which relative to volume is average. As this report is being compiled on September 23, December cotton is trading 22 points lower and has made a daily low of 84.10. Although US stocks of cotton are at relatively low levels, the world cotton supply picture is a vastly different story. Despite positive open interest action on rallies and the move to 85.78 on September 19, which took out the high of 85.54 made on August 26, the cotton market has been trading in a lackluster fashion. Cotton remains on a short and intermediate term sell signal. Taking into account that cotton may continue to trade sideways to lower, one way of capitalizing on this would be to write out of the money calls. If the market continues to trade sideways or moves lower, the option will become profitable.
October live cattle advanced 2 1/2 points on volume of 45,682 contracts. Total open interest declined by 685 contracts, which relative to volume is approximately 40% less than average. The October contract accounted for loss of 4,191 of open interest. On September 23, December cattle is trading 77 points higher, and a gap has formed between 1.29750 (Friday’s closing price) and the September 23 low of 1.30250 (50 points). Despite this, cattle will not generate a short-term buy signal on September 23, but it is conceivable a short-term buy signal will be generated on September 24. The market is in stronger hands because nearly half the net long position of managed money has been eliminated during the past 3 weeks.
November crude oil declined $1.11 on volume of 562,781 contracts. Volume shrank 126,642 contracts from September 19 when crude oil declined $1.42 and open interest declined 8,785 contracts. Additionally, volume was the lowest since September 13 when 461,632 contracts were traded and open interest increased by 2,060 contracts while crude oil declined 39 cents. On September 20, open interest declined by a hefty 23,631 contracts, which is approximately 55% above average. This is one of the largest recent declines of open interest when WTI prices declined. The October contract accounted for loss of 27,012 of open interest. It is a certainty that November WTI will generate a short-term sell signal on September 23.
From the September 22 Weekend Wrap:
“With gasoline and heating oil on a short-term sell signals, it now appears likely that November WTI will generate a short-term sell signal in the early part of this week. Selling pressure may be somewhat muted due to the fact that managed money has been paring back their net long positions for several weeks.”
“It is important keep in mind that on September 20, the November 2013-February 2014 crude oil spread closed at $3.42, which is the lowest close since August 21 when it closed at $3.24. The previous low occurred on July 30 (3.23). If the spread closes below this level, it will further confirm that crude oil prices are headed south.”
Heating oil: On September 20, November heating oil generated a short term sell signal, and remains on an intermediate term buy signal.
November natural gas lost 3.2 cents on volume of 212,390 contracts. Total open interest declined 312 contracts, which is minuscule and dramatically below average. The October contract accounted for loss of 15,019 of open interest. As this report is being compiled on September 23, November natural gas is trading 7.8 cents lower on light volume. We anticipated the potential weakness in natural gas and wrote about it in the September 22 Weekend Wrap (see below).
From the September 22 Weekend Wrap:
“On August 29, natural gas generated a short-term buy signal, and as of September 20 remains on an intermediate term buy signal. On September 19, natural gas made a high of 3.892 basis November after the release of the natural gas storage report, and promptly sold off to close essentially unchanged. The 200 day moving average for November natural gas is $3.880 and the 50 day is $3.650, and the 200 day moving average provided resistance. In order for natural gas to take another leg higher, it must break through resistance of $3.880.”
“We have examined spread action for near-term natural gas and it is acting in a bearish fashion. For example, on September 20, the spread between November 2013-February 2014 closed at 26.2 cents premium to February. On that day, November natural gas closed at $3.763. On September 4, the spread between November 2013 and February 2014 stood at 22.4 cents premium to February and November natural gas closed at 3.767, or just about the same close as September 20. In short, the market hasn’t moved much in a 2 week timeframe, yet the contango is widening. This is bearish spread action, and may signal a short-term top. Additionally, with the 50 day moving average significantly below the 200 day moving average, much backing and filling needs to occur in order for the 50 day moving average to rise above the 200 day. This would be confirmation that the intermediate-term trend has turned positive. Major support lies at the $3.600 area, and since natural gas remains on a short-term buy signal, it makes sense to write calls in near dated options out of the money against long futures positions to mitigate any downside risk in the short-term. If natural gas breaks below 3.60, we would recommend liquidating long positions. Of course maintaining longs depends upon each client’s entry price and the amount of dollars at risk if the market breaks down to 3.60. Remember, spreads often foretell a directional move.”
We are suspending reporting on gold and silver until such time as we see a trading opportunity.
The December euro declined 6 points on light volume of 166,149 contracts. Total open interest increased by a massive 12,648 contracts, which relative to volume is approximately 210% above average. We suspect much of the increase was due to market participants positioning themselves ahead the German election on September 22. As this report is being compiled on September 23, the euro is trading 26 points lower, and is 4 points shy of the high made on September 20. The high of the move thus far occurred on September 18 at 1.3547. The euro remains on a short and intermediate term buy signal.
The December Australian dollar lost 33 points on volume of 83,406 contracts. Open interest declined by 1,778 contracts, which relative to volume is approximately 20% less than average. The high in the Australian dollar was made on September 18 at 94.76, and the high on September 19 was five points shy at 94.71. As this report is being compiled on September 23, the Australian dollar is trading 39 points higher and has made a high of 94.06, which matches the high made on September 20. The Australian dollar remains on a short and intermediate term buy signal.
S&P 500 E mini:
The S&P 500 E mini lost 15 points on volume of 1,836,942 contracts. Total open interest declined by 93,837 contracts, and the large decline of open interest is attributable to the September contract expiring on September 20. As this report is being compiled on September 23, the December E mini is trading 7.50 points lower and has made a new low for the move at 1689.50. We think it is wise to maintain long put protection, and suggest this be initiated if clients hold long positions in equities.