Soybeans:

November soybeans lost 7.50 cents on very light volume of 117,209 contracts. Total open interest declined by 5,916 contracts, which relative to volume is approximately 100% above average, meaning that liquidation was extremely heavy on the rather modest decline. The price and open interest action on September 23 was unusual because during the previous 2 days, soybeans declined 24.25 and 8.25 cents and open interest increased. The substantial decline of open interest is the first indication that market participants are beginning to liquidate their positions. As we have pointed out in previous reports, the long to short ratio of managed money is 7.83:1, which means  there is much more liquidation to come. Although soybeans have not generated a short-term sell signal, we think this is imminent and clients should be positioning their portfolios for more downside. Do not trade soybeans from the long side.

Soybean meal:

December soybean meal lost $2.40 on volume of 57,896 contracts. Total open interest increased by 85 contracts. Soybean meal remains on a short and intermediate term buy signal. Do not trade soybean meal from the long side.

Corn:

December corn advanced 2.50 cents on volume of 115,240 contracts. Total open interest increased by 1,879 contracts, which relative to volume is approximately 35% less than average. On September 23, December corn made a new low for the move at $4.48 1/4, and corn made another new low of $4.48 on September 24. Do not short corn at current levels because the market is vulnerable to a short covering rally. We think wheat is headed higher, and this will have the effect of supporting higher corn prices.

Wheat:

December Chicago wheat advanced 7.25 cents and Kansas City wheat +5.00. Volume in Chicago wheat totaled 53,487 contracts while open interest increased 548 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on September 24, December Chicago wheat is trading 2.75 cents higher while the KC contract is trading + 5.25. We think it is only a matter of time before both Chicago and Kansas City wheat generate short-term buy signals. We think the low of $6.87 3/4 made on September 10 will prove to be the bottom. Do not short wheat.

Cotton:

December cotton lost 25 points on extremely light total volume of 6,400 contracts. Volume was the lightest since July 5 when 5,746 contracts were traded, and this was after the Fourth of July holiday. Total open interest increased by a massive 320% above average, but it appears the shorts were in control on September 23. December cotton remains on a short and intermediate term sell signal, and the long to short ratio according to the latest COT report is 5.05:1, which is the highest reading in at least 3 weeks. This means there is fuel for a further downside move. We think cotton is headed lower, and for those who would prefer not to expose themselves to a potential short covering rally in a naked short futures position, we would suggest as an alternative to write calls out of the money.

Live cattle: On September 23, December live cattle generated a short-term buy signal, which reversed the short-term sell signal generated on September 10. Cattle remains on an intermediate term buy signal.

December live cattle advanced 75 points on volume of 41,477 contracts. Total open interest increased by 3,177 contracts, which relative to volume is approximately 210% above average meaning that new longs were aggressively entering the market and moving cattle prices higher. Adding to the bullish open interest number was that the October contract lost 3,242 of open interest. Open interest increased in every contract from December 2013 through February 2015. As this report is being compiled on September 24, December cattle is trading 57 points higher and has made a new high for the move at 1.31225, which is a breakout to new highs for the December contract last seen in March 2013. Additionally, the 50 day moving average of 1.29000 will soon cross above the 200 day moving average of 1.29700. As is usually the case after the generation of a short-term buy signal, the market is over extended and therefore due for a pullback that can last 1 to 3 days. Although we think the worst is over on the downside, especially since managed money cut their net long position in half during the past 3 weeks, if positions are initiated at current levels, they should be minimal in size. There will always be time to add to the position in accordance with sound money management principles.

Crude oil: On September 23, November WTI crude oil generated a short-term sell signal, but remains on an intermediate term buy signal

November crude oil lost $1.16 on light volume of 466,911 contracts. Volume was the lightest since September 13 when 461,632 contracts were traded and crude oil declined 39 cents while open interest increased by 2,060 contracts. On September 23, open interest declined by a massive 18,761 contracts, which relative to volume is approximately 55% above average. The October contract accounted for loss of 688 of open interest. As this report is being compiled on September 24, November crude is trading 71 cents lower and has made a new low for the move at $102.30. Usually, after the generation of a short-term sell signal, the market has a rally that can last from 1-3 days and with the downside action on September 24, crude oil is overdue for a good-sized technical rally. When crude rallies, this is when clients should be looking to initiate bearish positions. As it stands, WTI, gasoline and heating oil are on short-term sell signals and gasoline is on an intermediate term sell signal.

Gasoline: On September 23, November gasoline generated an intermediate term sell signal, which confirms the short term sell signal generated on September 10.

Natural gas:

November natural gas lost 8.6 cents on volume of 223,284 contracts. Total open interest declined by a massive 16,369 contracts, which relative to volume is approximately 180% above average, meaning that liquidation was extremely heavy. As this report is being compiled on September 24, November natural gas is trading 9.9 cents lower and has made a new low for the move at $3.576. As the extract from the September 22 report indicates, clients should be out of long positions,, and if our advice was taken to write calls in near dated options, these positions should continue to be held. Losses on the long side of the trade should be minimal, if any based upon the initiation of bullish positions, which we recommended during the evening session of September 12 and the morning session of September 13.

From the September 22 Weekend Wrap:

“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.”

Euro:

The December euro declined 26 points on volume of 151,653 contracts. Total open interest increased by 3,971 contracts, which relative to volume is average. The 50 day moving average of the cash dollar index moves below the 200 day moving average, which has bullish implications for the euro. The December dollar index 50 day moving average stands at 8192 and the 150 day average is 82.49 while the 200 day is 82.16. The euro remains on a short and intermediate term buy signal.

Australian dollar:

The December Australian dollar advanced 39 points on very light volume of 59,955 contracts. Total open interest declined by 2,184 contracts, which relative to volume is approximately 40% above average meaning that liquidation was fairly heavy on the advance. 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 9.75 points on volume of 1,674,908 contracts. Total open interest declined by 688,160 contracts, and this represents the liquidation of the September contract. We continue to advise long put protection, especially for those who hold long equity positions.