Soybeans:

November soybeans advanced 9.25 cents on volume of 157,434 contracts. Total open interest increased by 3,638 contracts, which relative to volume is approximately 5% below average. As this report is being compiled on September 26, November beans are trading 5.75 cents lower, but have not taken out the low of 13.05 1/4 made on September 24. Soybeans remain on a short and intermediate term buy signal, but we discourage clients from being long the market.

Soybean meal:

December soybean meal advanced $4.80 on volume of 70,280 contracts. Total open interest increased by 275 contracts, which relative to volume is approximately 85% below average the October contract accounted for loss of 3,304 of open interest, which makes the total open interest increase more impressive. As this report is being compiled on September 26, December meal is trading $2.40 lower and has not taken out the low of $408.10 made on September 24. Soybean meal remains on a short and intermediate term buy signal, but we discourage clients from being long the market.

Corn:

December corn advanced 6 cents on volume of 145,062 contracts. Total open interest increased by 5,301 contracts, which relative to volume is approximately 40% above average, meaning that new longs were entering the market aggressively and pushing prices higher. We think the short side of the market has been played out and discourage clients from being short at current levels. In our view, the risk versus reward doesn’t make sense, and we advocate a stand aside posture. Additionally, both Chicago and Kansas City wheat generated a short-term buy signal on September 25, which will be supportive for corn prices. As this report is being compiled on September 26, December corn is trading 1.25 cents lower.

Wheat: On September 25, December Chicago and Kansas City wheat generated a short-term buy signals, but remain on  intermediate term sell signals.

December Chicago wheat advanced 12.25 cents while the Kansas City wheat contract gained 13.25 cents. The volume in Chicago wheat was 94,758 while open interest advanced 2,081 contracts, which relative to volume is approximately 15% below average. Volume in Kansas City wheat was 23,671 contracts and open interest increased by 304, which relative to volume is approximately 45% below average. The market action on the 25th was positive, but it is apparent that market participants do not believe in the rally and volume and open interest stats confirm this. In our view, this indicates that any setback is likely to be shallow making it difficult to get on board for those who are somewhat friendly to the market but want to buy at lower prices. The fact there was an open interest increase in Chicago wheat is additional confirmation that wheat is headed significantly higher from here. According to the most recent COT report, managed money is short by a ratio of 1.62:1, which is one of the highest short to long ratios of the past couple of months. It is likely that many of the managed money shorts will be covering positions at significantly higher prices.

Cotton:

December cotton advanced 27 points on volume of 14,975 contracts. Volume was the highest since September 18 when 15,561 contracts were traded. On September 25, open interest increased by a massive 2,718 contracts, which relative to volume is approximately 500% above average meaning that new longs and shorts were entering the market at a very aggressive pace, but longs were able to move the market only fractionally higher. As this report is being compiled on September 26, December cotton is trading 80 points higher and has made a high at 85.58. With the market closing in approximately 30 minutes, volume is considerably below September 25, despite the larger advance on the 26th. We have advocated writing out of the money calls, but if cotton closes above 85.79, and 86.41, we would close out the short call position.

Live cattle:

December live cattle advanced 5 points on heavier than normal volume of 53,417 contracts. Total open interest declined by 2,400 contracts, which relative to volume is approximately 75% above average meaning that liquidation was fairly heavy on essentially an unchanged day. The market made a new high at 1.31750, which is the highest price in several months. As this report is being compiled on September 26, December cattle is trading 15 points higher, but has not taken out the high made on September 25. Conceivably, the market may not have much of a setback as it usually does after the generation of a short-term buy signal, but instead consolidates its gains. Cattle remain on a short and intermediate term buy signal.

Crude oil:

November crude oil lost 47 cents on volume of 511,019 contracts. Total open interest declined by 3,091 contracts, which relative to volume is approximately 60% less than average. The October contract lost 324 of open interest. For the past 5 sessions beginning on September 19, crude oil has declined every day as has open interest. In this five-day period, November crude oil declined $4.62 while open interest declined 57,146 contracts. In order to put the five-day decline of open interest in perspective, when compared to 5 day volume, the decline has been 20% below average.

In short, open interest liquidation over 5 days has not been heavy relative to 5 day volume. Additionally, we have yet to see total open interest increase on a price decline. All of this leads us to the conclusion that crude oil prices are headed lower, perhaps significantly. As of the most recent COT report, the long to short ratio of managed money is 5.72:1, which is above the previous week, but slightly below the ratio of 2 weeks ago of 6.08:1. In short, we could easily see more liquidation by managed money longs and an increase of selling by new shorts entering the market. On September 23, November crude oil generated a short-term sell signal, but remains on an intermediate term buy signal. Since generating the sell signal, the market has not had a countertrend rally, which would be the ideal time to initiate bearish positions.

Natural gas: On September 25, November natural gas generated a short-term sell signal, which reversed the August 29 short-term buy signal. During this time, natural gas has remained on an intermediate term sell signal.

November natural gas lost 1.3 cents on volume of 264,912 contracts. Total open interest declined by 8,713 contracts, which relative to volume is approximately 20% above average, meaning that liquidation was fairly heavy on a modest decline. The October contract accounted for loss of 12,063 contracts. We advise clients to hold onto the short call position, that we recommended in the September 22 report. With natural gas on a short-term sell signal, a rally lasting 1-3 days should be expected, and this would be an opportunity to initiate bearish positions.

Euro:

The December euro advanced 46 points on volume of 135,049 contracts. Open interest increased by a hefty 6,165 contracts, which relative to volume is approximately 75% above average, meaning that new longs were aggressively initiating new long positions and pushing prices higher. The euro remains on a short and intermediate term buy signal.

Australian dollar:

The December Australian dollar lost 30 points on volume of 64,135 contracts. Total open interest declined by 598 contracts, which relative to volume is approximately 50% below average. The Australian dollar remains on a short and intermediate term buy signal.

S&P 500 E mini:

The December S&P 500 E mini declined by 6.75 points on volume of 1,645,083 contracts. Total open interest increased by 6,801 contracts, which is minuscule and dramatically below average. Long put protection is strongly advised, especially for those who hold long equity positions.