The World Agriculture Supply Demand Report will be released by the USDA on Thursday, September 12. Do not enter new positions, long or short prior to the report.

Soybeans:

September soybeans lost 32.75 cents while the November contract lost 11.25 on total volume of 140,327 contracts. Total open interest increased by 1,503 contracts, which relative to volume is approximately 50% below average. The September contract accounted for loss of 476 of open interest. As this report is being compiled on September 10, September beans are trading 10.25 cents lower while the November contract is -7.25. November soybeans remain on a short and intermediate term buy signal, but we advise clients to stand aside.

Soybean meal:

 September soybean meal lost $16.30 while the October contract lost $4.10 on total volume of 58,381 contracts. Total open interest declined by 448 contracts, which relative to volume is approximately 60% below average. The September contract accounted for loss of 604 of open interest. As this report is being compiled on September 10, September meal is trading $3.80 lower while the October contract is – $2.50. Like soybeans, we discourage the initiation of long positions, despite the fact that soybean meal remains on a short and intermediate term buy signal.

Soybean oil:

December soybean oil lost 55 points on volume of 60,530 contracts. Total open interest increased by 442 contracts, which relative to volume is approximately 65% less than average. The September contract accounted for loss of 154 of open interest. On August 27, December soybean oil generated a short-term buy signal, but has remained on an intermediate term sell signal. We stated on a number of occasions that the buy signal appeared to be very weak and did not advocate initiating long positions. As this report is being compiled on September 10, December bean oil is trading 25 points lower, and it is a virtual certainty that the short-term buy signal of August 27 will be reversed with a sell signal on September 10.

Corn:

December corn lost 4.75 cents on volume of 135,659 contracts. Total open interest increased by 3,670 contracts, which relative to volume is average. The September contract accounted for loss of 2,634 of open interest, which makes the total open interest increased more impressive (bearish). We have been seeing a consistent pattern of open interest declines when corn advances and open interest increases when corn declines. This is bearish. Corn remains on a short and intermediate term sell signal.

Wheat:

December wheat lost 6.50 cents and the Kansas City December contract -7 cents. Total volume in the Chicago contract was 45,260 contracts and total open interest declined by 360 contracts, which relative to volume is approximately 60% below average. The September contract lost 121 of open interest. As this report is being compiled on September 10, December Chicago wheat is trading 6.50 cents higher as is the Kansas City contract. The Kansas City contract has made a new low on September 10 of $6.87 3/4 while the Chicago contract September 9 low of 6.39 1/4 has not been breached. Both Chicago and Kansas City wheat remain on a short and intermediate term sell signal.

Cotton:

December cotton advanced 29 points on volume of 14,653 contracts. Total open interest declined by 263 contracts, which is the 16th day in a row that open interest has declined. Relative to volume, the open interest decline is approximately 25% below average. This is the first day since open interest began declining on August 19 that the open interest decline has been less than average. This is a likely signal that cotton is in for a short-term rally, and the upcoming USDA report on September 12 may be a further catalyst. If bearish positions have been initiated, caution must be taken to have exit points in place. We think cotton is headed lower, but it may rally because the market has run out of distressed sellers as evidenced by the smaller than usual decline of open interest.

Live cattle:

October cattle lost 32.5 points on heavy volume of 59,857 contracts. Volume was the highest since August 8 when 84,660 contracts were traded and October cattle closed at 1.27075. On September 9, total open interest declined by 987 contracts, which relative to volume is approximately 35% below average. The October contract lost 7,170 of open interest, which means there were sufficient new positions taken  in the December forward contracts to offset the decline and bring down total open interest. It is likely that October cattle will generate a short-term sell signal on September 10, but will not generate an intermediate term sell signal.

WTI Crude oil:

October crude oil lost $1.01 on volume of 608,889 contracts. Total open interest increased 1,260 contracts, which is minuscule and dramatically below average. The October contract accounted for loss of 25,008 contracts, which makes the total open interest increase potentially bearish. In other words, there were new longs and shorts entering the November forward contracts, which offset the decline in the October contract and shorts were in control. As this report is being compiled on September 10, October WTI crude oil is trading $2.68 lower while the October Brent contract is trading – $2.86. The market is responding to the possibility that chemical weapons stored in Syria will be subject to inspection and verification, which lessens the possibility of a US airstrike. As the excerpt from the September 6 report shows, we thought it was possible that a temporary top was in the making due to the massive increase of open interest on the rally of September 6. While at the time, we thought the market could continue to move higher due to the potential for conflict in Syria, the massive increase of open interest likely signals a temporary top, or longer-term top. This could change if the situation in Syria worsens.

From the September 6 report:

“On September 6, total open interest increased by a massive 30,344 contracts, which relative to volume is approximately 100% above average. This is a huge number for crude oil. In short there was reduced participation, but those who were involved were willing to make strong commitments. With a big spike higher in open interest, a case could be made for a temporary top. However, with the geopolitical situation in the Middle East and Syria in particular potentially worsening, this may not mean much. Although WTI crude remains on a short and intermediate term buy signal, we suggest that clients remain on the sidelines.”

Natural gas:

October natural gas advanced 7.5 cents on volume of 211,003 contracts. Total open interest declined by 9,388 contracts, which relative to volume is approximately 75% above average, meaning that liquidation was heavy. The October contract lost 11,139 of open interest. The massive decline of open interest on a rather modest advance is one of the reasons why we remain skeptical of natural gas despite the fact it remains on a short-term buy signal but an intermediate term sell signal. Since generating the short-term buy signal on August 29, natural gas has not performed well from a price, volume and open interest point of view.

From the September 5 report:

“The performance of natural gas during September 5 and as we compile this on September 6 has been abysmal. Previously, we have commented on the unimpressive open interest action on the advance, and this has been of major concern. In yesterday’s report, we advised clients to hold back on entering new long positions to see how natural gas would trade during today’s session.”

“It appears that natural gas may have generated a false buy signal on August 29. Additionally, our concern is that the decline to the 50 day moving average of $3.570 should have been a natural point of stasis, but instead, natural gas has made a new low of $3.518. We suggest that any bullish positions that may have been initiated upon the generation of the short-term buy signal be liquidated. Additionally no new positions should be entered on the long side.”

Gasoline: October gasoline will likely generate a short-term sell signal on September 10. This will have the effect of weighing on crude oil prices, which adds to the likelihood that crude oil has topped. Gasoline will not generate an intermediate term sell signal on September 10.

Gold:

December gold advanced 20 cents on very light volume of 85,905 contracts. Total open interest declined by 1,993 contracts, which relative to volume is average. As this report is being compiled on September 10, December gold is trading $22.10 lower and has made a new low for the move at $1357.60. As we have been saying ever since gold generated a short and intermediate term buy signal, the market must go through a considerable amount of backing and filling, before a base is formed, and speculators have confidence that the lows have been made. From a seasonal point of view, gold tends to strengthen into the 4th quarter, but what we may see instead is range bound trading.

Silver:

December silver lost 17.4 cents on light volume of 31,687 contracts. Total open interest declined by 535 contracts, which relative to volume is approximately 30% less than average. As this report is being compiled on September 10, December silver is trading 68.2 cents lower, and has made a new low for the move at $22.84. Like gold, silver has much work to do before a base is established and speculators are confident that silver prices are moving higher. For the most part, open interest action has been abysmal, which does not bode well for higher prices.

Euro:

The September euro advanced 78 points on volume of 216,487 contracts. Total open interest increased by 5,788 contracts, which relative to volume is average, but is the first open interest increase since the euro advanced on September 4 when it gained 38 points and open interest increased by 2,798 contracts. The unusually high increase of open interest on September 9 is a potential warning that the euro may be near a top. However, the euro remains on a short and intermediate term buy signal.

Australian dollar:

On September 5, the Australian dollar generated a short-term buy signal and as the excerpt from the Weekend Wrap shows, we expected the market to trade higher and move to the 93.30 level. As this report is being compiled on September 10, the Australian dollar is trading 80 points higher and has made a new high for the move at 93.11. From September 3 through September 9, total open interest has declined by 21,174 contracts, which is over a 10% decline of total open interest during a period of 5 sessions. Many  bearish traders have liquidated, which makes a potential bearish trade more viable because the fuel for the rally is likely to have dissipated, especially if open interest declines on September 10. Call for details on the trade.

 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:

The September S&P 500 E mini gained 15.50 points on volume of 1,561,824 contracts.Total open interest increased by 17,835 contracts, which relative to volume is approximately 45% less than average. Since the rally began on September 3, open interest has increased by 58,796 contracts while the E mini has advanced 37.75 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 that 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 is the real deal. Additionally, the Baltic Dry Index is indicating increasing prices for shipping, which also supports the positive reading of the Chinese economy. For more on this, see the September 8 Weekend Wrap.