December live cattle lost 1.825 cents on volume of 52,061 contracts. Total open interest increased again, this time by a massive 2,506 contracts, which relative to volume is approximately 75% above average meaning that aggressive new short-sellers continue to pile into the live cattle market and drive it to a new contract low of 96.100. The October contract lost 1,471 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in October and increase total open interest substantially. Additionally, the October contract made a low of 94.300, which took out the October 2010 low of 94.500 on the monthly continuation chart.
From October 7 through October 13, the December contract has lost 7.44 cents while total open interest has increased each day for cumulative loss of 7,513 contracts. As this report is being compiled on October 14 the December contract is having a rally, up 1.80 cents on low volume. Stand aside.
Corn: December corn will generate an intermediate term buy signal on October 14 after generating a short term buy signal on September 21.
December corn advanced 12.50 cents on volume of 299,683 contracts. Total open interest increased just 52 contracts. However, the December 2016 contract lost 9,433 of open interest, May 2017 -466, which means there were enough open interest increases in the forward months to offset the decline in these two delivery months. It is important to keep in mind that according to the COT report released last Friday that managed money was heavily short corn by ratio of 1.84:1, though this was down from the previous week of 2.03:1 and the ratio two weeks ago of 1.86:1.
The December contract made its harvest low of 3.14 3/4 on August 31 and as this report is being compiled on October 14 the December contract is trading 8.75 cents higher on the day and has made a new high for the move of 3.58 3/4, which is the highest print since 3.62 3/4 made on July 19, 2016. With the heavy short position held by managed money there is more than enough fuel to send corn higher and undoubtedly there are substantial numbers of speculators who are now showing losses and will be forced to cover if prices continue their upward trajectory. At this juncture we have no recommendation. The fundamentals for corn are unimpressive though exports have been terrific.
Chicago wheat: December Chicago wheat will generate a short term buy signal on October 14, but remains on an intermediate term sell signal.
December Chicago wheat rocketed higher by 19.25 cents on heavy volume of 151,998 contracts. Total open interest increased by 3,953, which relative to volume is average. The May contract accounted for a loss of 598 of open interest. Yesterday’s price and open interest action tells us that short-sellers are digging in and refusing to liquidate even though the December contract has rallied from its harvest low of 3.81 made on August 26 to the high on October 14 of 4.27 1/2, which is the highest print since 4. 29 1/4 made on August 22.
The COT report released last week showed that managed money was as heavily net short as they have been in many months. For example, last week’s short ratio came in at 3.21:1, which was up from the previous week of 2.85:1 in the ratio two weeks ago 2.81:1. In other words, there are approximately 3 1/4 contracts shorts for every one contract long. Wheat has a habit of having substantial moves and blowing out short-sellers before it resumes its downtrend. Do not attempt to short Chicago wheat.
Yesterday, the December dollar index lost 44.4 points on volume of 28,583 contracts. Total open interest declined by 463 contracts, which relative to volume is approximately 35% below average. Yesterday’s open interest decline along with prices is perfectly normal in a bull market.
Yesterday, the December contract made a new high for the move of 98.120, which is the highest print since 98.375 made on March 10, 2016. As this report is being compiled on October 14, the December contract is trading 37.7 points above yesterday’s close, but has not taken out yesterday’s print. The problem with the rising dollar index if it continues will be to dampen the enthusiasm for equities, although the equity market seems to be relatively firm considering that October tends to be highly volatile. We have no recommendation.
November natural gas skyrocketed by 13.1 cents on heavy volume of 696,527 contracts. Volume was the strongest since October 7 when the November contract gained 14.4 cents on volume of 772,162 contracts and total open interest increased by 7,120. On October 13, total open interest increased by a massive 27,255 contracts, which relative to volume is approximately 55% above average. The November contract lost a sizable 26,700 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in November and increase total open interest substantially above average.
Yesterday, November contract made a new contract high of 3.366, which slightly takes out the high of 3.352 made the week of January 12, 2015. The massive open interest increase at the contract high in yesterday’s trading in our view is a sign of danger. Typically near market tops, it is common to see volume expand and/or a substantial increase of open interest.
The massive increase of open interest indicates that Johnny-come-lately’s are entering the market because they fear they are missing the move. As this report is being compiled on October 14, the November contract is trading 6.3 cents lower on the day or -1.89%. As we mentioned in yesterday’s report there is a gap on the weekly chart between 3.351 and 3.444 which could be filled before the market heads south.