January soybeans lost 15.00 and March -17.50 cents on light holiday volume of 129,903 contracts. Total open interest declined by a massive 20,242 contracts, which relative to volume is approximately 410% above average, meaning that there was massive liquidation on the price decline. The January contract accounted for loss of 17,217 of open interest. In yesterday’s report, we said that a short-term sell signal would likely be generated if March soybeans closed below 13.11 1/8 and 13.00 5/8. In fact, March soybeans closed at 13.0 5 1/4, and we think it is only a matter of a day or 2 before it closes under 13.00 5/8. For those clients who wrote out of the money calls on our recommendation of December 22, continue to hold these positions.
The USDA reported that 720.2 thousand metric tons (tmt) were sold in the most recent reporting period bringing total commitments season to date of 1.461 billion bushels (bb), which is only slightly below the USDA projection for the season of 1.475 bb. The pace of exports as of this date is the best since 2007-2008. As good as exports have been, the fact remains a very large Brazilian crop is going to be harvested shortly, and there is some trepidation that previous buyers of US soybeans could offer these for resale at a future date.
January soybean meal lost $6.40 while March -7.60 on total volume of 51,679 contracts. Total open interest declined by 2,666 contracts, which relative to volume is approximately 100% above average meaning that liquidation was extremely heavy on the decline. The January contract accounted for loss of 4,772 of open interest. Soybean meal remains on a short and intermediate term buy signal.
The USDA reported that weekly sales totaled 83.35 tmt, which nearly matches the sales required weekly of 85.21 to meet the USDA projection for the season of 9526 tmt. Thus far in the season, a total of 6032.1 tmt has been committed. Meal sales are the best since the 2008-2009 season.
March corn lost 8.25 cents on volume of 103,873 contracts. Total open interest increased by 4,818 contracts, which relative to volume is approximately 75% above average meaning that new shorts were entering the market and driving prices lower. March corn remains on a short and intermediate term sell signal. Stand aside.
USDA reported that 1478.5 tmt were sold, which was the highest sale in 6 weeks. Total commitments season to date is 1.125 bb versus USDA estimates for the season of 1.450 bb. Export sales are the best season to date since 2007-2008.
March Chicago wheat lost 0.25 cents on volume of 29,212 contracts. Total open interest increased by a massive 2,746 contracts, which relative to volume is approximately 275% above average. March wheat made a new low for the move at 6.00 3/4. Chicago wheat remains on a short and intermediate term sell signal. Stand aside.
The USDA reported that all wheat sales totaled 596.9 tmt bringing commitments to date for the season of 890.3 million bushels (mb), versus USDA projections for the season of 1.100 bb.
February live cattle advanced 42.5 points on total volume of 16,102 contracts. Total open interest declined by 720 contracts, which relative to volume is approximately 75% above average meaning that liquidation was fairly heavy on the advance. The December contract lost 713 of open interest and February -1322. In yesterday’s report, we stated that cattle was on the verge of generating a short-term buy signal and this would reverse the short-term sell signal generated on December 10. As this report is being compiled on December 27, February cattle is trading 1.050 higher and has made a new high for the move at 1.35250. This is the highest price since October 17 when February cattle reached 1.35400. A move above the January 28, 2013 high of 1.35800 would be considered a major breakout.
It appears that after many months of backing and filling, the cattle market is at the beginning of the major move to the upside. Some more conservative ways of playing the move is to initiate a bull call spread, or a bull put spread. Also, clients can write out of the money puts. For futures traders, we would use the December 20 low of 1.33400 as an exit point for long positions. We tend to think the move higher will be a slow grind because the prices are at the upper end of the trading range and as these prices are passed to the consumer, there will likely be buyer resistance, which will hurt demand.
February lean hogs lost 57.5 points on very light volume of 16,123 contracts. Total open interest increased by a massive 1,659 contracts, which relative to volume is approximately 300% above average, meaning that massive numbers of new short sellers were entering the market and driving hog prices to new lows (85.225). The February contract lost 503 of open interest, which makes the total open interest increase much more impressive (bearish). Stay with bearish positions.
WTI crude oil:
WTI crude oil advanced 33 cents on light volume of 128,074 contracts. Total open interest increased by 7,412 contracts, which relative to volume is approximately 120% above average. The February contract lost only 3 of open interest, and there were open interest increases from March 2014 through October 2014 contracts. In other words, the increase in prices was accompanied by open interest increases across several contract months. This is an impressive performance, and yesterday open interest increased 5,178 contracts, which again was considerably above average. Until the past two days, we have been unimpressed with WTI’s performance even though it remains on a short and intermediate term buy signal. Although the latest report from the Energy Information Administration showed oil inventories declining by 4.7 million barrels from the previous week, stocks remain at the upper end of the range for this time of year. Our concern about WTI and Brent is that in a general market meltdown involving equities and commodities, crude oil would take a major spill. We would continue to stand aside.
The Energy Information Administration announced that commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.7 million barrels from the previous week. At 367.6 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.6 million barrels last week, and are in the upper half of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 1.9 million barrels last week and are below the lower limit of the average range for this time of year. Propane/propylene inventories fell 2.5 million barrels last week and are well below the lower limit of the average range. Total commercial petroleum inventories decreased by 12.7 million barrels last week.
Brent crude oil:
February Brent crude oil advanced 8 cents on volume of 128,533 contracts. Total open interest declined by 1,852 contracts, which relative to volume is approximately 40% below average. The February contract accounted for loss of 3,472 of open interest. As we have been saying for the past several days, the open interest action relative to the price advance has been very bearish, and reinforces our view that clients should stand aside.
February natural gas closed unchanged on light volume of 158,665 contracts. Though volume was light, the open interest decline of 9,040 contracts was heavy and relative to volume was 130% above average, meaning that massive liquidation by longs and shorts was occurring even though prices were unchanged. The January contract accounted for loss of 14,114 of open interest. Beginning on December 23 through December 27, natural gas has made lower highs and lower lows, and liquidation of the massive long position held by managed money is underway. Today’s report released by the Energy Information Administration may feed a bearish narrative about natural gas. The decline of 177 bcf obviously was discounted by the market and today, the market has been unable to exceed yesterdays high of 4.518. In the past, we commented on the likelihood of the market discounting additional cold-weather and further draws in stocks. On the other hand, open interest declines along with price is actually quite positive, and it does not indicate the end of the move. Natural gas remains on a short and intermediate term buy signal. Do not initiate long or short positions. Stand aside.
Working gas in storage was 3,071 Bcf as of Friday, December 20, 2013, according to EIA estimates. This represents a net decline of 177 Bcf from the previous week. Stocks were 591 Bcf less than last year at this time and 313 Bcf below the 5-year average of 3,384 Bcf. In the East Region, stocks were 242 Bcf below the 5-year average following net withdrawals of 115 Bcf. Stocks in the Producing Region were 37 Bcf below the 5-year average of 1,111 Bcf after a net withdrawal of 41 Bcf. Stocks in the West Region were 33 Bcf below the 5-year average after a net drawdown of 21 Bcf. At 3,071 Bcf, total working gas is within the 5-year historical range.
The March euro advanced 12 pips on volume of 26,157 contracts. Total open interest declined by 695 contracts, which relative to volume is average. As this report is being compiled on December 27, the March euro is trading 60 pips higher and has made a new high for the move at 1.3893. This is the highest price on the euro continuation chart since November 3, 2011. Looking at the 15 minute chart, the move to 1.3893 looks like a classic case of stop running because of the heavy volume on the 15 minute advance of 18,768 contracts in the March contract, and the subsequent collapse. Volume in this period represents nearly 11.5% of total volume traded thus far in the session, which began at 5:00 PM CST on December 26. As this report is being compiled on December 27, the euro is trading 49 pips higher at 1.3740, which is 153 pips or 1.53 cents below the high. In our view, it is likely that today’s high is likely to stand for quite some time.
The March British pound advanced 47 pips on volume of 20,920 contracts. Total open interest increased by a massive 4,187 contracts, which relative to volume is approximately 600% above average, meaning that massive numbers of new longs were initiating positions and driving prices higher. As this report is being compiled on December 27, the March pound is trading 46 pips higher and has made a new high for the move at 1.6570, which is the highest price on the British pound continuation chart since August 2011. On the 15 minute chart, volume traded on the high was 6,170 contracts, or approximately 8.75% of total volume as of this writing. In yesterday’s report, we said GBP/EUR would generate a short-term buy signal on December 26, but this was not the case. The cross will not generate a short-term buy signal on December 27.
S&P 500 E mini:
The March S&P 500 E mini gained 7.50 points on volume of 439,323 contracts. Total open interest increased by 13,634 contracts, which relative to volume is approximately 20% above average. As this report is being compiled on December 27, the E mini has made a new high for the move at 1840.00. We strongly suggest long put protection for those clients who hold long equity positions.