November soybeans lost 2 cents on volume of 223,005 contracts. Total open interest declined by 3,213 contracts, which relative to volume is approximately 40% below average. The November contract accounted for loss of 14,707 of open interest. As this report is being compiled on October 21, November beans are trading 7.25 cents higher, and has taken out the high of 13.01 1/2 made on October 18. The market looks steady, and we don’t see any large downside moves at this juncture. As we said in the Weekend Wrap of October 20, it wouldn’t take much for soybeans to generate a short-term buy signal, which would reverse the short-term sell signal generated on September 30. Please review the October 20 Weekend Wrap in which we discussed the favorable action of the November-January soybean bull spread. Do not short soybeans at this juncture.
December soybean meal lost $2.90 on volume of 62,552 contracts. Total open interest increased by 1,695 contracts, which relative to volume is average. As this report is being compiled on October 21, December soybean meal is trading $3.00 higher, and has taken out the high of $415.60 made on October 18. If soybean meal can rally to the $418.00 level, it is likely that a short-term buy signal would be generated. Please see the October 20 Weekend Wrap about the very favorable action in near-term soybean meal spreads. Do not short soybean meal at this juncture.
December soybean oil advanced 56 points on volume of 86,374 contracts. Total open interest increased by a massive 8,311 contracts, which relative to volume is approximately 275% above average meaning that new longs were entering the market at an extremely aggressive rate and driving prices higher. As this report is being compiled on October 21, December soybean oil is trading 8 points higher, and has made a new high for the move and 42.09. We advise against shorting soybean oil, and it will not generate a short or intermediate term buy signal on October 21. We look for a rally to the 50 day moving average of 42.50. Please see the commentary in the October 20 Weekend Wrap.
December corn lost 1.50 cents on volume of 176,270 contracts. Total open interest increased by a massive 12,176 contracts, which relative to volume is approximately 170% above average meaning that new longs and shorts were aggressively entering the market, but shorts could drive prices only fractionally lower. Interestingly, though there was relatively low volume and a narrow range, the open interest increase was the largest since October 1 when December corn lost 2.50 cents on volume of 247,092 contracts and open interest increased 12,311 contracts. Although it is certainly possible for corn to take out its previous low of $4.32 made on October 14, we think the short side has been played out, and there is a risk of a short-term rally due to the likelihood of a massive short position of managed money. Harvest pressures will likely keep any rally in check however. We advise a stand aside posture.
December Chicago wheat advanced 19.75 cents on heavier than normal volume of 105,874 contracts. Volume was the highest since September 30 when December Chicago wheat lost 4.50 cents on volume of 108,829 contracts while open interest declined by 552 contracts. On October 18, open interest increased by a massive 8,190 contracts, which relative to volume is approximately 210% above average meaning that new longs were aggressively entering the market and driving prices significantly higher. December Kansas City wheat advanced 19.75 cents on volume of 25,873 contracts. Volume was the highest since October 16 when 28,128 contracts were traded and open interest declined by 574 contracts while December KC wheat lost 11.50 cents. On October 18, open interest increased by a massive 3,776 contracts, which relative to volume is approximately 400% above average.
Although the open interest action in both Chicago and KC wheat was extremely positive, volumes were disappointing. This tells us that there is a significant segment of market participants who are on the sidelines. On the other hand, those that are participating in the market had very strong beliefs about the direction of wheat prices. As this report is being compiled on October 21, December Chicago wheat is trading 4.75 cents lower after making a new high for the move the $7.11 1/4 and has made a daily low of 6.94. December KC wheat is trading 4.75 cents lower on October 21 and made a new high for the move at $7.74 and a daily low of $7.54 1/2. Setbacks should be used as opportunities to initiate bullish positions. The lows of $6.78 1/4 in Chicago wheat and 7.42 1/4 in KC wheat made on October 16 can be used as exit points for long futures positions. The market may consolidate its gains before moving another leg higher. It is likely that reports coming out of the USDA will be the catalyst for the next upside move.
One final comment about wheat…The open interest increases on October 18 in Chicago and KC wheat were extremely large and when a massive open interest increase is accompanied by a market making a new high, more times than not, often it is indicative of a top or temporary top. In the case of Kansas City wheat open interest on October 18 was the highest since September 30 when there was a 4,341 contract increase and December Kansas City wheat advanced 7.75 cents. The open interest increase in Chicago wheat on October 18 was the highest since it generated a short-term buy signal on September 25.
December cotton lost 71 points on heavier than normal volume of 18,441 contracts. Volume was the highest since October 9 when 22,831 contracts were traded and cotton lost 49 points while open interest declined 1,622 contracts. On October 18, total open interest declined by 1,093 contracts, which relative to volume is approximately 140% above average meaning that liquidation was extremely heavy on the decline. As this report is being compiled on October 21, December cotton is trading 4 points lower and has made a daily low of 82.80. For futures traders who are inclined to initiate short positions at current levels, we recommend using the October 18 high of 84.40 to exit these positions. Keep in mind, the USDA will be releasing reports, which could cause the market to rally at any time, or decline further. Cotton remains on a short and intermediate term sell signal.
December live cattle advanced 25 points on volume of 38,239 contracts. Total open interest increased by 2,517 contracts, which relative to volume is approximately 160% above average meaning that new longs and shorts were aggressively entering the market but longs could move prices only fractionally higher. We continue to believe that cattle prices are in a corrective mode, and that clients should wait for correction down to the 50 day moving average 1.30627 before considering long positions.
WTI Crude oil:
December crude oil advanced 24 cents on light volume of 510,007 contracts. Total open interest increased by 1,025 contracts, which is minuscule and dramatically below average. The November contract lost 17,721 of open interest, but from December 2013 through July 2015, open interest increased in every single delivery month. This offset the decline in the November contract, which is about to expire in a couple of days. As this report is being compiled on October 21, December crude oil is trading $1.48 lower and has made a new low for the move at 99.41. Prices are now trading at levels last seen in early July. On September 23, OIA announced that crude oil had generated a short-term sell signal. It is highly likely that an intermediate term sell signal will be generated on October 21. On September 30, we recommended that clients short out of the money calls. This trade continues to work well and clients should stay with the position.
November natural gas advanced 7 ticks, which is essentially unchanged on volume of 295,209 contracts. Total open interest increased by 10,219 contracts, which relative to volume is approximately 40% above average meaning that both longs and shorts had a real battle going on, but neither was able to move the market much one way or the other. The November contract lost 7,627 of open interest. Natural gas was trading on the downside for good portion of the session on October 18 and made a low of $3.685, then rallied into the close. As a result of the two-sided action, the hefty open interest increase doesn’t tell us much other than there was a major battle between longs and shorts.
On October 21, November natural gas is trading 5.3 cents lower and has made a daily low of $3.655, which takes out Friday’s low of $3.685. During the evening session of October 20, natural gas gapped higher and made a high of $3.838, but was unable to hold the gains and has drifted lower throughout the rest of the evening session and through the day session of October 21. We consider this to be negative action, especially in the context of the high of $3.869 made on October 16, which was fractionally above the high of 3.855 made on October 14 and 15. Taken together, the recent highs have been unable to take out the September 19 high of 3.892. In short it appears that natural gas may have made a double top. Even though natural gas remains on a short-term buy signal, we advise against long positions at this juncture. Stand aside. Natural gas remains on an intermediate term sell signal.
The December euro gained 2 points on light volume of 131,721 contracts. Total open interest declined by 719 contracts, which relative to volume is approximately 75% below average. The euro remains on a short and intermediate term buy signal. We recommend against initiating long positions at current prices. Stand aside.
The December Australian dollar advanced 32 points on volume of 62,187 contracts. Total open interest declined by 1,261 contracts, which relative to volume is approximately 20% below average. During the past 3 days, the December Australian dollar has advanced 1.62 cents, but open interest has declined 1,092 contracts. It is obvious that market participants are skeptical of the Australian dollar rally and are liquidating positions as the market moves higher. The Australian dollar remains on a short and intermediate term buy signal. We recommend a stand aside posture.
S&P 500 E mini:
The December S&P 500 E mini advanced 8.75 points on light volume of 1,543,428 contracts. Total open interest increased by 1,295 contracts, which is minuscule and dramatically below average. Since the rally began on October 10 through October 18, the E mini has advanced 87.75 points, but open interest has increased only 2,832 contracts. Anyway you look at this, the open interest action versus the massive upside move is bearish. Additionally, average daily volume from October 10 through October 18 (7 days) has been 1,752,142 contracts.This compares to year to date volume of 1,864,386 contracts and average daily volume for September 2013 of 1,981,613 contracts.The dismal volume during the seven-day rally indicates that market participants are decreasing rather than increasing their exposure. If the market is to go higher, market participation should be increasing. We continue to recommend long puts, especially for those clients holding long equity positions.