November soybeans advanced 12 cents on volume of 191,559 contracts. Volume declined from 223,005 contracts traded on October 18 when November beans lost 2 cents and open interest declined by 3,213 contracts. Additionally, volume on the 21st was significantly below that of October 17 when 259,028 contracts were traded and November beans advanced 16.75 cents while open interest increased 950 contracts. On October 21, open interest increased by 3,891 contracts, which relative to volume is approximately 20% below average. The November contract lost 8,133 of open interest, which makes the total open interest increase more impressive (bullish).
The fact that volume shrank from the previous 2 days and open interest was below average as prices advanced to their highest level since October 8, reveals the lack of enthusiasm on the part of market participants for soybeans at this juncture. Soybeans are in the midst of harvest and 63% of the crop is in the bin versus 69%, the 5 year average for this time of year. As this report is being compiled on October 22, November beans are trading 3.50 cents lower and have taken out yesterday’s high of $13.04. We see harvest pressures keeping prices in check, but USDA reports will likely show a very robust export picture. The 5 day moving average for November soybeans is 12.93 and the 20 day MA is 12.90. Seasonally, soybeans begin to strengthen toward the end of October-early November. Soybeans remain on a short-term sell signal, but an intermediate term buy signal. Do not short soybeans.
December soybean meal advanced $5.60 on very light volume of 49,210 contracts. Total open interest increased by 1,191 contracts, which relative to volume is average. The December contract lost 1,135 of open interest, which makes the total open interest increase more impressive. Open interest increased in every delivery month from January 2013 through December 2014. Soybean meal is on the cusp of generating a short-term buy signal, which would reverse the short-term sell signal generated on October 10. The 5 day moving average for December soybean meal is $411.40, 20 day MA 411.60 and the 50 day moving average is 415.30. For December soybean meal to generate a short-term buy signal, the low of the day must be above 415.80. For aggressive traders, we suggest they purchase call options in the January or March contract. Do not short soybean meal.
December corn advanced 2.50 cents on volume of 178,093 contracts. Total open interest increased by a massive 15,043 contracts, which relative to volume is approximately 225% above average, meaning that new longs and shorts were aggressively initiating new positions, but longs had a slight edge by moving prices fractionally higher. As this report is being compiled on October 22, December corn is trading 5 cents lower. As of the latest USDA report, corn harvest is 39% complete versus the 5 year average of 53%. Corn remains on a short and intermediate term sell signal.
December Chicago wheat lost 6 cents on volume of 90,478 contracts. Total open interest increased by 60 contracts. December Chicago wheat made a low of $6.94, and as this report is being compiled on October 22, the daily low has been 6.96. Kansas City wheat lost 7.50 cents on volume of 16,632 contracts. Total open interest declined by a massive 13.02 contracts, which relative to volume is approximately 210% above average meaning that liquidation was extremely heavy on the decline. We have been waiting to see open interest declined and would like to see more of it in the Kansas City contract. On October 22, as this report is being compiled, Kansas City wheat has made a low of $7.56 1/4, which is slightly above the low made on October 21 of 7.54 1/2. The reason given for the decline yesterday was the admission by the government of Argentina that their projection of a crop of 8.8 million metric tons was perhaps a bit aggressive.
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.
December cotton lost 5 points on volume of 14,684 contracts. Total open interest declined by 978 contracts, which relative to volume is approximately 160% above average meaning that liquidation was extremely heavy on a modest decline. As this report is being compiled on October 22, cotton is trading 46 points lower and has made a daily low of 82.60, but we expect this to be broken and take out 82.57 made on October 17, the low for the move thus far. As we stated in yesterday’s report, clients who are inclined to initiate short positions should use the exit point of 84.40, which was the high made on October 18.We think cotton prices are going significantly lower and total open interest indicates there is much more liquidation ahead. Our next target is 82.00 and then 80.00 on the continuation chart. Cotton remains on a short and intermediate term sell signal.
December live cattle lost 12 1/2 points on extremely light volume of 18,148 contracts. Total open interest declined by 449 contracts, which relative to volume is average. As this report is being compiled on October 22, December cattle is trading 87 points higher on light volume. We continue to advise a stand aside posture until such time that December cattle corrects to its 50 day moving average of 1 30630. Cattle remains on a short and intermediate term buy signal.
Crude oil: On October 21, December crude oil generated an intermediate term sell signal, which confirms the short term sell signal generated on September 23
December crude oil lost $1.43 on heavier than normal volume of 665,434 contracts. Volume was approximately 200,000 contracts less than the 873,513 contracts traded on October 17 when December crude oil lost $1.62 and open interest declined by 15,532 contracts. On October 21, total open interest declined by 17,591 contracts, which relative to volume is average. The November contract accounted for loss of 40,218 of open interest.
It is notable that during crude oil declines, total open interest has not an increased, which indicates to us that market participants have not gotten bearish enough to spark a countertrend rally. As this report is being compiled on October 22, December crude oil is trading $1.32 lower on heavy volume. Our short-term target for December crude is the 200 day moving average of 97.43. On September 23, we announced that WTI crude oil generated a short-term sell signal, and the intermediate term sell signal generated on October 21 confirms the downtrend. On September 30, we recommended that clients write out of the money calls and the trade continues to work well. Stay with this position.
November natural gas lost 9.6 cents on volume of 273,713 contracts. Total open interest increased by 3,674 contracts, which relative to volume is approximately 40% below average. However, the November contract lost 14,419 of open interest, which makes the total open interest increased more impressive (bearish). Despite being on a short-term buy signal and an intermediate term sell signal, we been skeptical of the rally and in yesterday’s report shared our reservations about the long side of natural gas. As this report is being compiled on October 22, November natural gas is trading 8.2 cents lower and has made a new low for the move at $3.582. It is apparent that the short-term buy signal generated on October 10 was false. However, OIA had clients on the sidelines pending further confirmation of the strength of the buy signal. It is likely that natural gas will generate a short-term sell signal on October 22.
Silver: We are commencing coverage on silver because it is on the verge of generating a short and intermediate term buy signal for the first time in several months.
December silver advanced 36.5 cents on light volume of 34,860 contracts. Total open interest increased by 2,655 contracts, which relative to volume is approximately 210% above average meaning that new longs were extremely aggressive in initiating new long positions and pushed prices higher. As this report is being compiled on October 22, December silver is trading 48.7 cents higher and has made a new high for the move at 22.83. Is important to note that December silver’s 50 day moving average is about to cross above the 150 day moving average, which shows that demand is finally entering the silver market.
Additionally, December silver is likely to close above its 50 and 150 day moving averages for the first time since January 2013. The major issue we have with the action of silver on October 22 is that the dollar sharply lower, which usually provides the precious metals with support. The real test is what happens when the dollar is sharply higher. In other words, higher prices for silver and gold on October 22 do not necessarily reflect the real strength of the market. Additionally, volumes in both gold and silver are rather tame, which means many market participants are on the sidelines. From a seasonal point of view, we are entering a period of strength for gold and silver, and very often silver leads the complex. To put the strength of silver versus gold in perspective consider the following: From June 28 when silver made its low at $18.17 and gold 1179.00 through October 21 December silver has advanced 13.81% while gold has performed half as well at 6.62%, platinum +6.81%. This explains why silver is about to generate a short-term buy signal and gold and platinum have more work to do. It will be important to see how open interest performs on October 22 and as we said before how silver reacts to a sharply higher dollar.
The December euro lost 10 points on very low volume of 101,257 contracts.Total open interest increased by 1,863 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on October 22, the December euro is trading 1.11 cents higher and has made a new high for the move at 1.3795. We have advised a stand aside posture because the euro is massively overbought and a normal correction would create unnecessary losses, if only temporarily. Additionally, we have no idea the extent to which manage money is long the euro because we do not have the stats from the COT report.
The December Australian dollar lost 9 points on volume of 56,325 contracts. Total open interest increased by 1,179 contracts, which relative to volume is approximately 20% below average. We continue to see a pattern of open interest relative to price acting a negative fashion despite the ever upward march of prices. Again, the lack of the COT report, which shows the makeup of players in the market hampers our ability to judge the degree to which the market can move higher. Regardless, the Australian dollar like the euro is massively overbought.
S&P 500 E mini:
The S&P 500 E mini advanced 1.75 points on very low volume of 1,142,529 contracts. Total open interest increased by 13,692 contracts, which relative to volume is approximately 50% less than average. The open interest increase on October 21 was the largest since October 17 when it increased by 17,016 contracts and the E mini advanced by 14.50 points. As this report is being compiled on October 22, the E mini is trading 8.50 points higher and has made a new high for the move at 1754.50.We think the higher the market goes, the more dangerous it becomes. If clients who hold long equity positions they should protect them with long puts.