The COT report, which was tabulated on October 8 and just released by the CFTC was added to the October 13 Weekend Wrap.
November soybeans advanced 7.75 cents while January gained 2.75 on total volume of 249,358 contracts. Total open interest declined by 12,124 contracts, which relative to volume is approximately 85% above average, meaning that liquidation was heavy on the advance.The November contract accounted for loss of 23,952 of open interest. First notice day is tomorrow, which means that speculators will have to liquidate their outstanding positions on Thursday. As this report is being compiled on October 30, November beans are trading 8.50 higher while January has gained 6.00. Soybeans remain on a short-term sell signal, but an intermediate term buy signal. Stand aside.
December soybean meal lost $3.90 on volume of 68,973 contracts. Total open interest declined by 1,842 contracts, which relative to volume is average. As this report is being compiled on October 30, December soybean meal is trading 80 cents higher. Soybean meal remains on a short and intermediate term buy signal. Open interest has been acting positively relative to the price decline, and we are not ruling out a run at the previous high of 451.20. We like soybean meal and prefer it to soybeans. The COT report tabulated on October 8 showed that managed money was twice as long soybeans to soybean meal. We view this as positive, especially since on a year-to-date basis, soybean meal is vastly outperforming soybean meal. stand aside for now.
December corn advanced 1.25 cents on volume of 281,211 contracts. Total open interest increased by 12,503 contracts, which relative to volume is approximately 275% above average meaning that longs and shorts entered the market in aggressive numbers, but longs were only able to move the market fractionally higher. We have seen a massive build in open interest in corn, and in our view, this means there is going to be an explosive move one way or the other. As of the COT report tabulated on October 8, managed money was short corn by a ratio of 1.34:1, which is the highest ratio as of that date.
From October 8 through October 29 (which will be the latest COT tabulation date) December corn has declined 9.75 cents or 2.21%. From October 9 through October 29, total open interest has increased by 105,570 contracts. This is a massive increase of open interest considering that it only moved prices 9.75 cents lower. We have no doubt that during the open interest build speculators were increasing their short exposure and that commercial interests were on the buy side. We continue to recommend a stand aside posture, because we think it is highly likely a short-term rally is in the offing. Additionally, with managed money probably significantly more short as of October 29 than they were on October 8, fuel will be added for the rally. We have been warning clients that the upside risk is not worth the downside reward. We think the short side has been played out and that smart money should be liquidating short positions if they have not done so already. The November 8 report released by the USDA is going to be huge and will undoubtedly move the markets significantly one way or the other.
December Chicago wheat advanced 0.25 cents on volume of 86,950 contracts. Total open interest increased by only 107 contracts. The December contract accounted for loss of 4,980 of open interest. Kansas City wheat advanced 1.00 cent on volume of 17,799 contracts. Like Chicago wheat, KC wheat open interest declined lightly and by only 83 contracts, however the December contract lost 2,304 of open interest. There is continued buying in the March 2014 forward contracts, which is offset the decline in the December contract. As this report is being compiled on October 30, December Chicago wheat is trading 3.25 cents lower and has made a new low for the move at 6.75. KC wheat is trading unchanged and has not taken out yesterdays low of 7.49. Continue to stand aside.
December cotton lost 31 points on volume of 20,403 contracts. Total open interest declined by 785 contracts, which relative to volume is approximately 50% above average meaning that liquidation was fairly heavy. This is the first decline of open interest since October 24 when cotton lost 1.48 cents and open interest declined by 703 contracts on volume of 34,861 contracts. On October 29, cotton made a new low at 78.29 and as this report is being compiled on October 30, December cotton has made another new low at 77.68. The market has been in a steep downtrend and we expect a short-term technical rally at any moment. Cotton is now trading at levels last seen in January 2013. On the December and continuation charts, support does not appear until the 74.00 level. We definitely think the market will have a countertrend rally that could take December cotton up to the 81.00 level. On October 8, OIA announced that December cotton generated a short and intermediate term sell signal. The trade we recommended on October 18 to short cotton, has proven to be a major winner. Stay with it, however buy stops should be in place to protect profits.
Sugar #11: On October 29, March 2014 sugar generated a short-term sell signal.
March 2014 sugar lost 46 points on fairly light volume of 107,093 contracts. Total open interest declined by 9,769 contracts, which relative to volume is approximately 150% above average meaning that liquidation relative to volume was extremely heavy, however volume was light. This means there were large numbers of traders on the sidelines who were not reacting to the sharp move lower. In the October 27 Weekend Wrap, we wrote that sugar had made a top and was headed lower.
From the October 27 Weekend Wrap:
On October 18, March sugar topped out at 20.16 on extremely heavy volume of 399,832 contracts. This was the heaviest volume day of 2013. On that day, open interest increased by 5,887 contracts. On October 1, total open interest open interest in all contracts reached its low point of 787,891 contracts before it started to climb beginning on October 2. On October 2, March sugar closed at 18.51 and total open interest was 794,083 contracts. On October 22, total open interest increased to 830,021 contracts, or an increase of 35,938 contracts from October 2. On October 24, total open interest stood at 826,193 contracts and March sugar closed at 18.97. In short, as of October 24, open interest had increased 35,938 contracts from October 2, but since then, March sugar advanced only 46 points through October 24.
Unfortunately, we do not have the COT stats for the most recent week to determine the extent to which managed money is long, but we would bet it is a significant number. The massive increase in volume on October 18, accompanied by an increase of open interest as the market made a new high for the move, tells us that a top or temporary top is in, which means that selling by speculative longs who have small profits is likely in the period just ahead.
From a technical point of view, sugar has some definite positives. For example, the 50 day moving average crossed above the 200 day moving average on the continuation chart and the term structure of the market is in backwardation. Trends in sugar can last for extended periods of time, and we may be seeing the nascent signs of the longer-term bull market. However, the market is overbought from a price stand point and closed on Friday at 19.03, which is above the 50 day moving average on the March chart of 17.96 and 17.62 on the continuation chart. A correction to the 50 day moving average would put March sugar on a short-term sell signal. After this, sugar would likely trade in a consolidation pattern, after which it may resume its uptrend. Our recommendation is to liquidate any long positions.
December live cattle advanced 47 1/2 points on heavy volume of 64,149 contracts. Total open interest declined by 1,795 contracts, which relative to volume is average. The October contract lost 375 of open interest and December 3,216. In short, as the market moved higher, participants were liquidating. December cattle made a high of 1.34500, which is just shy of the October 25 high of 1.34575. As this report is being compiled on October 30, December cattle is trading 95 points lower and has made a low of 1.33050. Even though we are bullish cattle, we continue to think the market needs to pullback and that more liquidation needs to be seen before cattle can resume its uptrend. Stand aside.
December crude oil lost 48 cents on light volume of 361,410 contracts. Total open interest declined by 1,717 contracts, which relative to volume is approximately 75% below average. Interestingly, the December contract saw an open interest increase of 2,254 and January +1885, but there was enough liquidation to overcome the positive open interest increase of December and January. We have been expecting a rally, but the market is extremely weak. Rallies fade quickly and participants who are long at higher levels are most likely using bounces to trim losses, which is keeping a lid any price advance. On September 23, OIA announced that crude oil generated a short-term sell signal and on October 21, generated an intermediate term sell signal. Stay with the short call position recommended on September 29.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.1 million barrels from the previous week. At 383.9 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 1.7 million barrels last week and are near the upper half of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 3.1 million barrels last week and are near the lower limit of the average range for this time of year. Propane/propylene inventories fell 1.2 million barrels last week and are in the lower half of the average range. Total commercial petroleum inventories decreased by 5.8 million barrels last week.
December natural gas lost 3.2 cents on volume of 262,943 contracts. Open interest increased by 7,756 contracts, which relative to volume is approximately 20% above average. The November contract accounted for loss of 6,832 of open interest, which makes the total open interest increase much more impressive. For the past 3 days, open interest increases when prices decline and when prices advance, open interest declines. This is bearish. On October 23, OIA announced that December natural gas generated a short-term sell signal, and the market has traded lower ever since. As this report is being compiled on October 30, natural gas is trading unchanged on the day and has not taken out the low of October 29 of $3.610. Stand aside.
Platinum: On October 29, January platinum generated a short and intermediate term buy signal.
December gold lost $6.70 on volume of 143,093 contracts. Total open interest declined by 10,812 contracts, which relative to volume is approximately 210% above average meaning that liquidation was extremely heavy on the decline. Gold made a low of $1339.80 on October 29 and the low on October 30 has been 1334.50. Gold has not generated a short and/or intermediate term buy signal, but we think this is on the horizon, especially since platinum generated a short and intermediate term buy signal. The Federal Reserve released its announcement that quantitative easing will continue, and gold is trading $4.50 lower after making a high of 1359.60.
December silver lost 4.6 cents on light volume of 33,319 contracts. Total open interest increased by 257 contracts, which relative to volume is approximately 60% less than average. As this report is being compiled on October 30, silver is trading 11.3 cents higher after the release of the Federal Reserve announcement stating that quantitative easing will continue. Silver made a new high for the move on October 30 of $23.095, whereas gold did not make a new high for the move. Silver has not yet generated a short and intermediate term buy signal.
The December euro lost 58 points on heavy volume of 218,723 contracts. Total open interest declined only 215 contracts, which is minuscule and dramatically below average. As this report is being compiled on October 30 the December euro has made a low of 1.3697, and it is in a corrective mode. The release of the Federal Reserve announcement continuing quantitative easing is in fact boosting the dollar. This may indicate that we have seen a low in the dollar index and the highs in the euro, at least temporarily. The euro remains overbought and we advocate a stand aside posture.
The Australian dollar lost 97 points (almost one cent) on volume of 84,178 contracts. Volume was the highest since October 24 when 86,502 contracts were traded and the December Australian dollar closed 5 points lower while open interest increased by 1,171 contracts. On October 29, open interest increased by 707 contracts, which relative to volume is approximately 65% less than average, but this continues a pattern of open interest increases on price declines and on price advances, open interest declines. This is bearish open interest action relative to the price pattern. As this report is being compiled on October 30, the Australian dollar has made a new low for the move at 94.12. Continue to stand aside.
S&P 500 E mini:
The December S&P 500 E mini advanced 8.50 points on light volume of 1,196,510 contracts. Open interest increased by 9,800 contracts, which relative to volume is approximately 60% below average. As this report is being compiled on October 30, after the release of the Federal Reserve announcement continuing quantitative easing, the E mini is trading 13.75 points lower. We continue to advocate long put protection, especially for those clients who hold long equity positions.