The daily reports will be truncated due to the closure of the government and the lack of data from governmental sources.
November soybeans advanced 6.75 cents on volume of 178,832 contracts. Total open interest declined by 1,949 contracts, which relative to volume is approximately 50% less than average. The November contract lost 8,873 of open interest. During the past 3 days beginning on October 2, soybeans have advanced 27.00 cents while total open interest has declined 1,205 contracts. This is bearish open interest action relative to the price advance, and in our view confirms the downtrend in soybeans. As this report is being compiled on October 7, November soybeans made a high of $13.05 and is currently trading at $12.96 up 1 cent on the day. On September 30, November soybeans generated a short-term sell signal, but has not yet generated in intermediate term sell signal.
December soybean meal advanced $3.10 on light volume of 54,393 contracts. Total open interest increased by 2,845 contracts, which relative to volume is approximately 100% above average. The October contract lost 724 of open interest, which makes the total open interest increase much more impressive. Soybean meal open interest action is extremely positive relative to price, which in contrast to the poor open interest action of soybeans. Soybean meal remains on a short and intermediate term buy signal.
December corn advanced 4.00 cents on volume of 122,264 contracts. Total open interest increased by 504 contracts, which relative to volume is approximately 75% below average. The December contract lost 3,213 of open interest, which makes the relatively small increase of open interest much more impressive. For the past 2 days, we’ve seen open interest increase on price advances. On October 3, corn advanced 0.25 cents and total open interest increased 7,926 contracts on volume of 148,475 contracts. As this report is being compiled on October 7, December corn is trading 3.00 cents higher and has made a new high for the move at $4.48 1/2. We have been cautioning clients about being short the market, especially in the absence of any bearish news from the USDA. Corn remains on a short and intermediate term sell signal.
December Chicago wheat declined 2.25 cents and December Kansas City wheat lost 5.25. Total volume in Chicago wheat was 89,473 contracts and open interest declined by 353 contracts, which is minuscule and dramatically below average. Kansas City wheat volume totaled 22,009 contracts and open interest declined 168 contracts, which relative to volume is approximately 55% less than average. As this report is being compiled on October 7, December Chicago wheat is trading 6.50 cents higher, but has not taken out the high of $6.98 made on October 3. KC wheat is trading 6.00 cents higher and has not taken out the October 3 high of $7.63 3/4. The market has been trading in an extremely firm manner, and because we do not have recent COT data, we have no idea the extent to which managed money remains short in Chicago wheat. Both Chicago and KC wheat remain on short and intermediate term buy signals.
December cotton lost 26 points on volume of 12,988 contracts. Total open interest increased by a massive 2,577 contracts, which relative to volume is approximately 610% above average, which means that new longs and shorts continued to enter the market at extremely high rates, and the shorts had an edge on October 4. As the October 3 report clearly shows, we have been skeptical about the move in cotton and warned about this on October 2. From September 30 through October 4, open interest has increased 16,772 contracts, but cotton prices have advanced only 55 points or approximately one half cent. As this report is being compiled on October 7, December cotton is trading 3.09 cents lower and has made a new low for the move at 83.60 on heavy volume. We have warned clients to stay away from the long side of cotton despite it being on a short and intermediate term buy signal. We were able to make this call because the massive increase of open interest was not moving prices to the 88.00 cent level. The high on October 4 was 87.68, which is 10 points shy of the high made on October 3 of 87.78, the high for the move since September 30. Within a couple of days, the 50 day moving average on the December and continuation charts will cross below the 150 day moving average, which is confirmation of the underlying bearish trend. As we have said before, on a seasonal basis, cotton tends to top out at the end of September and early October and decline into November.
From the October 3 report:
“Yesterday, we alerted clients there has been a massive increase of open interest during the prior 3 sessions, yet the market had advanced only a total of 24 points. Beginning on September 30 through October 3, open interest has increased 14,195 contracts, but cotton prices have advanced only 81 points, or 19 points short of one cent. This tells us it is likely that heavy commercial selling has been taking place against speculative buying. Another important factor is that cotton has been making fractional new highs since September 30 while open interest has been increasing massively. For example the daily highs beginning on September 30 through October 3 are respectively: 87.50, 87.38, 87.21, 87.78. On October 4, cotton has not taken out the high of October 3 of 87.78. This shows that new buying is not propelling cotton to new highs.”
From the October 6 Weekend Wrap:
“Unfortunately, we are unable to determine to what degree managed money expanded their long positions due to the closure of the government and therefore there is no COT report to guide us. However, there has been a very important development with respect to spread action in the near versus deferred months. For example, the December 2013-March 2014 spread closed on Friday at 5 points premium to December. This is the lowest close for the spread since June 11 when the spread closed at 5 point premium to March. On August 19, the December 2013- March 2014 spread topped out at 3.28 cents premium December. On August 19 December cotton closed at 93.32. In short, the inversion continues to narrow, and it is only a matter of time before December sells at a discount to March. In our view, the impending change in trend of the spread is bearish for cotton prices. In our experience, spreads often foretell the direction of the market.”
December live cattle advanced 65 points on volume of 38,641 contracts. Total open interest declined by 4,359 contracts, which relative to volume is approximately 240% above average, meaning that liquidation was extremely heavy on the price advance. The October contract, which is past 1st notice day lost 8,937 of open interest. However, the December 2013-December 2014 contracts saw increases of open interest. Cattle made a new high for the move at 1.32550, and as this report is being compiled on October 7, December cattle is trading 2 points lower, but has made a fractional new high at 1.32600. In the absence of information flow from the USDA, the path of least resistance is higher and cattle remains on a short and intermediate term buy signal. For those clients who are long at lower levels or have recently initiated long positions, we recommend that new positions be liquidated at 1.31400, which is the low going back to September 30. From a money management point of view, those who hold long positions from lower levels should consider partial liquidation of positions at the aforementioned price.
November crude oil advanced 53 cents on very light volume of 365,043 contracts. Total open interest increased by 5,923 contracts, which relative to volume is approximately 35% less than average, meaning that commitments were being made at less than average levels and low volume indicates a lack of participation. However, the November contract lost 7,646 of open interest, which makes the total open interest increase more impressive. As this report is being compiled on October 7, November crude oil is trading 73 cents lower and has made a low for the day at $101.86, which is 81 cents above the low of the move of 101.05 made on September 30. Although the two are completely unrelated, we discern that the S&P 500 E mini and crude oil are trading in a similar pattern. Although their bias is to the downside, we never see a major break in price, at least up to this point.
November natural gas advanced 7 ticks on light volume of 185,865 contracts. Total open interest increased by 2,334 contracts, which relative to volume is approximately 45% less than average. The November contract lost 6,820 of open interest, which makes the total open interest increase somewhat more impressive. As this report is being compiled on October 7, November natural gas is trading 13.2 cents higher and has made a new high for the move at $3.660. There was a tropical storm, but production will be coming on stream rapidly and no damage of any import has occurred. Natural gas remains on a short and intermediate term sell signal, and this will not change on October 7. It will be interesting to see what happens with open interest on October 7.
The December euro lost 66 points on volume of 153,212 contracts. Total open interest declined by 874 contracts, which relative to volume is approximately 75% below average. This is a very small decline considering the euro pulled back 1.07 cents from the high of 1.3649 made on October 3 to the low of 1.3541 made on October 4. As this report is being compiled on October 7, the euro is trading 22 points higher and has made a daily high of 1.3594. The euro remains on a short and intermediate term buy signal. The open interest action on October 4 considering the magnitude of the decline on low volume was very positive.
The Australian dollar advanced 30 points on low volume of 65,633 contracts. Total open interest declined by a massive 5,223 contracts, which relative to volume is approximately 230% above average.Unfortunately, we do not have COT stats to verify the extent that managed money has liquidated their short positions if this is the case. The Australian dollar made its high of 94.71 on September 19, and has been unable to successfully test that high. The Australian dollar remains on a short and intermediate term buy signal.
S&P 500 E mini:
The December S&P 500 E mini advanced 15.00 points on light volume of 1,519,276 contracts. Total open interest declined by 24,469 contracts, which relative to volume is approximately 35% less than average. However, open interest declined on the largest advance since October 1 when the E mini gained 15.25 points on volume of 1,768,049 contracts and open interest increased by 6,205 contracts. For the past 3 sessions, open interest has been acting very bearishly relative to price declines on October 2 and 3 and the price advance on October 4. It is prudent for investors who hold long equity positions to have long put protection in the event of an accident due to the insanity that is going on in the Congress. What makes this more hazardous than usual is that volumes have declined precipitously, which will tend to exaggerate moves in either direction.