Daily reports will be truncated until such time the government resumes operations.
November soybeans lost 7.75 cents on heavy volume of 282,623 contracts. Remarkably, volume was higher than September 30 when 261,897 contracts were traded and November beans lost 37 cents while open interest declined 3,277 contracts. Additionally, volume was the highest since September 12 when 320,575 contracts were traded and November soybeans advanced 37.75 cents while open interest increased by 10,866 contracts. On October 8, total open interest increased by 7,132 contracts, which relative to volume is average. The November contract accounted for loss of 10,566 of open interest, which makes the total open interest increase much more impressive (bearish). In the absence of USDA reports, we think the path of least resistance for soybeans is lower. On October 7, November soybeans made a high of $13.05 and on October 8, a high of 13.05 3/4. For short futures positions, exit the trade slightly above 13.05. November soybeans remain on a short-term sell signal, but an intermediate term buy signal.
December soybean meal lost $5.80 on heavy volume of 96,947 contracts. Volume on October 8 surpassed that of September 30 when 94,066 contracts were traded and December soybean meal lost $12.90 while open interest declined 4,670 contracts. Volume was below that of September 12 when 125,136 contracts were traded and open interest increased by 4,966 contracts. On October 8, total open interest declined by a massive 5,323 contracts, which relative to volume is approximately 120% above average, meaning that liquidation was extremely heavy on the decline. The October contract, which is about to expire accounted for loss of 969 of open interest. The open interest action relative to price advances and declines has been bullish and soybean meal remains on a short and intermediate term buy signal. Despite this, we think clients should take a stand aside posture and part of the rationale for this is that soybeans are acting poorly and will weigh on meal prices.
December corn lost 7.50 cents on volume of 200,250 contracts. Total open interest increased by 8,750 contracts, which relative to volume is approximately 60% more than average meaning that new shorts were entering the market aggressively and pushing prices lower. Corn remains on a short and intermediate term sell signal. Although the fundamentals for corn are bearish, we think the short side has been played out for now and recommend a stand aside posture.
December Chicago wheat lost 1.25 cents while the Kansas City December contract advanced 4.00 cents. Volume in Chicago wheat totaled 62,849 contracts and open interest increased by 625 contracts, which relative to volume is approximately 50% below average. Volume in Kansas City wheat totaled 15,565 contracts, which is approximately 1,800 contracts above October 7 when Kansas City wheat advanced 6.25 cents and open interest increased by 214 contracts. On October 8, total open interest increased by 654 contracts, which relative to volume is a hefty 55% above average. Both Chicago and KC wheat remain on short and intermediate term buy signals, but are overbought relative to their 50 day moving averages of $6.58 3/8 and $7.10 1/2 respectively.
Cotton: On October 8, December cotton generated a short and intermediate term sell signal.
December cotton lost 33 points on light volume of 14,944 contracts. Total open interest declined by a massive 2,592 contracts, which relative to volume is approximately 480% above average, meaning that liquidation was extremely heavy on a relatively modest decline. On October 7, December cotton lost 3.16 cents, but open interest declined only 2,155 contracts on volume of 39,380. There is more liquidation ahead, and we continue to see cotton making new lows. Based upon our calculations of total open interest when cotton generated its buy signals on September 27 through October 8, there is going to be a considerable amount of liquidation by longs who are holding positions at much higher levels. As this report is being compiled on October 9, December cotton is trading 47 points lower and has made a new low for the move at 83.10. This is a mere 5 points above the low made on September 10 and approximately 1 cent above the low made on September 5 of 82.11. This was the lowest price for December cotton since June 3, 2013. As is usually the case after the generation of sell signals, there is a countertrend rally lasting 1-3 days, and this is when we will determine the price and timing to enter bearish positions. Do not initiate new shorts at current prices; wait for the rally.
December live cattle gained 2 1/2 points on light volume of 31,024 contracts. Total open interest increased by 2,204 contracts, which relative to volume is approximately 185% above average meaning that longs and shorts were aggressively entering the market, but neither could move prices beyond a fractional gain. As this report is being compiled on October 9, December cattle is trading 42 points lower and has made a low at 1.31650 which is the lowest price since October 4 when it made a low of 1.31475. We continue to advise a stand aside posture until such time that cattle has corrected close to its 50 day moving average.
From the October 7 report:
For clients wishing to initiate new long positions, we have suggested an exit point of 1.31400, which was the low of September 30. However, we discourage this because cattle is significantly overbought relative to its 50 day moving average on the December chart of 1.29730 and 1.24550 on the continuation chart. Within the past 2 days, the 50 day moving averages on the December and continuation charts have moved above the 200 day moving averages for the first time in over a year. We think cattle prices are headed significantly higher, but with the absence of data from the USDA, prices may consolidate at the upper end of the trading range. Cattle prices are at historical highs, and we think it is highly likely there is going to be a major wash out before prices make another leg higher.
November WTI crude oil advanced 46 cents on light or than normal volume of 493,672 contracts. Total open interest declined by 5,021 contracts, which relative to volume is approximately 50% below average. The November contract accounted for loss of 20,461 of open interest. As this report is being compiled on October 9, November crude oil is trading $1.85 lower and has made a low for the day of $101.18, which is 12 cents above the low of 101.06 made on October 1. November crude oil generated a short-term sell signal on September 23, but will not generate an intermediate term sell signal on October 9, but it’s getting close. As the report released by the Energy Information Administration on Wednesday indicates, stocks of crude oil are at the upper end of their range for this time of year. We think it is inevitable that crude will trade below $100.00, and the generation of an intermediate term sell signal will confirm this. The two trades we have recently recommended in crude oil are significantly profitable: (1) short futures with an exit point somewhat above $104.38, and (2) write out of the money calls. Continue to hold these positions.
From the October 3 report:
“In yesterday’s report, we recommended that short futures positions be covered somewhat above the high of October 3 of $104.38. As this report is being compiled on October 4, November crude oil has made a high of $104.19 and is currently trading 13 cents higher at 103.46. On September 23, November crude generated a short-term sell signal, but remains on an intermediate term buy signal. We see prices continuing to erode from the current level. For those clients who wrote out of the money calls as we have suggested, continue to hold these positions.”
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.8 million barrels from the previous week. At 370.5 million barrels, U.S. crude oil inventories are above the upper range for this time of year. Total motor gasoline inventories increased by 0.1 million barrels last week and are at the top of the average range. Finished gasoline inventories increased, while gasoline blending component inventories decreased. Distillate fuel inventories decreased by 3.1 million barrels last week and remain near the lower limit of the average range for this time of year. Propane/propylene inventories decreased by 0.5 million barrels last week and are in the middle of the average range. Total commercial petroleum inventories increased by 1.7 million barrels last week.
November natural gas advanced 8.7 cents on heavy volume of 476,985 contracts. Volume was the highest since September 19 when 486,993 contracts were traded and natural gas made its high for the move at $3.820 while open interest declined by 5,560 contracts. On October 7, total open interest declined by a massive 21,423 contracts, which relative to volume is approximately 75% above average. The November contract accounted for loss of 28,400 of open interest and volume of 198,003 contracts. There was almost no buying in the back months, and the total open interest decline confirms this.
Despite the sharp rally of the past 2 days, natural gas will not generate a short or intermediate term buy signal on October 9. As we said in yesterday’s report, “if the daily low in November natural gas is above 3.676, a short-term buy signal will be generated.” As this report is being compiled on October 9, the low the day for November natural gas has been $3.673, therefore a short-term buy signal is not generated. Also, mentioned in yesterday’s report, natural gas has been trading in a range bounded by 3.450 and 3.850, since August 15 and it has much backing and filling before we consider it to be a prime candidate for long positions.
We have pointed out to clients on numerous occasions that large increases in volume and/or open interest often foretells a top/bottom or temporary top/bottom. In the case of natural gas on October 8, volume was the highest in nearly a month and the massive open interest decline on the rally was extremely bearish. During the rally of October 7 and 8, November natural gas prices advanced 21 cents, but open interest declined 33,863 contracts. If natural gas were in a bullish set up, open interest should have gone up during the two-day rally. Additionally, the high on October 8 was $3.730, and the high on October 9 has been 3.734. In short, there is no follow through on yesterday’s rally. As we said in yesterday’s report:“If natural gas is to continue moving higher, it will be crucial for open interest increase on the October 8 rally.” This did occur.
We think a terrific strategy is to write out of the money calls in near dated options with strikes based upon your risk tolerance. One important source of buying has dissipated by the covering of shorts by panicked speculators. For natural gas prices to move higher from this point, new buyers have to be willing to pay up at ever-increasing prices. Because we think natural gas is in a trading range, writing out of the money calls in near dated options is a reasonable and fairly conservative strategy for a market that is trading at the upper end of its recent trading range and is on a short and intermediate term sell signal.
The December euro lost 11 points on volume of 133,471 contracts. Total open interest declined by 466 contracts, which relative to volume is approximately 85% less than average. As this report is being compiled on October 9, the December euro is trading 40 points lower and has made a new low for the move at 1.3488.The euro remains on a short and intermediate term buy signal.
The December Australian dollar lost 12 points on volume of 69,468 contracts. Total open interest declined by a massive 3,974 contracts, which relative to volume is approximately 130% above average, meaning that both longs and shorts were aggressively entering the market but neither side was able to move it beyond a fractional loss. The Australian dollar made a new high for the move at 94.41,which is 30 points below the high of September 19 of 94.71. We will be watching the Australian dollar closely to see whether it can take out the September 19 high and what open interest does, if in fact there is a breakout. The Australian dollar remains on a short and intermediate term buy signal.
S&P 500 E mini:
The December S&P 500 E mini lost 17.25 points on heavy volume of 2,356,965 contracts. Volume was the highest since September 18 when 2,998,256 contracts were traded and the December E mini advanced 19.50 points while open interest increased 30,661 contracts. On October 8, open interest increased by 32,418 contracts, which relative to volume is approximately 45% below average. However, this is another example of bearish open interest action relative to the price decline, As mentioned during the past several days, we have seen a pattern of open interest declining when the E mini advances and open interest increases when prices decline. This is bearish. We think it is mandatory that clients have long put protection, especially if they hold long equity positions.