November soybeans lost 33.25 cents on volume of 178,758 contracts. Total open interest declined by 5,358 contracts, which relative to volume is approximately 20% above average, meaning that liquidation was higher than usual, but considering the magnitude of the price decline, it was actually pretty tame. As this report is being compiled on September 17, November soybeans are trading 11.50 cents lower and have made a new low for the move at $13.32. There is a gap between the high of 13.31 1/2 made on August 23 and the low of 13.48 made on August 26 and the market is moving to fill it. Soybeans are beginning to look tired, and although soybeans remain on a short and intermediate term buy signal, the spread action in November and January point to lower prices ahead. Is important to remember that the long to short ratio, which we calculated from the most recent COT report shows that managed money holds its largest net long position in more than a couple of months. This makes soybeans vulnerable to continued liquidation.
December soybean meal lost $14.30 on volume of 63,821 contracts. Total open interest declined by 2,813 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy, much heavier than soybeans. As this report is being compiled on September 17, December meal is trading $2.80 lower and has made a new low for the move at $423.00. Like soybeans, the long to short ratio is the highest in at least a couple of months, which makes soybean meal vulnerable to further downside action. Soybean meal remains on a short and intermediate term buy signal.
December corn lost 2.50 cents on volume of 125,185 contracts. Note that volume in soybeans exceeded corn’s for the third day in a row. On September 16 total open interest increased by a massive 7,355 contracts, which relative to volume is approximately 140% above average meaning that new shorts were entering the market in massive numbers and driving prices lower. For the past 3 days beginning on September 12, corn has declined each day, bringing the total 3 day decline to 16.00 cents. Additionally, open interest declined each of those 3 days, bringing the total to 29,143 contracts. Although the set up in corn is bearish, we caution clients about getting overly bearish at current levels. Corn remains on a short and intermediate term sell signal.
December Chicago wheat lost 0.25 cents while Kansas City wheat lost 2.25. Total volume for Chicago wheat was 53,114 contracts and open interest declined by 1,629 contracts, which relative to volume is approximately 20% above average. Both Kansas City and Chicago wheat remain on short and intermediate term sell signals.
December cotton lost 46 points on volume of 15,584 contracts. Open interest increased by 948 contracts, which relative to volume is approximately 140% above average meaning that new shorts were aggressively entering the market and driving prices lower. As this report is being compiled on September 17, December cotton is trading 57 points higher and has made a high for the day of 85.02, which is shy of the high made on September 13 of 85.15. We think cotton prices are going lower, but we could see a small short-term rally in the interim. Maintain short positions with an exit point above the August 26 high of 85.54.
October live cattle advanced 30 points on volume of 40,141 contracts. Total open interest increased by 1426 contracts, which relative to volume is approximately 40% above average. As this report is being compiled on September 17, October cattle is trading 90 points lower and has made a new low for the move at 1.24325. On September 10, OIA announced that October cattle generated a short-term sell signal. We have been cautioning clients for number of weeks to be on the sidelines, despite the fact that cattle had been on a short and intermediate term buy signal. It now appears likely that cattle will generate an intermediate term sell signal on September 17, which confirms the short-term sell signal. Additionally, we have been cautioning clients that more downside action was in store for cattle due to the elevated level of managed money longs.
From the September 15 Weekend Wrap:
“As we stated in the September 8 report, October cattle did in fact generate a short-term sell signal. The market looks lackluster and it appears it is only a matter of time before an intermediate term sell signal is generated. Based upon the number of managed money longs liquidating and the increasing numbers shorts, it is apparent this crowd is getting more bearish on cattle.”
From the September 8 Weekend Wrap:
“We think cattle prices are headed lower and will generate a short-term sell signal within a couple of days. It is apparent that managed money is digging in and refusing to liquidate, and we suspect this is because the fundamentals for cattle are quite bullish moving into the 4th quarter and the 1st quarter of 2014. As we said in last week’s report, the gap that existed during trading on August 7 and 8 would be filled, and this occurred on Thursday September 5.”
October crude oil lost $1.62 on heavier than normal volume of 667,795 contracts. Volume was just shy of the 672,581 contracts traded on September 10 when crude oil declined $2.13 and open interest increased by 415 contracts. On September 16, open interest declined by 7,259 contracts, which relative to volume is approximately 50% below average. The October contract lost 32,939 of open interest. As this report is being compiled on September 17, October crude is trading $1.36 lower and has made a new low for the move at $105.00. It is apparent to us that crude oil is heading lower, and that a short-term sell signal will be generated possibly today, or tomorrow. Also, gasoline continues to trade weakly, and this will weigh on WTI prices. Gasoline generated a short-term sell signal on September 10, and it is a certainty that it will generate an intermediate term sell signal on September 17.
October natural gas advanced 6.1 cents on healthy volume of 318,855 contracts. Volume increased approximately 73,000 contracts from September 13 when October natural gas advanced 3.9 cents and open interest increased by 8,226 contracts. On September 16, open interest increased for the 3rd day in a row by 8,673 contracts, which relative to volume is average. Making the total open interest increase more impressive was the October contract, which lost 12,014 contracts of open interest. For the past 3 days, October natural gas has advanced and open interest has increased each day, which is terrific market action. The market has a very firm undertone and we are looking for a move to $4.10. During the evening session of September 12, clients of OIA Direct were notified to initiate bullish positions, and this was followed up with the same recommendation in the September 12 report. Maintain bullish positions.
Gold: We are suspending further reporting on gold until, we see a prospective trade. Gold remains on a short and intermediate term sell signal.
December silver gained 28.9 cents on volume of 46,008 contracts. Total open interest declined by 417 contracts, which relative to volume is approximately 50% less than average. Silver remains on a short-term sell signal, but an intermediate term buy signal. We will continue to report on silver until such time that the short term sell signal is reversed, or that an intermediate term sell signal is generated. Our bias toward the precious metals is to the long side, and we prefer to avoid bearish positions, even though sell signals may dictate this.
Copper: On September 16, December copper generated a short-term sell signal, but remains on an intermediate term buy signal.
The December euro gained 27 points on volume of 172,186 contracts. Total open interest increased by 4,177 contracts, which relative to volume is average. The euro remains on a short and intermediate term buy signal.
The December Australian dollar advanced 58 points on fairly light volume of 87,593 contracts. Total open interest increased by 1,498 contracts, which relative to volume is approximately 30% less than average. As this report is being compiled on September 17, the Australian dollar is rallying 43 points and has made a daily high of 93.11, which is 20 points below the high of September 16 of 93.31 and below the high of 93.53 made on September 12. The market is testing the upper end of its trading range as we expected, and has had much trouble breaking through it. The only problem we have with initiating bearish positions at this juncture is that managed money does not appear to be liquidating as the market moves higher. This poses a potential threat for a short-term spike on the upside, and conceivably the generation of an intermediate term buy signal.
S&P 500 E mini:
The December S&P 500 E mini gained 9.25 points on extremely heavy volume of 3,036,462 contracts. Total open interest increased by 181,066 contracts. As the September contract begins to expire, volume and open interest tends to spike, which negates the analytical value of these two metrics. The E mini has made a double top, and the question is whether it has the steam to take out the highs. Tomorrow, the Federal Reserve will announce its policy regarding its bond buying program, and depending upon what the Fed says, the market is going to be extremely volatile. Equity indices are at nosebleed levels, but this does not mean they cannot go higher. This should be kept in mind when contemplating bearish positions. We think it is wise to have put protection, and the degree depends upon your risk tolerance and the size and risk of your long equity positions.