November soybeans lost 5.75 cents on volume of 219,965 contracts. Total open interest declined by 607 contracts, which is minuscule and dramatically below average. As this report is being compiled on September 18, November beans are trading 4 cents higher while the January contract is trading +5.75. On September 17, the November- January spread closed at -0.50 premium to January, which is the first time the spread has closed at this level since August 23. As we stated in the September 15 Weekend Wrap, the change of the structure of the market from one of near term premium to discount is in our view a negative development. Although, soybeans remain on a short and intermediate term buy signal, the market should not be approached from the long side, however, it is premature to contemplate bearish positions because soybeans have not generated a short-term sell signal.
December soybean meal lost $1.90 on volume of 65,238 contracts. Total open interest declined by 1,527 contracts, which relative to volume is approximately 5% below average. Although the near-term structure of the soybean market has gone from premium to discount, the premium in the October soybean meal contract over the December contract remains intact. This is due to the very near term tightness of soybean meal due to the difficulty of obtaining soybeans for crushing. Soybean meal remains on a short and intermediate term buy signal.
December corn lost 2.50 cents on volume of 198,376 contracts. Total open interest increased by 18,458 contracts, which relative to volume is approximately 260% above average, meaning that new shorts were heavily entering the market and driving prices lower. Corn made a new low for the move at $4.53 1/4. From a longer-term perspective, corn is trading at lows made in October 2010, but is at significant lows. The massive increase of open interest on September 17, may be indicative of a short-term bottom, and we would caution clients from getting overly bearish at current levels. If corn breaks decisively below 4.50, the next area of support is the $4.00 level. We suspect that speculators were entering new short positions, while commercials were on the long side of yesterday’s trade. Corn remains on a short and intermediate term sell signal.
December Chicago wheat advanced 1.75 cents while the Kansas City contract gained 0.50. Total volume in the Chicago contract was 58,934 while open interest increased by a minuscule 68 contracts. On September 18, KC and Chicago wheat are trading near unchanged on the day. Both remain on short and intermediate term sell signals.
December cotton advanced 44 points on fairly light volume of 11,445 contracts. Total open interest increased by a massive 2,123 contracts, which relative to volume is approximately 500% above average, meaning that both longs and shorts felt strongly about the direction of cotton prices, but longs clearly had the edge. Although the fundamentals of cotton on a global basis are fairly bearish, stock levels in the US are at historically low levels. The market does not want to go down at this juncture, and we advise that clients should make sure buy stops on short positions are in place in the event that cotton breaks above the August 26 high of 85.54. Cotton remains on a short and intermediate term sell signal. Also, the 50 day moving average of December cotton is on the verge of moving below the 150 day moving average.
October live cattle lost 37.5 points on volume of 51,018 contracts. Total open interest increased by 1,364 contracts, which relative to volume is average although the October contract lost 5,488 of open interest, which makes the action on September 17 more bearish. Although, it has come close, cattle has not generated an intermediate term sell signal, but generated a short-term sell signal on September 10. Ideally, before we recommend the initiation of long positions, we want to see managed money liquidate their longs and for cattle to maintain its intermediate term buy signal. We recommend that clients remain on the sidelines.
October crude oil lost $1.17 on very heavy volume of 760,447 contracts. Volume was the highest since July 19 when 801,652 contracts were traded and November crude oil closed at $104.35. On September 17, open interest increased by only 957 contracts, which is minuscule and dramatically below average. The October contract lost 45,574 of open interest. It is surprising to see a decline into new low territory on heavy volume, accompanied by a minor change of open interest. However, this is the 2nd day in a row that we have seen this phenomena. On September 16, October crude declined $1.62 and open interest declined only 7,259 contracts on volume of 667,795 contracts. The October contract lost 32,939 contracts on that day.
For the past 3 days, beginning on September 13, October crude has declined $3.18 while open interest 4,242 contracts, which is a minor change considering the magnitude of the decline. It appears the price action of the past 3 days is not shaking out a large number of market participants. Additionally, because there has not been an open interest increase, new longs and shorts are unwilling to enter the market at current levels. Our view, is that clients should stand aside until it is apparent that crude oil prices are headed higher, or that a short-term sell signal is generated.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.4 million barrels from the previous week. At 355.6 million barrels, U.S. crude oil inventories are nearing the average range for this time of year. Total motor gasoline inventories decreased by 1.6 million barrels last week and are in the upper half of the average range. Finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.1 million barrels last week and remain near the lower limit of the average range for this time of year. Propane/propylene inventories decreased by 0.1 million barrels last week and are in the middle of the average range. Total commercial petroleum inventories decreased by 6.1 million barrels last week.
October natural gas advanced 7 ticks on volume of 327,760 contracts. Total open interest declined by 6,153 contracts, which relative to volume is approximately 25% below average. The October contract accounted for loss of 25,763 of open interest. Natural gas made a new high for the move at $3.776, which took out the high of 3.771 made on July 24. As this report is being compiled on September 18, October natural gas is trading 3.2 cents lower. Continue to hold bullish positions.
December silver lost 22.5 cents on volume of 36,227 contracts. Total open interest increased by 972 contracts, which relative to volume is average. The minutes of the Federal Reserve meetings over the past 2 days have been released, and silver is trading 59.6 cents higher on the day while gold is trading $34.90 higher. Silver remains on a short-term sell signal, and an intermediate term buy signal.
The December euro gained 25 points on very light volume of 103,828 contracts. Total open interest declined by 8 contracts. As this report is being compiled on September 18 after the release of the Federal Reserve minutes, the euro is trading 98 points higher and has made a new high for the move at 1.3491. The euro remains on a short and intermediate term buy signal.
The December Australian dollar advanced 47 points on volume of 64,717 contracts. Total open interest declined by 1,782 contracts, which relative to volume is average. As this report is being compiled on September 18, after the release of the Federal Reserve minutes, the December Australian dollar is trading 95 points higher and has made a new high for the move at 94.19. As we indicated in the September 16 report (see below), our concern was that a spike in the Australian dollar would possibly generate an intermediate term buy signal. Although this will not occur on September 18, conceivably an intermediate term buy signal could be generated on September 19.
From the September 16 report:
“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 S&P 500 E mini gained 7.00 points on volume of 2,176,229 contracts. Total open interest increased by 29,839 contracts, which relative to volume is approximately 45% below average. As this report is being compiled on September 18, the E mini is trading 17.50 points higher and has made a new high for the move at 1717.00, based upon the Federal Reserve not tapering is a shock to the market. As a result, the only commodity on the board is sharply lower is the US dollar index. We have been advising put protection because our belief is that the market is facing a number of headwinds, one of which is the debt ceiling, and this promises to be contentious and potentially damaging to the market rally. Bearish positions must be calibrated based upon your risk tolerance and the amount of money at risk on long positions in equities. With this announcement, it is conceivable the market may make another leg higher and continue inflating the equity bubble.