Tech Guy Weekend Comments 9/24/23

As expected, because of the volume analysis last Thursday, the bulls defended and held the 475 to 474 support level in December Corn on Friday. Because of this, I expect an earnest attempt at rallying on Monday and Tuesday this week.

The short form commitment of traders report showed a 24,018 increase in open interest in corn for Tuesday to Tuesday. Almost everybody added positions, with fund shorts the most, followed by commercial longs next, then some fund longs added, as well as spread traders.

The open interest in corn continued to increase into Friday last week, by adding another 36,335 contracts from Wednesday to Friday. This is a whole lot of interest over the last 2 to 3 weeks, from my experience.

I assure you, this much adding of contracts every day for the last couple of weeks is not a normal every week occurrence. To me, it points to something quite resolute in the works.

Here is the COT report followed by the Volume and open interest report for corn from the CME website.

https://www.cftc.gov/dea/futures/deacbtsf.htm

https://www.cmegroup.com/markets/agriculture/grains/corn.volume.html#tradeDate=20230922

Check out Friday's 2 hour December Corn chart. Friday's low was 1 tick higher than Thursday's. If you enlarge the chart and squint, you can sort of see it.

The soybean open interest continues to increase in a similar, pronounced fashion. Friday's COT report showed a 33,173 contract net gain, with spread traders adding 31,195, commercial longs adding 21,730.

Also the funds liquidated 18,163 longs and added 4364 shorts. I have been asking myself what does this all indicate (total open interest), so I looked back 2 years and logged the total open interest at different times on the soybean continuation chart hoping to see some sort of pattern.

First, I went back to May 9th of this year and logged open interest for every leg. What was OI before a move, and how did it change at the next swing high or low? This analysis is on total open interest only, without regard to the individual categories of traders.

The OI increased +145,038 from 8/8 to 9/19. you will see this encompasses the last up and down legs in November Soybeans. After that I looked at what occurred before the 5/30 rally began.

From 5/9 to 5/30 OI increased 57,899. Then, beans rallied about 253 cents, during which the OI decreased. During the next rally which began on 6/28 and is the start of the B leg correction, OI increased 58,550.

I could go on and on, but y'all will need to see all the labeling on the charts. Friday painted a small Doji, which should mean a turning point, but last Tuesday was a false Doji - beans continued to flush down on Thursday. a Doji after a several day move generally points to a reversal of trend.

Please spend some time looking at my notes on the charts. This will take some concentration. It is very difficult translate numbers and math into English, so I will give a brief summary at the end. First, is the daily bean chart starting on 5/9, then the 8 hour November contract below.

Beginning in the spring of 2020, the OI total is noted on the chart at various places. The numbers are actually in the hundreds of thousands, but I have denoted them with 3 digits - 100 indicates 100,000.

The OI increased before and during most of the 2020 rally, then it began decreasing close to the top and during the topping pattern. It then continued to slowly decrease into the A low during November of 2021.

OI remained fairly flat at the start of the next rally and then increased aggressively (+88,741) during a small consolidation, before the next longer up leg. Again, OI decreased during the 2022 top, and decreased more into the July 2022 lows.

Here is the soybean daily from March 2020 to July 2022 - note the open interest totals at various places on the chart.

The results and conclusion are that when open interest increases aggressively during a sideways market, consolidation, or during an up move a rally usually but not always ensues or continues.

Open interest tends to decrease during a down correction and then increases again as traders become more interested. Another way to state this - open INTEREST translates in general to market participants becoming more interested in profiting from a big move, usually but not always up.

Try to do your own analysis from the charts and numbers if interested or time allows. Furthermore, this OI increase theory seems to jive with what we think is happening now. That is, that beans are gearing up for a nice move, probably up.

Here is the November/March Soybean spread chart which appears to be in position to rally. Spread traders have become very involved (+54,449) over the last 2 weeks. Are most of them gearing up to push more carry into beans, or closing the gap towards an inverse? Which opportunity is greater? All I know, is that the supply/demand balance is pushed down into the carry (-29), whereas to relieve the pressure, the balance is in between +12 and +25.