Open interest increased by 11, 261 contracts and volume was 236, 635. Again there is a lot of conviction on the part of longs and shorts and the market is likely to move sharply once the crop report of January 12 is released. Although I am bullish for the next couple of months, I would recommend standing aside at this juncture
March crude oil closed $.25 lower and open interest increased by 3, 792 contracts. Volume was 565, 386 contracts. This market is likely to correct down to its 50 day moving average of approximately 97.90. Major areas support can be found at 95.90 and 93.23. As I've always said, geopolitical disruptions can change the dynamics of this market on a dime.
Gold's high was 1632.3 on Friday and this was a new high for the move. Gold closed 3.30 lower on volume of 165, 504 contracts. The interesting aspect of golds market action on Friday was that the open interest decreased by 2,516 contracts. Since the gold rally began on December 30, it has rallied from a low of 1546.4 on December 30 to a high of 1632.3 on the January 6 four total of 85.90. Yet open interest has declined a total of 4,215 contracts during these five sessions. This is bearish. Although I am bullish longer-term, it cannot be ruled out that a retest of the 1523.90 area will occur. The previous low in gold was 1535 on September 26, 2011 which indicates that there is support and value in the low 1500 area. For quite some time, gold was highly correlated to the major indices. It now seems to decoupled and is trading on its own supply and demand dynamics.
Silver closed $.61 lower on volume of 41, 419 contracts. Open interest increased just 55 contracts. From the low of 26.14 made on December 30, 2011 through January 6 open interest has increased 544 contracts. This is mildly constructive and it is very possible that we will see a low in silver before we see the final low in gold.
The Euro reached a new low for the move at 127.03. The decline was 63 points on volume of 227, 315. Open interest declined 5,070 contracts. This is the first time since December 29, 2011 that open interest declined when prices declined. The previous time was on December 21 when the December euro contract went off the board. A decline in open interest when prices are going down indicates that both longs and shorts are closing out previous positions. One day doesn't make a trend, but if we continue to see open interest decline since price declines we could be getting close to near-term bottom. This market is massively oversold with a huge number of net spec shorts. Extreme caution is in order for anyone who is short this market.
The S&P 500 E Mini closed up 1.25 points on volume of 1,692, 928 contracts. Open interest declined 9, 082 contracts. Since the Santa Claus rally began on December 20 through the 1282.25 high made on January 6, open interest has increased only 44, 054 contracts. The range from the low made on December 20 through the high made on January 6 is 83.50 points. With open interest increasing only 44, 054 contracts, it is apparent that this rally lacks conviction. The low volume of the rally also is confirmation of the lack of enthusiasm on the part of speculators. The high reached on Friday of 1282.25 matches the high made on October 27 of 1283. If the market is unable to move significantly above that 1283 level on high volume, this market is headed south.
10 Year Treasury Notes:
The note market increased eight points on Friday on volume of 931, 955 contracts. Open interest increased by 10, 885 contracts. This indicates that both new buyers and new sellers are coming into the market and that the buyers are in control. Until yields and treasury note prices reach the targets that I specified in my Sunday wrapup, this market looks to move higher.
Crude Oil: has been testing the $103.00 area and open interest has been rising steadily for the past 12 days. As I pointed out in an earlier post, the 104.00 price level has been an area of resistance going back to May of 2011. One possible danger sign is that crude oil spreads have gone from inversion or backwardation to contango. For example, the spread between February crude and July crude has gone from a premium of $.36 February over July on December 1 to a discount of $.94 February under July on January 6. Another example, is the February October spread. On December 1, February crude sold at a $1.23 premium over October. On January 6 February crude sold at a .$31 discount to October. When spreads change, they should be respected and and this may signify that the market is turning lower in the near. Obviously, any geopolitical scare can turn this market on a dime.
Corn: The corn continuation chart there is resistance at the $6.64 to the 665 level that goes back to late September of 2011. Additionally, there is resistance on the corn continuous chart at the 150 day moving average of 6.65 1/2 and at the 200 day moving average of 6.82. On the March corn chart the 150 day moving average is 6.68 and the 200 day moving average is 6.67. For the week just ended the backwardation or inversion expanded with the front months in being down far less than the back months. This is constructive market action. Although I have indicated that there is a seasonal tendency for grain prices to decline into February, there is a major grain report to be released by the USDA on January 12. This has the ability to send prices in either direction and caution is in order. If March corn can close above $6.65 and the other key moving averages, it would likely signal that a move higher is imminent. Since December 30, open interest has increased every day through Thursday, January 5 for a total of 50,052 contracts. This is a very healthy number and it indicates that a major battle is underway between the longs and shorts. The most recent commitment of traders report indicates that producers and merchants added 26,328 contracts to their short position. Managed money added 14,581 longs and managed money short positions declined by 22, 796 contracts. Also of note, corn went from a discount to wheat on December 31 to a premium on January 3. The January 6 close shows that corn is selling at a premium of 18 3/4 cents to wheat. This is the highest premium going back to March of 2011. From January 4 through January 6 the dollar had had a rally of 1.65 or 2.06% while corn declined only $.15 or 2.28%. This is constructive considering that the dollar rally is in new high ground of the move and the impact on corn prices was minimal. The volume for corn during the period of January 3 through January 6 has averaged 286, 067 contracts. This is the highest average volume that we've seen since November when the corn market was moving lower.
Stock Indices: This week the 50 day moving average crossed above the 200 day moving average for the Dow Jones Industrial Average. For the week the industrial average lagged the rest of the indices. The Dow was up 1.17% the NASDAQ 100 was up 3.44% and the Standard & Poor's 500 was up 1.61%. Neither the Russell 2000 nor the Standard & Poor's 500 have had major moving average cross overs yet. The NASDAQ 150 day moving average crossed above the 200 day moving average in the December. The Santa Claus rally that began on December 20 and has continued through January 6 and the S&P 500 is up 6.25% in this period. Although this is a very healthy rally, in the same period of 2008 and 2009, the S&P 500 increased by 5.55%. However, during January 7 through January 31, 2009, the S&P 500 fell 11.63%. Caution on the long side of the indices is warranted at the current price level.
Interest Rates: 10 year interest rate yields have been rising slowly from the bottom made on December 19 at 1.8%. The rise in yields coincided with the rally in the market. If the 10 yield closes above 2.07% and the low for the day is no less than 2.07%, this could be a major signal that interest rates are starting to rise again. On the 10 year note, a close under 129-00 would be a confirmation of a bearish note environment as long as 129-00 or less is the high of the day. Also, looking at the 30 year T-bond yield, a close above 3.09% with a low for the day no less than 3.09% will also signify rising interest rates. The number to watch on the 30 year T-bond is 140.22. A close below 140.22 and that the high of the day is 140.22 or less is bearish for bonds.
The American Association of Individual Investors (AAII) sentiment index for the last four weeks shows the enormous amount of volatility in the three categories they list: bullish, bearish and neutral. The volatility in the market is clearly reflected in the sentiment numbers by the AAII. During the four-week period shown below, bullish sentiment has gone from a low of 33.7% to the high for the most recent week of 48.9%. Bearish sentiment went from a high of 33.6% four weeks ago to a low of 17.2% in the most recent week. Neutral sentiment went from a high of 38.0% three weeks ago to a low of 28.6% two weeks ago and then moved up to 34.0% for the most recent week. These numbers show how skittish investors are and how they can go from bullish to bearish at the drop of a hat.
Most Recent Week: Previous Week: Three Weeks Ago Four Weeks Ago
Bullish 48.9% Bullish 40.6% Bullish 33.7% Bullish 40.2%
Bearish 17.2% Bearish 30.8% Bearish 28.2% Bearish 33.6%
Neutral 34.0% Neutral 28.6% Neutral 38.0% Neutral 26.2%
March corn closed lower by $.15. Open interest increased by 11, 181 and volume was 323, 517 contracts.Market action negative.
March wheat also had negative price and open interest action and closed 20 3/4 cents lower. Volume was 81, 647 contracts and open interest increased by 4,388 contracts. This this is the first day in quite a while that wheat has shown negative price action and negative open interest action.
March sugar closed 1.29 cents lower. Volume was 122,883 contracts and open interest increased by 2,178. Sugar showed good price in open interest action on January 3 and has shown negative price an open interest on January 5. This is the market that we will be watching for a while.
February crude oil closed down 1.41 on volume of 545, 420. Open interest increased by 13,082. For the last 12 trading sessions open interest has increased 10 of those days. It appears that the market is going to break sharply one way or the other. Caution is warranted.
February gold closed higher by $7.40. Volume was 185,186 an open interest declined by 841 contracts. In the last two days gold is $20.00 higher but open interest has declined by a total of 2,895 contracts which almost negates the 4,104 contract increase on January 3 when gold closed $33.70 higher. Stand aside for now.
March silver close $.20 higher on volume of 41, 166 contracts and open interest increased by 783 contracts. For the past two days price an open interest action has been positive for silver. Stand aside for now.
March euro closed 1.52 lower on volume of 266, 566 contracts. Open interest increased by 5,241 indicating that the bears are still very much in control of this market.
March S&P E mini was unchanged for the day. Volume was the highest since December 21, 2011 and on that day the market was unchanged as well. Open interest increased by 19,345 contracts which indicates that a lackluster battle between the longs and shorts took place. In my view the most revealing price action occurred on January 4 when open interest declined by 97,684 contracts on a narrow range day on low volume. The market looks overextended and caution is warranted for anyone long.
Corn open interest increased by 6,188 contracts. The three day gain in open interest has been 38,871 contracts. As I stated in a previous post, we will soon be approaching seasonal downturn in the grains and this should act mute any further increases in price.
Crude oil open interest increased again by 13,517 contracts on volume of 604,724 contracts. The market closed up $.29 on the day. The market is overbought relative to its 50 day moving average, which is $97.45. The market could easily correct back down to that number.
February Gold closed up $12.50 on volume of 170,786 contracts. The volume was the largest since December 15. Open interest declined by 2,054 contracts. In essence, half the open interest that was gained on January 3 was given back on a further rally on January 4. Even though the range on January 4 was significantly less than the range on January 3 and that volume was 50% greater on the fourth that it was on the third, we saw a decline in open interest. This indicates previous longs and previous shorts are closing their positions as the market moved higher.
March Silver declined $.47 an open interest declined 1,413 contracts. Volume was light at 37,450 contracts. The fact that open interest declined when prices declined is a positive for the silver market.
The euro declined $1.19 on volume of 216,177 contracts and open interest increased by 10,445 contracts.This shows that the bears are still clearly in control.
The big surprise for January 4, was the massive decline in open interest in the S&P 500. The market closed up 1.25 points. The range was 11 points for the day, which is very narrow considering that the 21 day average true range for the S&P 500 E mini is 21.44 points. The open interest decline of 97,684 contracts was huge relative to its volume of 1,420,909 contracts. In essence, nearly 80% of the open interest increase has been lost since the beginning of the Santa Claus rally which started on December 20. This open interest decline is troubling and very negative for the market. TThe longs and shorts that were strongly committed on January 3 threw in the towel on January 4 when the market didn't show any follow-through from the rally of the previous day.
Tomorrow January 6 is the employment report, which will be closely watched by everyone. If the report provides a surprisingly good number, we could see a further market rally. The key area to look for is the 1283 high on the S&P 500 E mini, which was made on October 27, 2012. Another stock to watch in conjunction with the S&P 500 is Apple Computer, which is nearing its 52-week high of 426.70. Apple is a good proxy for the market, and if Apple is unable to break significantly above 426.70, the broad market could be in trouble.
Corn closed unchanged on volume of 258, 549. Open interest was lower by 1,072 contracts. USDA crop report due out on Thursday, January 12. Stand aside until report is released.
Soybeans closed one cent lower on volume of 147, 287 contracts. Open interest increased by 1,131 contracts. Stand aside until crop report is released on January 12.
March crude oil closed up $.93 on volume of 600, 036 contracts. Open interest declined by 4,929 contracts. This market continues to consolidate in the range between $100.00 and $103 50. Market should correct down to its 50 day moving average, which is 98.32. Once the market moves to its 50 day moving average, I will re-examine it to see how it trades in order to determine whether longs should be instituted. Stand aside for now.
Gold closed up 27.40 on volume of 186, 529 contracts open interest increased by 3879 contracts. This rally could carry up to its 50 day moving average of 1685. The rally from the lows of 1523 looks unconvincing. In order to determine whether gold should be purchased, it will be important to see how it performs on a day when the equity market is sharply lower. At that point, it will become apparent how much correlation exists between equities and precious metals. Stand aside for now.
March silver had a range of a $1.52 and reached a high of $30.31, which was the highest price since December 13, 2011 when silver made a high of $32.03. The market closed $1.03 higher on the day on volume of 40,990 contracts. Open interest declined 400 contracts. This was a bearish development and indicates that silver is still looking for a bottom. Stand aside.
The euro closed up 34 points on volume of 215, 751 contracts. Open interest increased by 3827 contracts. Although this market can certainly plunge to new lows, there is a significant risk of being short down at these levels. Stand aside.
S&P 500 E mini:
The index closed higher by 10.50 points and the range for the day was 17.50 points on volume of 1, 532, 277 contracts. On this day, the market broke through the old high of 1283 on October 27, 2011. The market closed at a new high for the move at 1286. The startling aspect of January 10 market action was that the volume was very light and open interest actually declined on the move by 459 contracts. This is a very bearish development. The open interest action from the beginning of the rally on December 20 has been lackluster. The action of January 10, merely confirms what previous open interest numbers have been telling us. Certainly the market can continue to move higher, but it is becoming increasingly dangerous to trade the indices from the long side. Protective put positions are advised.
10 Year Treasury Notes:
Treasury notes declined by 4 1/2 points on volume of 742, 998 contracts. The bulls are still in control as open interest increased by 24, 232 contracts. The steady upward move in treasury note prices when equity prices are rising is another worrisome sign that equity indices are in the process of topping out.
Open interest market action was very interesting for January 3. There were a couple of markets that had abnormally large increases in open interest.
Corn had an open interest increase of 24,983 contracts. This was the largest open interest increase since November 9. The volume in corn was the largest since December 6. Corn closed up 13 1/2 cents. Prior to December 29, corn open interest was acting terribly. Although corn is above my pivot points, which is positive, seasonal factors should start to impact the grains in the next couple of weeks, which could send them lower.
March crude oil open interest increased by 44,701 contracts. I went back to my records to August 2011 and couldn't find an open interest increase of that magnitude. The volume was the highest since December 14, 2011. On that day, volume was 708,817 and the market closed lower by $5.19. Crude oil is bumping up against the 104 area that has served as resistance in the past. Geopolitical forces are going to be the primary catalyst for any move significantly higher.
S&P 500 E Mini:
Open interest for the March S&P 500 E–mini increased by 49,382 contracts. This was a stunning increase considering that the volume for all contracts totaled only 1,566,134 on January 3. Major increases in open interest in any market at the high end of their trading range can be a sign that they are in a topping phase, or that the market is taking off for a new leg higher. The open interest increase of 49,382 indicates that there are strongly committed longs and strongly committed shorts taking new positions. Although the rally of January 3 was attributed in part to short covering, the real story was that there were new entrants into the market. Since the Santa Claus rally began on December 20 open interest has increased 118,911 contracts. There was only one day since December 20 that open interest went down and that was on December 28 when open interest decreased 396 contracts. Until we see open interest decrease on rallies it appears that the market will move higher.
Both gold and silver saw open interest increases on January 3. Open interest in gold increased 4,104 on volume of 114,084. Open interest and silver increased by 1,432 contracts on volume of 39,246. Much damage has been done to both of these on the charts. In approximately 10 to 15 days the 50 day moving average for gold will cross below the 150 day moving average. By the end of January, the 50 day moving average will move below the 200 day moving average.
Sugar had a major move on January 3 and closed up 1.21 open interest increased by 8644 contracts and volume was 110,933. This is a commodity worth watching but it's too early to buy.