March corn closed down the $.40 limit on volume of 381, 344 contracts. Open interest declined by 11, 086 contracts. There were major surprises in the USDA crop report that caught the longs by surprise. As I’ve mentioned before, open interest was building up at a rapid pace prior to the report, and and this indicated that a major move was imminent. My recommendation was to stand aside until crop report was released. Also, I said that we were entering a period of seasonal weakness. So where do we go from here? At this juncture, we are approximately $.35 from the December 15 low of $5.76. My recommendation is to continue to stand aside and look for an opportunity to trade the long side of this market in a couple of months once the selling is been absorbed. In the interim, this market should be traded from the short side. There could be unusually heavy selling considering the masssive build up in open interest. Despite surprises in the report, inventories are low relative to previous years.
March soybeans closed down 20 1/2 cents on volume of 241, 776 contracts. Open interest increased by 10, 872 contracts. This is the second day that we’ve seen an increase in open interest on price declines. This is bearish. This market should be traded from the short side. One factor that could spur a rally in soybeans is the weather in South America. Traders should monitor the weather in Brazil and Argentina.
February crude oil closed a $1.77 lower on volume of 715, 756 contracts. Open interest declined by 3351 contracts. This is the fourth day in a row that open interest declined. Also, the volume was greater than the volume of December 14 (708, 817 contracts) when crude oil declined by $5.19. The low of the day of 98.50 touched the 50 day moving average. The sharp decline in the dollar index was unable to stem the downward move. This market can certainly go lower, but the problem is that geopolitical tensions, especially with Iran can send this market skyward in a nano second. Stand aside.
March copper had a major move of 10.30 cents on volume of 71, 437 contracts. Open interest increased by 610 contracts. This market continues to act well and my only concern is that based on the size of the move and the large volume accompanying the move, open interest increased by a minuscule 610 contracts. March copper’s 50 day moving average is $3.46 indicating that the market is overbought at this level. It would be wise to wait for a setback before entering new longs. If the stock market falls apart, my view is that everything will fall along with it, including copper.
February gold closed $8.10 higher on volume of 164, 356 contracts and made a new high for the move at 1662.90. It is surprising that the sharply lower dollar index did not power gold much higher. Open interest increased by 4383 contracts. My recommendation is to continue to stand aside and look for a better entry point.
March silver closed up by $.23 on volume of 37, 828 contracts. Open interest declined by 5 contracts. Although it it appeared that silver was beginning to act well for a while, it has relapsed and has been unimpressive in the last four trading sessions. For example, since January 9 through January 12 open interest has declined by a total 2649 contracts. However, March silver has advanced $1.53 or 5.33%. This is bearish. Stand aside.
The Euro had its first significant rally in quite a while. It closed higher by 1.32 cents on volume of 321, 791 contracts. Open interest declined by 6124 contracts. This is bearish market action. Stand aside.
S&P 500 E mini:
March S&P 500 E mini contract closed higher by 3.50 points on volume of 1,756, 994 and made a new high for the move at 1297.50. Open interest declined by 3937 contracts. The action of the 12th is very similar to the action on January 10 (see January 10 post), whereby the market makes a new high for the move, closes higher, yet open interest goes down. Another bearish factor is that the range on January 12 was 16.75 points and the range on January 11 was 10.25 points, yet volume was higher on January 11 (1,803, 336) than on January 12 and had a much smaller range without making a new high. Protective long puts should be implemented.
10 Year Treasury Notes:
March treasury notes closed lower by 7 1/2 points on volume of 886,160 contracts. Open interest increased by 38, 982 contracts. Since January 6 open interest has increased by a gargantuan 146,444 contracts. As I’ve mentioned before, this market should only be traded from the long side with appropriate stop loss protection.