January soybeans lost 2.75 cents on heavy volume of 287,350 contracts. Volume was the highest since October 11 when 369,720 contracts were traded. For the past 3 days, soybean volume has greatly exceeded the average daily volume of 206,695 contracts. As we said in yesterday’s report, significantly higher than normal volume can be a signal of an impending major move. On December 11, total open interest increased by 13,471 contracts, which in relation to volume is approximately 75% above average meaning that new participants were entering the market en masse, and shorts were in control. The fact that the January contract lost 7,146 contracts of open interest makes the total open interest increase more significant. The fairly positive USDA report was unable to prop up soybeans. Stand aside.
January soybean meal gained $3.20 on volume of 64,741 contracts. Although soybean meal performance has exceeded soybeans during December 10 and 11 (+1.17% versus -0.02%), volume has not picked up like it has in soybeans. On December 11, total open interest increased by 1,939 contracts, which in relation to volume is approximately 20% above average. The positive total open interest figure is even more impressive when considering that the December and January contracts lost a total of 2,885 of open interest. Stand aside.
January soybean oil lost 95 points on volume of 128,309 contracts. Total open interest increased by 8,483 contracts, which in relation to volume is approximately 160% above average, meaning that shorts were in control and were aggressively entering the market. This is more impressive considering that 4,149 contracts of open interest were lost in the December and January contracts. We are looking for the market to retest its high of 51.38 made on December 7 before recommending bearish positions. Stand aside.
March corn lost 2 cents on volume of 220,097 contracts. Open interest declined by 4,227 contracts, which in relation to volume is approximately 10% less than average. As this report is being compiled on December 12, corn has made a new low for the move of $7.19, and is currently trading 6 cents lower. Stand aside.
March wheat lost 27.25 cents on heavy volume of 154,740 contracts. Total open interest declined by 2,700 contracts, which in relation to volume is approximately 15% less than average, meaning that liquidation was not very strong considering the magnitude of the decline and heavy volume. Wheat made a new low for the move at $8.16, and as this report is being compiled on December 12, March wheat has made another new low at 8.09. This is the lowest price for March wheat since July 3, 2012 when it made a low of $8.04 1/4. Stand aside.
January crude oil advanced 23 cents on volume of 487,360 contracts. Open interest declined by 3,652 contracts, which in relation to volume is approximately 65% less than average. Stand aside.
January natural gas lost 4.8 cents on volume of 444,757 contracts. Open interest declined by 3,088 contracts, which in relation to volume is approximately 55% less than average. For the past 2 sessions, open interest has declined by 9,761 contracts, which in relation to the two-day volume of 929,721 contracts is approximately 50% less than average. On December 7, natural gas declined by 11.5 cents while open interest declined by 11,359 contracts, which was approximately 20% above average. In our view the liquidation of the past 2 days, which is significantly below average, means that liquidation is running out of steam. Note for the past 3 days, the dominant action has been declines of open interest, not increases. It appears that in order to drive the market lower, new shorts will have to be willing to enter the market at the lows. Stand aside.
Copper: On December 11, March copper generated a short-term buy signal.
March copper lost 1.95 cents on light volume of 38,443 contracts. Open interest increased by 951 contracts, which in relation to volume is average. Since copper already is on an intermediate term buy signal, the short-term buy signal is confirming, therefore copper should only be traded from the long side. As is often the case, after a buy signal is generated, there is a likelihood of a pullback lasting 1 to 2 days. This could take copper down to the range of $3.6330-3.6385. Although copper should continue to move higher, we question the ultimate strength of the move because of current economic conditions and high warehouse stock levels. Unfortunately, the copper options market is not viable because of a lack of liquidity. Stand aside.
February gold lost $4.80 on light volume of 86,577 contracts. This is the second day in a row that gold has had extremely low volume. Open interest increased by 3,064 contracts, which in relation to volume is approximately 40% above average. As this report is being compiled on December 12, gold is currently trading $6.20 higher after making a high of $1725 on the announcement by the Federal Reserve to continue money printing. Volume has dramatically picked up as a gold moved to its highest level since November 30 when it reached 1733.70. This market has to do more to prove itself, and 1 day’s action does not make for a rosy outlook. Gold remains on a short-term sell signal, but is on an intermediate term buy signal, therefore clients should stand aside.
March silver lost 36 cents on very light volume of 30,007 contracts. Open interest declined by a minuscule 95 contracts. Silver’s price and open interest action for the last couple of days has been positive. As this report is being compiled on December 12, silver is trading 65.3 cents higher and has made a new high of 33.875, which is the highest price since December 3 when it reached 33.93. Price and open interest action consistently outperforms gold, and as we have said before, silver is our preferred vehicle of the two. However we have to see more price action under different conditions. Yesterday’s performance was disappointing considering the lower dollar and the higher S&P 500 E mini. We want to see a series of days when silver trades in a consistent bullish fashion with congruent open interest and increasing volume.
It is likely the March British Pound will generate a short-term buy signal on December 12, which will confirm the intermediate term buy signal. Do not enter bullish positions at this juncture.
It is likely the March Canadian dollar will generate a short-term buy signal on December 12, which will confirm the intermediate term buy signal. Do not enter bullish positions at this juncture.
The December euro advanced 65 points on volume of 299,563 contracts. Open interest increased by 6,156 contracts, which in relation to volume is approximately 5% below average. The euro is acting well, and setbacks should be bought. For clients who bought at lower levels, use the December 7 low as a final exit point. Depending upon your entry level, it would be prudent to move stops to break even. As this report is being compiled on December 12, the December euro reached 1.3099, which is the highest price since December 5 when it attained 1.3130. We see the euro continuing to move higher.
S&P 500 E mini:
The S&P 500 E mini gained 11.25 points on volume of 1,926,858 contracts. Volume was the highest since December 5, when 2,076,388 contracts were traded and the S&P advanced 2.75 points, while open interest increased by 7,186 contracts. Additionally, volume was approximately 52,000 contracts higher than the average daily volume year to date of 1,874,877 contracts. On December 11, open interest increased by a massive 49,494 contracts, which in relation to volume is average, but a very good number. For the past 2 days, open interest has increased by 73,802 contracts while the E mini advanced 15.50 On December 11, the E mini reached the highest level since October 19 when it made a high of 1453.50. Although the E mini made a new high for the move on December 12 of 1438.75, volume on the advance has been abysmal. With less than an hour left until closing, volume is 1,559,507 contracts. Thus far, the long put position has not worked out. Clients should make a decision about holding the position based upon their risk tolerance and analysis of the fiscal cliff, debt ceiling and economic issues.