The sharply lower dollar is having an interesting effect on commodities on December 18. The precious metals are sharply lower as are the grains. Equities are rallying sharply, and the petroleum complex is trading positively as well.
March soybeans lost 3.25 cents on volume of 221,855 contracts. Volume increased by approximately 32,000 contracts from December 14 when soybeans advanced 19 cents and open interest declined by 2,977 contracts. On December 17, open interest increased by 5,116 contracts, which in relation to volume is average. The January contract lost 5,854 contracts of open interest. The market made a new high for the move at $15.01 1/4, but couldn’t hold its gains and closed at 14.88 1/4. As this report is being compiled on December 18, March soybeans are trading 17.75 lower and has made a low of 14.62 1/4. Stand aside.
March soybean meal lost $1.70 on heavier than normal volume of 74,761 contracts. Open interest increased by 2,704 contracts, which in relation to volume is approximately 45% above average, meaning that buyers were fairly aggressive and in control. March meal made a high at 457.90, which is the highest price for March meal since November 7 when it reached 458.00. The January contract lost 5,318 contracts of open interest, which makes the total open interest increase much more significant. As this report is being compiled on December 18, March soybean meal is down 6.50 and has made a low for the day of $442.60. Soybean meal will not generate a short or intermediate term buy signal on December 18. Based upon its trading thus far, meal has much more work to do before a buy signal can be generated. Stand aside.
March corn lost 6.75 cents on extremely light volume of 128,107 contracts. Volume was the lightest since October 22 when 118,241 contracts were traded and March corn closed at $7.59 1/4. On December 17, open interest declined by 4,805 contracts, which in relation to volume is approximately 50% greater than average, meaning that liquidation was fairly heavy. As this report is being compiled on December 18, March corn is trading 6.25 lower. Stand aside.
March wheat lost 6 cents on extremely light volume of 47,756 contracts. Volume was the lightest since October 8 when 46,949 contracts were traded and March wheat closed at $8.71 1/4. On December 17, open interest declined by 769 contracts, which in relation to volume is approximately 30% below average. Stand aside.
February crude oil gained 42 cents on volume of 489,772 contracts. Volume declined by approximately 200,000 contracts from December 14, when 690,911 contracts were traded and crude oil advanced 84 cents while open interest declined by 33,209 contracts. On December 17, open interest declined by 6,732 contracts, which in relation to volume is approximately 40% less than average. During the past 2 days, crude oil has advanced $1.26, but open interest has declined by 39,941 contracts. As this report is being compiled on December 17, February crude oil is trading 79 cents higher and has made a high of $88.63, which is only 44 cents above the high of December 17. Crude oil has been trading in a sluggish manner for quite some time. During the past 21 trading sessions the average true range per day has gone from approximately $2.20 down to 1.78. Inevitably, range contraction is followed by range expansion, and we will be monitoring the market carefully in order to determine the direction of the expansion. Crude oil is on a short and intermediate term sell signal. Stand aside.
February natural gas gained 4 cents on volume of 364,302 contracts. Open interest declined by 232 contracts, which is minuscule and dramatically below average. As this report is being compiled on December 18, natural gas is trading 2.8 cents higher. Stand aside.
March copper lost 2.30 on light volume of 49,637 contracts. Open interest declined by 1,010 contracts, which in relation to volume is approximately 5% less than average. On December 18, copper is trading 1.10 cents lower, which is very positive considering that gold is down over $22.00 and silver is trading 60 cents lower. Although copper is holding up well, we are not enthusiastic about being long at current levels, despite copper being on a short and intermediate term buy signal. Copper appears to be in a trading range bounded by a $3.44 on the downside and 3.84 on the upside. If options were viable for trading, there could be some interesting possibilities. However, due to the lack of liquidity in options, the only alternative is to trade futures. For more on copper, see the Weekend Wrap of December 16. Stand aside.
February gold gained $1.20 on light volume of 99,858 contracts. Open interest increased by 745 contracts, which is approximately 60% less than average. As we said in prior reports, we did not like the way gold was trading, and have recommended a stand aside posture. As this report is being compiled on December 18, February gold is trading $23.70 lower, and has made a new low for the move at 1672.60. Stand aside.
March silver lost 1.9 cents on light volume of 30,634 contracts. Open interest increased by 307 contracts, which in relation to volume is approximately 50% less than average. For the past couple of weeks, we have been advising clients to stand aside. On December 14, silver generated a short term sell signal, but as of yet has not generated an intermediate term sell signal. As this report is being compiled on December 18, March silver is trading 61.5 cents lower. Continue to stand aside.
The March British pound gained 35 points on very light volume of 77,607 contracts. Volume shrank by approximately 66,000 contracts from December 14 when the pound gained 57 points and open interest increased by 11,168 contracts. On December 17, total open interest increased by 3,449 contracts, which in relation to volume is approximately 75% above average meaning that buyers were aggressive and in control. The December 2012 contract increased open interest by 475 contracts. The pound made a new high for the move at 1.6213 which is the highest price for the March contract since September 28 when it reached 1.6255.
As we have stated in prior reports, the British pound is not only overbought from a price point of view, but more importantly, market players are rushing in to buy at the highs. This leaves the pound vulnerable to a sharp setback, which would clear out weak longs. Unlike the euro, after the pound generated a short-term buy signal on December 12, which confirmed the intermediate term buy signal, the pound never had a pullback. A pullback typically occurs because OIA buy signals usually are generated when markets have reached a temporary overbought condition. More times than not, this results in a short-term pullback lasting 1 to 2 days. While we are bullish the pound, we recommend a stand aside position until such time that it has corrected. Our preferred trade is the euro.
The March euro gained 1 point on volume of 172,851 contracts. Volume was the lightest since November 12 when 148,103 contracts were traded and the euro advanced by 10 points, while open interest declined by 1,189 contracts. On December 17, total open interest declined by 642 contracts, which in relation to volume is approximately 85% less than average. The December contract accounted for a loss of 6,923 contracts of open interest. According to the exchange report, December has to liquidate an additional 69,965 contracts. Therefore, it is likely that total open interest increases will be on the light side because of the liquidation.
As we mentioned in the December 16 Weekend Wrap, a move to 1.3200 would constitute a breakout, and the March euro made a high of 1.3205 on December 17. As this report is being compiled on December 18, the euro continues to make new highs, and has reached 1.3252, which is the highest price since May 1, 2012 when the June euro made a high of 1.3287. We continue to think that setbacks will be shallow. This is because speculators are watching the euro breakout and would like to get on board, but the market is overbought from a price standpoint. On the other hand, there are a large number of shorts, who are on the wrong side of the trade, and will be forced to liquidate as the euro marches higher. When the euro pulls back, shorts will have an opportunity to cover their positions at lower prices, and prospective longs, who have been the sidelines will be looking to put on new long positions.
S&P 500 E mini:
The S&P 500 E mini gained 17.75 points on heavy volume of 2,914,394 contracts. Open interest increased 73,443 contracts, which in relation to volume is average, but high number nonetheless because average open interest increases are rare in the Emini. As we have said before, volume and open interest seems to get distorted as contract expiry nears. The S&P 500 E mini will not generate a short-term buy signal on December 18, which would reverse the short-term sell signal generated on October 22. However, this is quite possible on December 19. Once this occurs, a pullback lasting 1 to 2 days should occur. Anyone long Emini puts should use the correction to liquidate positions. As this report is being compiled on December 18, the March S&P 500 E mini is trading 13.50 higher by the liquidity being unleashed in Japan Europe, United States and China. The question remains whether the E mini will be able to trade above the September 14 high of 1468 made by the December 2012 contract.