March soybeans gained 6.50 cents on volume of 194,258 contracts. Open interest increased by 7,225 contracts, which in relation to volume is approximately 40% above average. The March contract lost 7,357 of open interest, but this was offset by open interest increases in the May 2013 through January 2014 contracts. From February 13 through February 15, open interest has increased by 15,410 contracts while March soybeans have advanced 3.75 cents. This is bullish open interest action relative to the price advance. As this report is being compiled on February 19, March soybeans have advanced 46.75 cents. The USDA announced the sale of 120,000 tons of soybeans to China and rain in Argentina has been less than forecast. Soybeans remain on a short term buy signal, but an intermediate term sell signal. Our preferred trade is to be long soybean oil.
March soybean meal gained $2.20 on volume of 76,257 contracts. Open interest declined by a minuscule 52 contracts. The March contract lost 5,403 of open interest, which was offset by increases of open interest in the May 2013 through December 2013 contracts. From February 13 through February 15, open interest has declined 848 contracts while March soybean meal has declined 90 cents. The net decline of price and net increase of open interest during the three-day period is a neutral reading. As this report is being compiled, soybean meal has rallied $16.50, but despite the rally remains on a short and intermediate term sell signal.
March soybean oil lost 8 points on volume of 88,518 contracts. Open interest declined by 136 contracts, which is minuscule and dramatically below average. The March contract lost 5,879 of open interest, but this was offset by increases in the May 2013 through January 2014 contracts. As this report is being compiled, soybean oil is trading 91 points higher. Last week, we advised clients to buy soybean oil and use 50.56 as an exit point for long positions. Soybean oil remains on a short and intermediate term buy signal.
March corn gained 4 cents on volume of 266,271 contracts. Total open interest increased by 3240 contracts, which in relation to volume is approximately 50% less than average. The March contract lost 15,971 of open interest, which was offset by increases in the May 2013 through May 2014 contracts. As we have indicated in previous reports, the open interest action through February 14 has been bearish in relation to the price decline. As this report is being compiled, March corn is trading 5.25 cents lower. The strong move higher in soybeans is not helping corn to rally. However, the spread between March and May continues to act in a bullish fashion. Do not short corn. Corn remains on a short and intermediate term sell signal.
March wheat gained 10.25 cents on volume of 126,174 contracts. Volume declined approximately 14,000 contracts from February 14 when March wheat declined by 3.50 cents and open interest declined by 2,272 contracts. The continued low price of wheat relative to corn is going to increase the use of feed wheat, which will likely be a supportive factor down the road. As this report is being compiled, March wheat is trading 12.50 cents lower and it remains on a short and intermediate term sell signal.
March crude oil lost $1.45 on volume of 696,266 contracts. Volume increased approximately 194,000 contracts from February 14 when crude oil gained 30 cents and open interest declined by 219 contracts. On February 15, open interest declined only 1,240 contracts, which is minuscule and dramatically below average. As the long to short ratio indicates (Weekend Wrap February 17), longs continue to be stubborn and are hanging onto their positions. We continue to view crude as a sub-optimal trade because the upside at best is equal to the downside.
From January 30 when crude oil made a high of $98.24 and closed at $97.94 through February 15 when it closed at $96.41, open interest increased by 95,494 contracts, a loss of $1.53. In short, since crude made its high, open interest action relative to price has been bearish. We envision crude oil dipping to its 50 day moving average of $93.08. This may be somewhat conservative because we believe the major equity indices are about to undergo a correction. With the high long to short ratio, there are a large number of speculative longs who will run for the exit once it becomes apparent that crude oil is headed lower.
Additionally, even though the S&P 500 E mini is trading 8.50 points higher and has made a new high for the move at 1528.25, crude oil remains unchanged, and is trading at the lower end of its recent trading range going back to January 18. We have advised clients to stand aside and think more downside is in store for crude.
March copper closed unchanged on volume of 74,327 contracts. Open interest increased by 82 contracts. As this report is being compiled, copper is trading 7.95 cents and has made a new low for the move at $3.6445. This is the lowest price for March copper since January 28 when it made a low of $3.6445. Perhaps the reason for copper’s decline is the abysmal news coming out of Europe about auto sales. We are reprinting a piece from Zerohedge below that describes the severe declined in auto sales for Europe. Interestingly, this does not seem to be affecting platinum.
European car registrations had their worst January on record – an 8.7% year-over-year decline – as consumers hit by austerity are likely to continue to limit spending on big-ticket items. The Association of European Automakers notes the 918,280 new cars (‘tagging’ aside) is the slowest January since 1990 and makes the 16th consecutive month of year-over-year drops, as perhaps past car-scrapping schemes may also have hampered sales by encouraging buyers to bring forward planned purchases. During the Great Recession, European auto sales only fell 12 consecutive months. The weakness is broad based with Ford (a record 26% plunge), Peugeot Citron (down 16%) and Toyota (down 16%) as it seems the hopes and dreams of a troughing in the European economy has absolutely not shown up in the car industry. As Reuters reports, citing a CS analyst, “Hopes of an earnings and cash recovery in the second half are misplaced.”
April gold lost $26.00 on very heavy volume of 283,225 contracts. Volume was the highest since January 28 when 295,408 contracts were traded and gold declined by $3.70 while open interest declined 19,020 contracts. On February 15, open interest declined only 854 contracts which is minuscule and dramatically below average. Gold made a new low for the move of $1596.70, which is the lowest price for April gold since August 15, 2012 when it made a low of $1592.00. Gold has been on a short and intermediate term sell signal for a number of months, and the market never had enough momentum to push it above $1700.00.
April platinum lost $33.20 on volume of 16,740 contracts. Volume more than doubled from February 14 when 7,768 contracts were traded and platinum lost $18.80 while open interest increased by 160 contracts. On February 15, open interest declined by a massive 1,192 contracts, which in relation to volume is approximately 180% above average. While this was a healthy decline of open interest, much more work on the downside needs to occur and platinum has to shake out more longs. It is somewhat surprising that platinum is trading $18.60 higher as this report is being compiled. The dismal news of auto sales out of Europe is most definitely a major factor for future platinum consumption. Additionally, it appears that Europe is sliding further into recession. We think it is premature to enter new long positions.
March silver lost 50.4 cents on heavy volume of 97,137 contracts. Volume was the highest since November 28, 2012 when 163,326 contracts were traded and March silver closed at $33.77. On February 15, open interest increased only 840 contracts, which in relation to volume is approximately 55% less than average. Note that open interest increases for both gold and silver were minor despite a significant decline in prices. This may indicate a reluctance on the part of new longs and shorts to enter positions. We may get a better idea of this once we see the open interest stats for February 19. On February 15, silver made a new low for the move of $29.66, which is the lowest price since August 22 ($29.37), which has been taken out on February 19 ($29.175). On February 12, March silver generated a short-term sell signal which confirmed the intermediate term sell signal. Managed money is fleeing the commodity space and redeploying funds into equities.
The March euro gained 8 points on volume of 238,897 contracts. Open interest declined by 1,626 contracts, which in relation to volume is approximately 60% less than average.During the past 8 days, open interest has declined 22,433 contracts while the March euro lost approximately 2.51 cents. This is bullish open interest action relative to the price decline. It is healthy to see the open interest decline when prices are declining, and this is precisely the kind of action we want to see before recommending long positions. We think it is premature to get long, but the conditions are becoming increasingly favorable.
S&P 500 E mini:
The March S&P 500 E mini lost 1.50 points on volume of 1,735,655 contracts. Open interest increased by 32,878 contracts, which in relation to volume is approximately 20% below average from February 12 through February 15 open interest has increased by 112,089 contracts while the E mini has advanced 4.00 points. As we have mentioned in previous reports, patterns of massive increases of open interest that move prices fractionally higher can be a sign the market is getting tired. As this report is being compiled on February 19, the E mini is trading 10.25 points higher and has made a new high for the move at 1527.75. As mentioned before, our concern is that the market has been moving higher since January 2, yet the number of stocks trading above their 50 day moving averages have been declining to lows seen in late December 2012. Until this turns around, we continue to advise a stand aside position. One conservative way of playing the rally and benefiting from a correction, is to write out of the money calls.