March soybeans lost 34.25 cents on heavy volume of 319,712 contracts. Volume was the highest since October 11, 2012 when 369,720 contracts were traded and March soybeans closed at $15.20 3/4. On February 8, total open interest increased by 2,308 contracts, which is approximately 60% below average. The March contract lost 6,806 of open interest. As this report is being composed on February 11, March soybeans are trading 21.00 cents lower and have made a new low for the move at $14.29 1/4. This week is a holiday in China, and the lack of activity is undoubtedly affecting the market. Also, as the soybean harvest continues in Brazil, this will add further downside pressure. Is important to keep in mind that February is known to be notorious for large declines in grains. This is referred to as the “February Break.” The catalyst to turn the market around may very well be the infrastructure problems that Brazil has to contend with meaning it is likely that getting crops to the port for shipment is going to be problematic. The market may not respond until this issue becomes acute. Despite the sharp move lower, soybeans remain on a short-term buy signal and an intermediate term sell signal.
March soybean meal lost $15.20 on heavy volume of 127,547 contracts. Volume was the highest since July 19, 2012 when 165,533 contracts were traded and March soybean meal closed at $437.50. On February 8, total open interest declined by 5,852 contracts, which in relation to volume is approximately 75% above average meaning that longs were liquidating in heavier than normal numbers. The March contract lost 14,070 contracts of open interest. As we pointed out in the Weekend Wrap of February 10, the spread action in soybean meal has been very bearish and meal has been the weakest member of the soybean complex. As this report is being compiled, March soybean meal is trading $8.60 lower and has made a new low for the move at 413.00. It is highly likely that March soybean meal will generate a short-term sell signal on February 11. It is already on an intermediate term sell signal. We think soybean meal is a victim of the “February Break” and expect that it shall turn around, however, at the present time it is a market that should be avoided on the long side.
March soybean oil lost 42 points on heavy volume of 150,935 contracts. Volume surpassed that of February 7 when 144,398 contracts were traded and soybean oil declined by 60 points. On February 8, total open interest declined by 1,691 contracts, which in relation to volume is approximately 45% less than average. From February 5 through February 8, open interest has increased only 647 contracts while March soybean oil has declined 1.68 cents. This is fairly positive open interest action relative to price. It would would have been preferable to see a net decline, but the open interest build was due to the action on February 6 when March soybean oil declined by 53 points and open interest increased by 3233 contracts. In the February 10 Weekend Wrap, we showed that soybean oil has been outperforming the 2 other members of the soybean complex as well as wheat and corn year to date. The 50 day moving average on the soybean oil continuation chart is 50.42, and a pullback to this area should be expected due to the negative slant in the soybean complex over the past couple of days. Despite the move lower, March soybean oil remains on a short and intermediate term buy signal.
March corn lost 1.75 cents on heavy volume of 495,808 contracts. Volume was the highest since January 11 when corn traded 569,660 contracts and March corn closed at $7.08 3/4. On February 8, open interest declined by a massive 19,369 contracts, which in relation to volume is approximately approximately 50% above average, meaning that liquidation was heavy. The March contract lost 35,823 of open interest, and there were open interest increases from May 2013 through July 2014. As this report is being compiled, corn is trading down 3.75 cents and has made a new low for the move at $7.01.00. As pointed out in the February 10 Weekend Wrap, the March-May spread is trading in an inverted formation. This is bullish action, but the grain complex is undergoing a seasonal washout. It is likely that March corn will generate a short-term sell signal on February 11. It is already on an intermediate term sell signal.
March wheat gained 0.25 cents on heavy volume of 183,317 contracts. Volume was the highest since January 11 when 190,768 contracts were traded and March wheat closed at $7.54 3/4. We continue to think the short side in wheat is in the process of being played out, and the danger to shorts is if exports begin to pick up. We think this is likely because American wheat is among the cheapest on the world market. As we have indicated before, the grains are going through a seasonal decline and wheat is not immune from this. The open interest action in wheat has been abysmal and it remains on a short and intermediate term sell signal.
March crude oil lost 11 cents on volume of 692,999 contracts. Open interest increased by 867 contracts, which is minuscule and dramatically below average. We suggest that clients review the February 10 Weekend Wrap to understand our views on crude oil at this juncture.
March copper gained 3.25 cents on heavy volume of 71,327 contracts. Volume shrank by approximately 3,000 contracts from February 7 when March copper lost 1.35 cents and open interest declined by 4,243 contracts. On February 8, open interest declined by 2,503 contracts, which in relation to volume is approximately 40% above average, meaning that participants were liquidating as the market moved higher. The decline of open interest on the advance was the first since January 28 when copper advanced .0095 and open interest declined by 119 contracts on volume of 45,367. We have been saying for quite a while that copper is in a trading range, which makes holders of long or short positions vulnerable to larger losses. As this report is being compiled, March copper is trading 3.35 cents lower and has made a new low for the move at $3.7080..
April gold lost $4.40 on light volume of 102,295 contracts. Open interest increased by 1,991 contracts, which in relation to volume is approximately 25% below average. OIA has been negative toward precious metals and gold in particular. As this report is being compiled, April gold is trading $18.30 and the market has made a new low for the move at $1644.10.
April platinum lost $7.60 on volume of 11,948 contracts. Open interest declined by 996 contracts, which in relation to volume is approximately 230% above average, meaning that liquidation was heavy. February 8, was the first day since January 29 when open interest declined. The decline on the 29th was only 90 contracts. In short, the decline on February 8 has been the largest since platinum generated a short and intermediate term buy signal on January 11. As this report is being compiled, April platinum is trading $23.80 lower.
From the February 6 report:
February 6 is the 16th day that open interest has increased since platinum generated a short and intermediate term buy signal on January 11. In prior reports, we have cautioned that platinum is massively overbought relative to its 50 day moving average and the long to short ratio. The large price advance, combined with heavy volume and a heavy increase of open interest tells us that a top or temporary top is likely in place. Additionally, the high of $1744.50 was accompanied by a volume spike of 1,068 contracts (approximately 5% of total volume) on the 15 min. chart, which occurred at 2:30 a.m. February 6. Since then, platinum has never been close to retesting that high.
We caution clients to stand aside because of the overbought situation on a price basis, the stratospheric long to short ratio and the froth in the market. As we said in the February 5 report, the problems of high production costs of South African platinum mines has been appearing in various news reports. We believe latecomers have piled in, which is almost always a negative sign for bulls. During the past year, platinum has had two major tops. The first one occurred on February 22, 2012 at 1731.80, and the second at $1731.20 on October 5, 2012. Stand aside.
March silver gained 3.8 cents on volume of 46,478 contracts. Open interest increased by 1,065 contracts, which in relation to volume is approximately 10% below average. Although the performance of silver far surpasses gold, it nonetheless has been trading in a lackluster fashion. The danger for silver is that the long to short ratio is at a stratospheric level, which in our view means more selling ahead. As this report is being compiled, silver is trading 44.1 cents lower and has made a new low for the move at $30.82. Silver remains on a short-term buy signal, but an intermediate term sell signal.
The March euro lost 41 points on volume of 271,744 contracts. Open interest declined by 1,374 contracts, which in relation to volume is approximately 75% below average. For the past 3 trading sessions beginning on February 6, open interest has declined by 9,846 contracts while the March euro has declined 2.22 cents. This is bullish congruent open interest action relative to the price decline. The 50 day moving average for the euro is 1.3246, and a move to this level cannot be discounted. The reason for this is, the long to short ratio according to the latest COT report shows that leveraged funds are long at the highest level in at least 2 years. This makes the euro vulnerable to more downside action because the increase in the ratio has been a fairly recent. This means leveraged funds may decide to liquidate further if prices move lower.
S&P 500 E mini:
The S&P 500 E mini gained 7.25 points on light volume of 1,431,299 contracts. Volume was the lightest since January 28 when 1,210,245 contracts were traded and the E mini gained 1.25 points, while open interest declined 3,685 contracts. On February 8, open interest increased by 40,352 contracts, which in relation to volume is average, but a large number nonetheless. It is somewhat surprising that volume dropped precipitously while the E mini it was making new highs for the move (1515.00). During the past 4 sessions beginning on February 5, open interest has increased by 107,988 contracts while the E mini has advanced 19.00 points.
Although it is positive that open interest has increased during the past 4 days, the problem is, the increase is disproportionately large to the price advance. This, in our view indicates heavy selling pressure, which is keeping a lid on the advance. The increase of open interest on February 8 was the highest since January 23 when it increased 45,956 contracts on volume of 1,194,237 contracts and the E mini gained 0.75 points. We see the market struggling at the current elevated level, and think clients should be taking defensive measures: Making sure stops are in place, and if they have losses in individual stocks these should be pared back if not liquidated entirely. The reason for this is when the market corrects, stocks with losses will set back further. The goal is not to try to pick a top, but rather manage profits and losses before and during the inevitable setback.