Details of the USDA supply demand report released on January 11 will be provided in the upcoming Weekend Wrap on January 13.
March soybeans lost 5.75 cents on volume of 138,805 contracts. Open interest declined by 283 contracts, which in relation to volume is minuscule and dramatically below average. The USDA report has been released and details of it will be provided in the upcoming Weekend Wrap on January 13. As this report is being compiled, March soybeans made a new low for the move at $13.51 1/2, which takes out the low of $13.56 made on January 4 and November 16. Stand aside.
March soybean meal lost $4.00 on volume of 73,657 contracts. Open interest increased by 2,712 contracts, which in relation to volume is approximately 40% above average, meaning that new longs and shorts were entering the market at an aggressive pace and shorts were driving prices lower. As this report is being compiled, March soybean meal is trading $6.90 lower and has made a new low for the move at 392.40, which takes out the low made on January 4 of 393.20. Stand aside.
March corn gained 4.50 cents on volume of 232,296 contracts. Volume was the highest since January 4 when corn lost 9 cents on volume of 235,859 contracts and open interest declined by 1,603 contracts. On January 10, open interest increased by a healthy 5,263 contracts, which in relation to volume is average. During the past 4 days (January 7-January 10) open interest has increased by a total of 26,508 contracts while March corn has advanced 18.75 cents. This is bullish open interest action relative to the price advance. Additionally, another bullish factor has been the increasing inversion of the March-May spread, which closed at 1.25 cents premium to March, the highest close for the spread since November 28 when it closed at 2 cents premium to March. In the January 6 Weekend Wrap, we stated the narrowing of contango while corn was in a decline was a bullish development. Furthermore, we stated that corn was likely near close to a bottom, even if this was temporary. As this report is being compiled, March corn is trading 10.75 cents higher and has made a new high for the move at 7.23 3/4 on heavy volume. This is the highest price since December 18 when corn made a high of $7.25 3/4. We will explore trading strategy and tactics for corn in the January 13 Weekend Wrap. Stand aside.
March wheat lost 1 cent on fairly heavy volume of 109,850 contracts. Volume exceeded December 12 volume of 109,550 contracts. Open interest declined by a massive 6,190 contracts, and this looks like pre-report liquidation. Relative to volume, the open interest decline was 120% above average, meaning that liquidation was heavy. As this report is being compiled on January 11, wheat is trading 13.00 cents higher and has made a new high for the move at $7.73, which is the highest price since 7.88 made on January 2. It is important to keep in mind, that managed money has a high short to long ratio according to last week’s COT report. Undoubtedly, some of the fuel for the rally is coming from shorts who have decided to exit the market. Stand aside.
February crude oil gained 72 cents on very heavy volume of 732,744 contracts. Volume was the highest since November 13 when 829,142 contracts were traded and February crude oil closed at $86.48. Additionally, volume was dramatically above the average daily volume for 2012 of 555,461 contracts. Despite the very heavy volume, open interest increased by a meager 5,112 contracts, which is dramatically below average. The average true range on January 10 of $1.62 was the highest since January 4 when the ATR was $1.69, but this is a narrow range nonetheless. Based upon the relatively narrow range, heavy volume, and minor increase of open interest, it is difficult to ascertain what was actually taking place on January 10. Crude made its high between 4:00-4:30 a.m. central standard time and proceeded to sell off and make its low of 93.08 between 1:00-1:30 p.m. In short, after the market made a new high for the move at 94.70, which is the highest price since October 10 of $94.87, it sold off and this has continued through this session on January 11. As we have said before, crude needs to go through a correction before it is wise to enter new long positions. Until this occurs, clients should stand aside.
February natural gas 8 cents on volume of 371,045 contracts. Open interest increased by 7,301 contracts, which in relation to volume is approximately 10% below average. As this report is being compiled, natural gas has advanced 13.4 cents. Stand aside.
March copper gained 3.85 cents on volume of 51,326 contracts. Open interest increased by a massive 3,616 contracts, which in relation to volume is approximately 185% above average, meaning that new longs were extremely aggressive and moving prices above the high of $3.7135 made on January 7. As this report is being compiled, copper is trading 5.05 cents lower, and the high of $3.7180 on Friday matches the high made on January 10. Part of the pullback in copper may be attributed to the increase in Chinese inflation of 2.5% during the past 6 months caused by a sharp increase in vegetable prices. This may make it difficult for the Chinese to continue an easy money policy.
February gold gained $22.50 on fairly heavy volume of 189,249 contracts. Volume was the highest since January 8 when gold traded 190,840 contracts and open interest increased by 7,467 contracts. On January 10, open interest increased by only 2,564 contracts, which in relation to volume is approximately 45% less than average. Even though gold advanced by a significantly greater amount on January 10 then January 8, the open interest increase was 65% less than January 8. Additionally, the high on January 8 was $1662.7, whereas the high on January 10 was 1678.80. In short, the market advanced to the highest level since January 3, but the open interest increase was significantly below average. We have warned clients that gold needs to do more work on the downside in order to build a base. As this report is being compiled, gold is trading $18.50 lower and has made a low of 1653.10. Stand aside.
March silver gained 66.9 cents on volume of 48,797 contracts. Interestingly, volume on January 8 was exactly 48,797 contracts and silver prices increased 38.3 cents while open interest declined by 1136 contracts. On January 10, open interest increased 2,281 contracts, which in relation to volume is approximately 75% above average, meaning that new longs were entering the market aggressively, and moving silver prices sharply higher. Like gold, silver has more work to do at the lower end of its trading range in order to build a base. Stand aside.
The March British pound gained 1.37 cents on heavy volume of 130,615 contracts. Volume was the highest since December 14 when 143,742 contracts were traded and the March pound closed at 1.6164 while open interest increased by 11,168 contracts. On January 10, the pound closed at 1.6149 and open interest increased by 1,458 contracts, which in relation to volume is approximately 50% less than average. As this report is being compiled, the British pound is trading 20 points lower and has made a low of 1.6084. As stated in previous reports, our preferred trade is to be long the euro.
The March euro gained 1.97 cents on heavy volume of 344,838 contracts. Volume was the highest since December 12 when 364,979 contracts were traded and the March euro closed at 1.3093 up 78 points while open interest increased by 7,554 contracts. On January 10, open interest increased by 5,251 contracts, which in relation to volume is approximately 30% below average. We would’ve preferred to see a significantly greater increase of open interest, however, there remains a hefty short position held by managed money and nonreportable traders totaling 103,861 contracts according to last week’s COT report. The short covering will have the effect of moving prices higher, but not add to an increase of open interest.
Interestingly, on January 10, the Australian dollar advanced 0.85% while the euro advanced 1.46%, yet open interest in the Australian dollar increased by 13,783 contracts on volume of 122,832 contracts, which is an open interest increase of 340% above average relative to volume. In short, currency traders are in love with the Australian dollar, even though it tends to underperform the euro. As this report is being compiled, the euro is trading 89 points higher, while the Australian dollar is trading 53 points lower. The euro has made a new high for the move of 1.3373, which is the highest price since April 3 when the June euro reached 1.3374. Depending upon your entry point, we recommend that sell stops be moved to breakeven.
S&P 500 E mini:
The S&P 500 E mini gained 11.25 points on volume of 1,541,811 contracts. Volume was the highest since January 3 when 1,598,708 contracts were traded and the E mini declined by 3.50, while open interest increased by 2,912 contracts. On January 10, open interest declined by 4,342 contracts, which in relation to volume is minuscule and dramatically below average. It is negative that open interest declined when the market made a new high for the move at 1470.25, and closed at 1467.00, which is above the September 14 close 1465.75. This was highest close since the rally began on March 9, 2009. Although the E mini looks to move higher, we think clients should avoid the E mini and other major indices. Instead, clients should look for stocks in strong sectors, who are outperforming their peers, constituent indices, and the broad market and are trading close to their 50 day moving averages. Additionally, clients should be cautious about entering new longs in over bought stocks prior to their 4th quarter earning reports.