March soybeans gained 21.25 cents on volume of 148,242 contracts. Volume declined from January 4 when 173,894 contracts were traded and March soybeans declined by 19.25, while open interest increased by 1,174 contracts. On January 7, open interest declined by 4,545 contracts, which in relation to volume is approximately 20% above average. The last time soybeans rallied by the same magnitude as January 7 occurred on December 21 when soybeans gained 24.50 on volume of 170,121 contracts, while open interest declined by 17,101 contracts. Keep in mind that December 21 was right before Christmas and volume shrinks dramatically. In essence, on January 7, we had a rally that nearly matched the size of December 21, but had volume that was approximately 22,000 contracts less than a pre-holiday trading session. All positions should be liquidated prior to the USDA report on January 11. Stand aside.
March soybean meal gained $9.90 on volume of 66,908 contracts. Open interest increased by a massive 4,697 contracts, which in relation to volume is approximately 170% above average, meaning that longs and shorts had very strong opinions about the direction of soybean meal, but new longs were driving the market higher. Note the difference between the open interest action in soybeans versus soybean meal: one is negative and the other is positive. All positions should be liquidated prior to the January 11 USDA report. Stand aside.
March corn gained 5.25 cents on volume of 202,941 contracts. Open interest increased by 3,895 contracts, which in relation to volume is approximately 5% less than average. The March-May spread continues to move from contango to inversion and the spread closed at 0.25 cents premium to March. The spread gained 0.75 on January 7. Please review the Weekend Wrap of January 6 when we discussed the implications of corn moving from contango to inversion. All positions should be liquidated prior to the January 11 USDA report.
March wheat gained 4 cents on volume of 76,695 contracts. Open interest increased by a massive 6,406 contracts, which in relation to volume is approximately 225% above average meaning that longs and shorts were aggressively entering the market and the longs won the day by moving prices higher. All positions should be liquidated prior to the January 11 USDA report. Stand aside.
February crude oil gained 10 cents on light volume of 397,682 contracts volume declined by approximately 114,000 contracts from January 4 when crude oil advanced 17 on volume of 511,030 contracts, while open interest declined by 5,431 contracts. During the past 3 days, open interest has declined by 1,916 contracts while crude oil has advanced 13 cents. This action is neither bullish or bearish. Also, for the past 3 days (January 3-January 7) crude has traded in a very narrow range with a a 3 day average true range of $1.14, which is significantly lower than its 21 day average true range of $1.60, and the 35 day average true range of $1.73. The reason this is important is because range contraction is followed by range expansion, and since crude oil is overbought at this juncture, it is more likely (with the exception of the geopolitical crisis) that crude oil will undergo a correction. Stand aside.
February natural gas lost 2.1 cents on volume of 199,358 contracts. Open interest increased by 5,354 contracts, which in relation to volume is average. Stand aside.
March copper lost 1.55 cents on volume of 46,671 contracts. Open interest increased by 190 contracts, which is minuscule and dramatically below average. During the past 3 sessions copper has lost 5.80 cents while aggregate open interest has increased by 1314 contracts. It would be positive to see open interest decline, but the build of open interest is actually quite small relative to the volume of the past 3 days. On January 7, copper made a new low for the move at $3.6525, which is the lowest price for copper since January 2, when copper made a low of 3.6440. Copper is on a short and intermediate term buy signal, therefore it should be traded from the long side.
February gold lost $2.60 on volume of 160,704 contracts. Open interest increased by 5,090 contracts, which in relation to volume is approximately 20% above average. During the past 3 trading sessions, gold has declined by a total of $42.50, while open interest increased by 1,657 contracts nthis period. In relation to 3 day’s volume, the 3 day open interest increase is minuscule. Conceivably, the slight increase in open interest during the three-day decline may possibly signify that gold is in a bottoming process, and the worst of the carnage is over, at least for now. Distressed longs from higher levels have likely been blown out. Another indication of this was the volume spike on January 4 of 276,607 contracts when gold made a new for the move of 1626.00. This was only $10.00 lower than the previous low of 1636.00 made on December 20. Gold remains on a short and intermediate term sell signal. Stand aside.
March silver gained 13.6 cents on volume of 40,270 contracts. Open interest increased by 303 contracts, which in relation to volume is approximately 60% below average. For the past 3 trading sessions, silver has declined by 92.5 cents while open interest has declined by 2,870 contracts, which is positive and indicates that a substantial number of longs have been liquidating. Silver remains on a short and intermediate term sell signal. Stand aside.
The March British pound gained 43 points on volume of 96,245 contracts. Volume declined on the advance by approximately 30,000 contracts from January 4, when the pound lost 44 points and open interest declined by 6,082 contracts. On January 7, open interest declined by 2,591 contracts, which in relation to volume is average. From January 2 through January 7 open interest in the pound has declined by a total of 9594 contracts while the March pound has declined by 1.38 cents (138 points). The aggregate open interest decline of the past 4 days in relation to aggregate 4 day volume is average. The pound continues to trade around its 50 day moving average of 1.6065. Our preferred trade is to be long the euro, and although we think the pound is headed higher, it is a sub optimal trade in our view.
The March euro gained 40 points on volume of 229,312 contracts. Open interest declined by 3,501 contracts, which in relation to volume is approximately 35% less than average, meaning that liquidation was fairly light. From January 2 through January 7, total open interest has declined by 14,085 contracts, while the March euro has declined by 88 points. The aggregate open interest of the past 4 days in relation to the aggregate volume of the past 4 days has been approximately 40% less than average, meaning the price decline during the past 4 trading sessions, has been light relative to its four-day volume. Compare the aggregate decline of open interest in the euro to the pound during the past 4 trading sessions relative to their 4 day aggregate volume, and it is obvious that liquidation in the pound was considerably heavier than the euro. Clients should be looking to enter positions on the long side of futures and/or options at current levels. We recommend using the January 7 low of 1.3025 as an exit point
S&P 500 E mini:
The S&P 500 E mini lost 2.00 points on volume of 1,201,407 contracts. Open interest increased by 10,321 contracts, which in relation to volume is approximately 55% below average. It appears there is going to have to be a major catalyst to move the market above its September 14 high of 1468. The earnings season is upon us, and it is likely this will be the dominant force in the market until the bulk of companies have reported. We think there are terrific opportunities in individual stocks and ETF’s, but we would avoid the long or short side of the E mini for now. Stand aside.