January soybeans advanced 14 cents on light holiday volume of 113,341 contracts. Volume declined approximately 57,000 contracts from November 16 when January soybeans lost 18.75 and open interest declined by 3,154 contracts. On November 19, open interest declined by 3,266 contracts, which in relation to volume is slightly above average. The advance on low volume, combined with a slightly above average decrease in open interest is bearish market action. Although soybeans rallied on November 19 and the rally continues on November 20, the real test of this market is going to be when the equity markets resume their slide lower. The weather in South America has been extremely favorable, which is changing the perception of the global soybean balance sheet. If there were to be persistent weather problems in Brazil and Argentina, the market could explode to the upside. As it is, we believe the market will be searching for a bottom during the next 3 weeks.
December soybean meal closed unchanged on volume of 58,736 contracts. Volume declined approximately 21,000 contracts from November 16, when January soybean meal lost $5.90 and open interest increased by 3,995 contracts. On November 19, open interest declined by 2,559 contracts, which in relation to volume is approximately 75% above average, meaning that liquidation was heavy. Relative to volume, liquidation in soybean meal was significantly heavier than soybeans. This seems odd because export sales for soybean meal are terrific, and as we’ve noted before in previous reports, soybean meal has been outperforming soybeans by a wide margin on year to date basis. Additionally, meal is a substitute for corn, and as indicated in yesterday’s report, the soybean-corn ratio is the lowest it’s been since August 6, meaning that corn is relatively expensive compared to soybeans and therefore meal as well. Stand aside.
December corn gained 11.75 cents on volume of 289,254 contracts. Volume declined approximately 25,000 contracts from November 16 when December corn advanced 5.75 cents and open interest declined by 2,825 contracts. On November 19, total open interest increased by 8,505 contracts, which in relation to volume is approximately 20% above average, meaning there was aggressive buying pushing prices higher. What made the increase of total open interest even more impressive was that the December contract lost 11,308 contracts, meaning there were more new participants to overcome the liquidation in the December contract.
Although export demand has been in short supply, the likelihood of it increasing is a higher once we get to the turn of 2012 and into the first quarter of 2013. During 3 sessions: November 12, November 13, and November 16 corn made a low of $7.12 1/2, 7.10 1/2, and 7.11 respectively. This appears to be an area of good support. As this report is being compiled on November 20, December corn is trading at $7.44, or more than 30 cents higher from the recent lows. Unlike the soybean complex, corn has a buoyancy in price that quite noticeable. The United States is the largest exporter of corn, and with the significantly reduced supply, there is little to fill the void until the Argentine harvest and next year’s U.S. harvest. Additionally, on a global basis the stocks to usage ratio is the lowest in more than 2 decades. Corn remains on a short and intermediate term sell signal. Stand aside.
December wheat gained 3.75 cents on volume of 105,230 contracts. Total open interest increased 3,313 contracts, which in relation to volume is approximately 20% above average, meaning that new buyers were fairly aggressive and in control. The total increase is more impressive because of the liquidation in December contract. There has been a great deal of concern about the low good to excellent ratings as wheat enters its dormant stage. Although there is not a direct connection made between final harvest and conditions prior to dormancy, this is providing a psychological lift to the market. Concerns will grow if the wheat belt is hit by an extraordinarily cold winter. Like corn, wheat’s problem is a lack of export demand. However this is likely to pick up beginning in the 1st quarter of 2013, especially if concerns grow about the condition of the crop. Wheat is on a short and intermediate term sell signal. Stand aside.
January crude oil gained $2.36 on light volume of 493,581 contracts. Volume was the lowest since November 5 when crude oil advanced 79 cents on volume of 477,577 contracts while open interest increased by 232 contracts. On November 19, open interest declined by 12,887 contracts, which in relation to volume is average. For the past 7 days open interest has declined by a massive 131,518 contracts while crude oil has advanced by $4.19. This is extremely bearish. The action on November 19 also was bearish, especially compared to November 6 when crude oil advanced $3.06 on 590,709 contracts while open interest increased by 5,979 contracts. As this report is being compiled on November 20, January crude oil is trading $2.93 lower on the likelihood of a temporary truce in the Israeli-Palestinian conflict. Stand aside.
January heating oil gained 8.88 cents on volume of 147,305 contracts. Open interest increased by 4,066 contracts, which in relation to volume is slightly above average. As this report is being compiled on November 20, January heating oil is trading 5.22 cents lower. Stand aside.
December natural gas lost 7.1 cents on light volume of 270,487 contracts. Open interest declined by 2,263 contracts, which in relation to volume is approximately 65% less than average. Natural gas continues to trade in a very positive manner, and the price and open interest action is acting in a bullish congruent fashion. With the heavy short position of managed money, the market has the fuel to send it higher. Although, crude oil, heating oil and gasoline are down sharply on November 20, natural gas is currently trading 9.2 cents higher. The market is facing a burdensome supply overhang, and undoubtedly this is the rationale bears are using for being short. However as we have stated in prior reports, it is generally wiser to be on the side of price action versus the fundamental story. In short, from a fundamental point of view the market is bearish, however the technical action is telling us, this is not a bear market. What makes the bullish case more compelling is that price and open interest action has been acting in a bullish congruent fashion for quite a few weeks. It is the consistency of this action, that makes the bearish case suspect. The 200 week moving average is at 3.84. If the market can close above it, and the low of the day is above $3.84, a new leg higher is more than likely.
December copper gained 7.60 cents on fairly heavy volume of 72,594 contracts. Volume was the highest since November 13 when 73,220 contracts were traded and copper advanced .0030, while open interest increased by 3,480 contracts. On November 19, open interest declined by 1,383 contracts, which in relation to volume is approximately 10% below average. The fact that there was a strong rally on relatively heavy volume, and open interest declined is confirmation of the bearish state of the copper market. Stand aside.
December gold gained $19.70 on volume of 142,242 contracts. Trading on November 19 was a bullish affair across the board for virtually all commodities, due to the sharply lower dollar. Open interest increased by a whopping 15,286 contracts, which in relation to volume is approximately 325% above average, which is a number that is off the charts. Despite the heavy number of new longs pushing the gold price higher, it still is below its 50 day moving average of $1743.50. Gold does not seem to have the strength to move decisively over the 1735 area, and as this report is being compiled on November 20, the high of the day has been 1736, which is only 50 cents above yesterday’s high. In short there’s been no follow through on November 20, and gold is trading $9.20 lower on the day. Since November 5 when gold made its low at 1672.50 through November 19, open interest has increased by 20,322 contracts while December gold advanced $54.40, or 3.24%. This is bullish congruent price and open interest action. We are friendly to gold, but want to see more strength, especially during an equities market rout. Stand aside.
December silver advanced 81.9 cents on volume of 64,654 contracts. Volume was only approximately 5,000 contracts above November 16 when December silver lost 30.4 cents, and was approximately 5,000 contracts below the trading of November 15 when silver lost 20.6 cents and open interest increased by 1,263 contracts. The volume on a major move higher was disappointing. The open interest action however was very positive with it increasing 3,806 contracts, which in relation to volume is approximately 130% above average. In other words, there were not a lot of participants, but those that were buying were able to push the market significantly higher. Since November 5, when December silver made its low at $30.655 through November 19, open interest has increased by 9,411 contracts while December silver has advanced $2.22, or 7.17%. This is bullish congruent price and open interest action. Stand aside.
The December Australian dollar advanced 78 points on volume of 108,095 contracts. Open interest increased by a whopping 10,457 contracts, which in relation to volume is approximately 280% above average, which is off the charts. The amount of buying in relation to volume was huge, but a 78 point move is about a 3/4 percent advance in price, which is not unusual in the Australian dollar. In the Weekend Wrap we discussed the possibility of writing short calls once the market has passed its period of seasonal strength. We continue to think this strategy will make a great deal of sense, but not until the turn of the year.
The December euro gained 81 points on volume of 215,326 contracts. Open interest declined by 4,840 contracts, which in relation to volume is average. There is no reason to be involved with the euro at this juncture.
S&P 500 E mini:
The December S&P 500 E mini gained 22.75 points on fairly light volume of 1,748,890 contracts. Open interest declined by 1,714 contracts, which is a very minor decline, but on an advance of this magnitude, open interest should have increased if the bulls were in charge. Additionally, despite this being a holiday week, the fact that volume was the lowest since November 12 when 1,139,313 contracts were traded indicates there was very little enthusiasm on the upside. Long puts should be maintained.