January soybeans lost 23.25 on very light volume of 142,619 contracts. Volume decreased by 10,673 contracts from November 2 when soybeans lost 33.25 cents and open interest declined by 2,250 contracts. On November 5, total open interest declined by 5,730 contracts, which in relation to volume is 60% above average, meaning that liquidation was heavy. Additionally, the November contract lost 3,795 of open interest and the January and March contracts lost a combined 3,827 of open interest. The crop progress report issued by the USDA shows that 93% of the crop has been harvested and this compares to 91% a year ago at this time.
It is anticipated by those in the trade that soybean production in the USDA report will likely come in at 2.891 billion bushels, with the high-end estimate at 2.959 billion bushels. This compares to the 3.094 billion bushels harvested last year. Liquidation was active in the January and March contracts where the majority of speculative interest is held. On November 5, January soybeans made a low of $15.02, which is the lowest price since October 17 when January beans made a low of 14.86 1/4. As indicated in the Weekend Wrap of November 4, occasionally soybeans will make a secondary low in November, and there are good reasons why the November 5 low will hold. First, volume on November 5 was the lowest when compared to all other declines during the month of October. For example, on October 10, soybeans declined by 26.75 cents and volume was 279,201 contracts while soybeans made a low of 15.18, a mere 16 cents from the November 5 low. In other words, as the market has declined to the bottom of its range, volume is drying up. Second, open interest decreased significantly on November 5, relative to volume. This could indicate that market participants are throwing in the towel at the bottom end of the range. At this juncture, the market is waiting for the November 9 report, and will begin its new trend based upon it. Speculators should have their risk management parameters in place.
December soybean meal lost $6.90 on volume of 57,558 contracts. Open interest declined by 611 contracts, which in relation to volume is approximately 50% below average. The December contract was responsible for losing 2,809 of open interest. Like soybeans, meal will take its direction based upon the November 9 USDA report. Speculators should have their risk parameters in place.
December corn lost 4 cents on volume of 221,114 contracts. Total open interest declined by 6,163 contracts, which in relation to volume is average. The December contract lost 13,585 contracts of open interest. The crop progress report shows that 95% of the corn crop has been harvested, which is considerably ahead of the five-year average, and is at the high of the historical range. As indicated before, if corn breaches 7.32, it is likely it will retest the low of 7.05. There is no reason to be involved in the corn market at this juncture.
December wheat gained 1.50 cents on heavy volume of 111,936 contracts. To put the volume in perspective, year to date average daily volume is 109,295 contracts. The average daily volume for October 2012 was 77,236 contracts and for September 2012, 81,137 contracts. Although the global supply of wheat is more than adequate, the current dry conditions in the wheat belt is adding a nervous quality to the market. For example, according to the latest crop progress report 39% of the winter wheat crop is in good to excellent condition. This is down 10 percentage points from last year at this time and a twenty year low. Additionally, the National Weather Service forecasts mostly dry weather for the next 5 days. It is anticipated that dry conditions could significantly cut yields when the crop is harvested in the spring. From a price point of view, wheat has been trading in a narrow consolidation range since July. We are monitoring wheat prices carefully in order to get an indication when an upside breakout is the real deal. Wheat has done a lot of damage to longs and shorts during the past couple of months because of the chop type trading. The direction of wheat prices will most likely be driven by the USDA report on November 9. Stand aside.
December crude oil gained 79 cents on volume of 477,577 contracts. Open interest increased by a mere 232 contracts. Since recommending that long put positions be liquidated, we have recommended a stand aside position until crude oil rallies. As this report is being written on November 6, crude has rallied $2.36. What we want to see is open interest decline as crude prices advance if a new long put strategy is viable. Continue to stand aside.
December heating oil gained 3.55 cents on volume of 150,006 contracts. Open interest increased by 1,965 contracts, which in relation to volume is a proximately 40% less than average. As this report is being compiled on November 6, heating oil has rallied 5.04. Stand aside.
December gasoline gained 4.66 cents on light volume of 125,357 contracts open interest declined on the advance by 2,722 contracts, which in relation to volume is approximately 5% below average. There is no reason to be involved in gasoline.
December copper lost 1.15 cents on volume of 51,576 contracts. Open interest declined by 2,580 contracts, which in relation to volume is 100% above average, which means that liquidation was very heavy. Stand aside.
December gold gained $8.00 on volume of 131,581 contracts. Open interest declined by a whopping 8,589 contracts, which in relation to volume is 160% above average, which means that liquidation was off the charts heavy. Interestingly, during the previous session on November 2, gold declined by $40.30, but open interest only declined by 1,358 contracts. December gold made a new low at $1672.50, which is slightly above its 200 day moving average of $1670. As this report is being compiled on November 6, gold is trading 33.10 higher. Stand aside.
December silver advanced 27.1 cents on volume of 41,092 contracts. Open interest declined by 1,887 contracts, which in relation to volume is 80% above average, meaning that liquidation was unusually heavy. On November 5, silver made a new low for the move at 30.655, which is below its 200 day moving average of $31.11. As this report is being written on November 6, silver is trading 89.7 cents higher. Stand aside.
Euro: On November 5 the December euro generated a short-term sell signal, and the cash US dollar Index generated a short-term buy signal.
The December euro lost 38 points on volume of 219,721 contracts. Open interest increased by 637 contracts. Generally speaking, once a market generates a short-term sell signal, a counter trend rally usually ensues and we expect this with the euro. The euro has not generated in intermediate term sell signal, which would be confirmation to implement bearish positions. Stand aside.
S&P 500 E mini:
The S&P 500 E mini gained 6.50 points on light volume of 1,393,689 contracts. Open interest increased by 11,292 contracts, which in relation to volume is approximately 55% less than average. As this report is being written on November 6, the S&P 500 E mini is trading 14.75 points higher. In yesterday’s report, we said that it was likely there would be a bounce based upon the election. Generally speaking, most markets are trading higher, and this is probably in anticipation of the outcome of the November 6 presidential election. After the election, the reality of the fiscal cliff will begin to sink in, and will likely cause the market to face strong headwinds. Continue to maintain long puts.