January soybeans lost 33.25 cents on extremely light volume of 153,292 contracts. Volume on November 2 was significantly lower than October 29 when 226,200 contracts were traded and soybeans lost 34 cents while open interest declined by 16,558 contracts. The lows on November 2 and October 29 were 15.24 3/4 and 15.24 respectively. In other words, the decline on both days were of the same magnitude and the lows were the same, yet volume shrank by 72,908 contracts on November 2.
This tells us that large numbers of longs have already liquidated. On November 2, total open interest declined by 2,250 contracts, which in relation to volume is approximately 30% less than average. The decline was primarily in the November contract, which lost 4,155 contracts of open interest. Deliveries against the November contract are relatively heavy, and this is undoubtedly pressuring soybeans. One positive factor to note is that the November 2012-January 2013 spread closed at 1/4 cent premium to the November contract. This is the first time in over 2 weeks that November has sold at a premium to January.
All eyes are going to be on this Friday’s USDA supply demand report, which is expected to show an increase in total production. However, it is also possible that export sales could be revised higher. As we said in the Weekend Wrap of November 4, the estimates provided by the two crop forecasters have been discounted by the market. The only fly in the ointment is if the harvest is revised above above the numbers provided by the crop forecasters. For more information on this, please see the Weekend Wrap. As indicated in the weekend report, speculators must finely tuned their risk management parameters until soybeans have shown they are ready to take another leg higher. The outside markets look weak and if they continue to decline, soybeans will most likely follow, unless there has been a bullish catalyst to send it higher.
December soybean meal lost $8.40 on volume of 47,575 contracts. Open interest increased by 913 contracts, which in relation to volume is approximately 10% less than average. The December contract lost 1,345 contracts of open interest, and there was a sufficient increase of open interest in the back months to turn total open interest into a positive number. While we don’t like an open interest increase on a price decline in meal, one day’s activity does not make a trend. Soybean meal continues to show greater strength than soybeans, and we think that soybean meal will lead the complex higher. It is important to fine tune risk parameters this week, especially before the November 9 USDA report.
December corn lost 11.50 cents on heavy volume of 323,959 contracts. Volume was higher than October 31 when 317,518 contracts were traded and December corn advance 14 cents while open interest increased by 7,622 contracts. On November 2, total open interest declined by 1,428 contracts, which in relation to volume is approximately 70% less than average. There was massive liquidation in the December contract of 20,977 contracts, and the increase of open interest in the forward months whittled down the total number. Corn has been trading sideways to lower, and the sentiment is that the USDA is not likely to increase the harvest number by much if at all. Stand aside.
December wheat lost 4 cents on volume of 81,158 contracts. Volume was the lowest since October 29 when 63,662 contracts were traded and December wheat lost 5.75, while open interest declined by 3,455 contracts. Total open interest declined by a mere 4 contracts. The December contract accounted for 3,446 contract decline of open interest. Wheat has been relatively firm and the long December 2012 wheat- short December 2012 corn spread shows that wheat is the stronger of the two. Wheat is being supported by dry conditions in the wheat belt, and belief that the USDA will cut world wheat production in the November 9 report. However, exports must pick up if wheat is to take another leg higher. The 50 day moving average is $8.79 on the December chart. Stand aside.
December crude oil lost $2.23 on heavy volume of 648,226 contracts. Volume on November 2 was higher than October 19 when 627,850 contracts were traded and open interest declined by 7,840 contracts while December crude lost $2.09. The last time volume exceeded November 2 occurred on October 11 when 652,165 contracts were traded and crude oil advanced 82 cents while open interest increased by 11,883 contracts. On November 2, open interest increased by 10,244 contracts, which in relation to volume is approximately 35% less than average. We are waiting for a short covering rally before recommending long put positions.
December heating oil lost 8.58 cents on very heavy volume of 236,423 contracts. There were some big volume days in October, but volume on November 2 has been the highest thus far, and one of the highest of the year. Open interest declined by 3,212 contracts, which in relation to volume is approximately 40% less than average. Surprisingly, the decline of open interest was fairly muted compared with the large volume traded. Please see Weekend Wrap of November 4 for a further discussion of heating oil. Stand aside.
December gasoline lost 6 cents on fairly light volume of 143,841 contracts. Open interest declined by 4,005 contracts, which in relation to volume is approximately 10% above average. Please note that volume in heating oil on November 2 exceeded gasoline by 92,582 contracts, but open interest in gasoline declined by a significantly greater amount relative to volume. Compared to heating oil, gasoline has a significantly greater long to short ratio. Stand aside.
December copper lost 7.05 cents on volume of 62,160 contracts. Open interest increased by 692 contracts, which in relation to volume is approximately 50% less than average. Stand aside.
December gold lost $40.30 on heavy volume of 245,619 contracts. Volume was the highest since September 13 when 283,369 contracts were traded and December gold closed at $1772.10. Surprisingly, open interest declined by only 1,358 contracts, which in relation to volume is approximately 75% less than average, meaning that liquidation was very light. This is surprising considering the magnitude of the decline, but is also testament to the liquidation that occurred long before the November 2 decline. On November 2, gold made a new low for the move at $1674.80, which took out the October 24 low of 1698.70 On October 22, gold generated a short-term sell signal, but as of November 5 has not generated an intermediate term sell signal. Stand aside.
December silver lost $1.391 on heavy volume of 72,043 contracts. Volume was the highest since September 13 when 95,338 contracts were traded and December gold closed at $34.778. Remarkably, open interest declined by only 26 contracts. This is a significantly smaller decline than gold on November 2. Stand aside.
The December euro lost 1.11 on volume of 276,696 contracts. Open interest declined by 5,187 contracts, which in relation to volume is approximately 15% less than average. It is highly likely that the December euro will generate a short-term sell signal on November 5. Stand aside.
S&P 500 E mini:
The S&P 500 E mini lost 17.75 points on volume of 2,090,178 contracts. Open interest increased by 29,125 contracts, which in relation to volume is approximately 40% less than average. On October 22, the S&P 500 E mini generated a short-term sell signal, but has not yet generated an intermediate term sell signal. The market continues to look sluggish, and we expect further downside action, but conceivably a rally could occur based upon the outcome of the November 6 election. Maintain long puts.