November soybeans lost 26.75 cents on volume of 279,201 contracts. Volume was the highest since September 28 when 319,432 contracts were traded and soybeans advanced 30.25, while open interest declined by 1,669 contracts. On October 10, total open interest declined by 10,455 contracts, which in relation to volume is 50% above average, which means that liquidation was exceedingly heavy. The November contract lost 21,786 contracts, but buying in the back months cut the decline in half. The USDA released its supply demand report and estimated the harvest at 2.86 billion bushels, which was higher than the USDA’s previous estimate of 2.63 billion bushels. Soybean yields were raised to 37.8 bushels per acre from the previous estimate of 35.3 bushels per acre. 2013 carry out is estimated at 130 million bushels, which is unchanged from the previous estimate. Exports are estimated at 1.265 billion bushels, which is up 210 million from the previous report.
As this report is being compiled on October 11, soybeans are trading 37.50 cents higher. However, the long January 2013 short March 2013 soybean spread has narrowed by approximately 5 cents. This is not what we want to see for a sustained move higher. We want strength in the front month and relative weakness in the back month(s). The current weakness of the spread indicates there continues to be pressure in the cash market due to the rapid pace of harvest. Now that the report is out, speculators should be looking to position themselves on the long side of the market, however, leadership from the front month must be in evidence before implementing long positions. Keep an eye out on the October 10 low area of $15.18 and look for the market to find support at a higher low (possible at the $15.32 area) before entering the market. On October 12, the export sales report will be released, and it will be interesting to see what impact significantly lower prices are having on sales. Soybeans should continue to lose open interest as we approach first notice day on October 31.
December soybean meal closed $8.40 on heavier than normal volume of 69,569 contracts. Volume was the highest since October 3, when 71,313 contracts were traded and soybean meal increased by $1.50, while open interest declined by 1,405 contracts. On October 10, open interest increased by 534 contracts, which in relation to volume is approximately 50% less than average. The October contract, which will go off the board shortly, lost 649 contracts of open interest while December added 1,289 contracts. We like soybean meal, especially since the balance sheet in corn has tightened. Speculators should be looking to position themselves on the long side of soybean meal, and should use the October 10 low of 459.80 as a point of reference to enter new long positions. It will be important to see how open interest behaved on October 11, now that liquidation in the October contract is coming to an end. Ideally, we want to to see a strong open interest increase.
December corn lost 5.25 cents on volume of 185,265 contracts. Volume was the highest since October 3 when 282,651 contracts were traded and open interest increased by 4,268 contracts, while December corn lost 1.50 cents. On October 10, open interest increased by 4,633 contracts, which in relation to volume is average. The USDA released its October 11 report and it was bullish for corn. The USDA reduced its bushels per acre to 122, which is down from the prior report of 122.8. Production was estimated at 10.71 billion bushels, which was in line with the prior USDA report of 10.73 billion. The carryout was lowered to 619 million bushels. As this report is being compiled, December corn is trading 36.75 cents higher, which is approximately 10 cents away from its 50 day moving average of $7.82. In past reports, we have said that we believed corn would rally up to its 50 day moving average, where it is likely to run into resistance. The last time, corn closed over its 50 day moving average was on September 10. Stand aside.
December Chicago wheat gained 5.25 cents on volume of 66,967 contracts. Open interest increased by 3,155 contracts, which in relation to volume is approximately 80% above average. Wheat is following corn on the upside on October 11, and continues to trade within its consolidation range, which goes back to July 24. Stand aside.
November crude oil lost $1.14 on heavy volume of 681,415 contracts. Open interest increased on the decline by 16,765 contracts, which in relation to volume is average. In the October 7 Weekend Wrap, we stated that crude traded in a bearish fashion during the prior week and this has continued during the current week. Open interest declines on price advances and increases on price declines. In the October 8-9 reports, we suggested that long puts be implemented and we continue recommend this. Crude is on a short and intermediate term sell signal.
November heating oil gained .0099 on heavy volume of 186,387 contracts. Open interest declined by 766 contracts. As this report is being compiled on October 11, November heating oil has reached a high of 3.2668, which is slightly higher than the September 14 high of 3.2633. Heating oil appears somewhat overbought relative to its 50 day moving average of $3.11, but the market should find support there. Stand aside.
November gasoline gained .0006 on light volume of 145,094 contracts. Open interest increased by 1,111 contracts,, which in relation to volume is approximately 70% less than average. Stand aside.
December copper closed unchanged on light volume of 42,841 contracts. Open interest declined by 853 contracts, which in relation to volume is approximately 10% less than average. Our views on copper have not changed, and we see no compelling reason to be involved in the market. Stand aside.
December gold gained 10.00 cents on light volume of 137,481 contracts. Open interest declined by 7,484 contracts, which in relation to volume is 115% above average. During the past four trading sessions, open interest has declined by 15,604 contracts while December gold has declined by $32.30. This is very healthy price and open interest action in the context of an ongoing bull market. Our main concern about precious metals as well as the grains is that equities are looking weak, and a significant washout in equities is likely to negatively affect those commodities in bull trends. In other words, we could see lower prices in gold simply because other markets are trading lower. We continue to think it is premature to enter new long positions.
December silver gained 12.4 cents on volume of 46,781 contracts. Open interest increased by 925 contracts, which in relation to volume is approximately 10% below average. Our concern about the downside in silver is much greater than the downside in gold. For example, using the same time frame as we used in gold: past four trading sessions, open interest has has increased by 242 contracts while December silver has declined by 99.2 cents. This action is unhealthy and should be of concern to anyone long the silver market. The contrast between the behavior of price and open interest in gold versus silver could not be more different. One is distinctly positive, and the other negative.
Euro: On October 10, the December euro generated a short-term sell signal.
The December euro gained 13 points on light volume of 217,781 contracts. Open interest declined by 3,639 contracts, which in relation to volume is approximately 30% less than average. The generation of a short-term sell signal is the first distinct sign of trouble for the long side of the euro. It appears the rally that started on July 24, 2012 at a low of 1.2069 to the high of 1.3179 on September 14, is over. Stand aside because the euro remains on an intermediate term buy signal.
S&P 500 E mini:
The December S&P 500 E mini lost 9.75 points on volume of 1,673,583 contracts. Open interest increased by 4,494 contracts, which is a minuscule increase. The market continues to act in a bearish fashion and, long put protection should be in place. In yesterday’s report, we wrote about the danger of the cash S&P 500 and the Dow Jones Industrial Average penetrating their 50 day moving averages. The NASDAQ 100 has already accomplished this, and has closed below the 50 day average. In our view, it is only a matter of time before the S&P and the Dow fall below these key averages.