November soybeans lost 26.00 cents on volume of 227,310 contracts. Volume declined by approximately 142,000 contracts from October 11, when soybeans gained 25.25 and open interest increased by 2,094 contracts. Additionally, volume on October 12 was above the average daily volume for September of 206,604 contracts. Unfortunately, the open interest action was terrible considering the magnitude of the decline. On October 12 total open interest increased by 1,238 contracts, which in relation to volume is approximately 50% less than average and was a minor increase.
However, the real problem is that open interest in the November contract declined by only 2,103 contracts. The reason this is troubling is twofold. First, on a decline of 26 cents, it would be expected that open interest would decline in the November contract. Second, what makes the small decline of open interest in the November contract troubling is it has only fifteen more trading days (including October 15) before speculators must liquidate before first notice day on October 31. This is potentially problematic because as of October 12, total open interest in the November contract is 213,716 contracts and the total open interest for all contracts is 712,273 contracts. In other words, speculative interests must either liquidate their positions, or roll them over into January forward contracts. The open interest in the January contract increased by 3,357 contracts, which is bearish and accounted for the total open interest increase.
The market has fallen far more than we expected, and it was somewhat surprising that the previous low of $15.04 didn’t hold. As we are compiling this report, November soybeans are trading 25.25 cents lower and the contract has made a new low for the move at 14.85 3/4. The next area support appears to be at the 14.78 level, which is the low end of the gap made between July 3 and July 5. Also the 150 day moving average for the November contract is $14.78. At this juncture, it is difficult to tell whether the market will continue to erode as beans move into first notice day, or whether there will be a massive down day on huge volume. As indicated in the Weekend Wrap, our only concern is if previous export sales are canceled en masse. With the market trading the way it is, it doesn’t pay to be a hero by entering the market prematurely. We believe there will be a signal when the carnage is over, and will alert our clients to any new developments.
December soybean meal lost $7.00 on volume of 64,230 contracts. Volume contracted by approximately 28,000 contracts from October 11 when soybean meal gained 9.60 and open interest increased by 1,183 contracts. Additionally the volume on October 12 was below the average daily volume in September of 73,148, which is positive. On October 12, open interest declined by a healthy 1,967 contracts, which in relation to volume is approximately 10% above average. Open interest declined in the first three contract months of October (-104), December (-1796), January (-957). The low volume on the decline signals that much of the heavy volume selling is out of soybean meal. It doesn’t mean that the market can’t go lower, because as this report is being compiled December soybean meal is trading 8.30 lower. However, it does indicate that soybean meal is in far better shape from a technical point of view than soybeans. All one has to do is look at the difference in the long to short ratios of soybeans versus soybean meal to see that soybean meal has a healthier (lower) long to short ratio in the managed money category.
On the continuation chart, the 150 day moving average is 454.70, and the 200 day is 422.50. For the December contract, the 150 day moving average is 429.00. Additionally, there is a gap between the high on July 3 of 431.20 and the low on July 5 of 435.70. If the gap is filled, this would be a reasonable downside target in a worst-case scenario. In yesterday’s report, we said that it was unlikely that December soybean meal would close under 454.00. However, with the final soybean open interest numbers in for trading on October 12, beans may continue to drag meal lower.
December corn lost 20.25 cents on fairly light volume of 205,222 contracts. Volume was approximately 193,000 contracts lower than on October 11, when corn closed 36.25 higher and open interest increased by a massive 49,911 contracts. On October 12, total open interest declined by 3,758 contracts, which in relation to volume is approximately 20% less than average. However, the December contract shed 13,726 contracts of open interest, which probably was from disappointed buyers on October 11. As we indicated in the Weekend Wrap of October 14, we think that corn made its last gasp rally on October 11. As this report is being compiled on October 15, corn is trading 16.25 cents lower. On September 11, December corn generated a short-term sell signal, but has not yet generated in intermediate term sell signal. Stand aside.
December wheat lost 29.25 cents on volume of 91,865 contracts. Volume declined approximately 24,000 contracts from October 11 when wheat advanced 16.25 cents and open interest increased by a massive 13,575 contracts. In addition, On October 12, volume was over 10,000 contracts above its average daily volume during September of 81,137 contracts. On October 12, open interest declined by 6,227 contracts, which in relation to volume is 175% above average, which is heavy liquidation. Undoubtedly, much of this came from disappointed bulls who stampeded into the market on October 11. As indicated in the October 14 Weekend Wrap, our thinking on corn is applicable to wheat in that October 11 represented wheat’s last gasp to break above its consolidation range. As this report is being compiled on October 15, December wheat is trading 13.25 cents lower. Stand aside.
November crude oil lost 21.00 cents on light volume of 403,353 contracts. Volume shrank approximately 249,000 contracts from October 11, when 652,165 contracts were traded and open interest increased by 11,883 contracts while November crude closed 82 cents higher. On October 12, open interest declined by 3,661 contracts, which in relation to volume is approximately 55% less than average. As we are compiling this report on October 15, November crude oil is trading $1.05 lower. If long puts were put on last week, stay with the position. Those that are not in the market should wait for a rally to the 92.00-93.00 level before implementing long put positions.
November heating oil lost 3.32 cents on volume of 161,089 contracts. Open interest increased on the decline by 3,816 contracts, which in relation to volume is a tad less than average. While the fundamental situation in heating oil is favorable, enormous volatility, combined with open interest that has no discernible pattern is good reason to leave heating oil alone.
November gasoline lost 6.28 cents on volume of 132,609 contracts. Open interest declined by 6,453 contracts, which in relation to volume is approximately 100% above average, which is heavy liquidation. There is no reason to be involved in gasoline. Stand aside.
December copper lost 4.85 cents on volume of 50,485 contracts. Open interest declined by 2,870 contracts, which in relation to volume is approximately 125% above average, meaning the liquidation was heavy. As this report is being compiled on October 15, December copper is trading 1.15 lower after having made a low for the move at $3.6460. This is the lowest price for December copper since September 13 when it reached $3.6585. If the fundamentals in China were more favorable, we could get more enthusiastic about copper. Despite it being on a short and intermediate term buy signal, we recommend that speculators stand aside.
December gold lost $10.90 on volume of 136,594 contracts. Open interest declined by 1,846 contracts, which in relation to volume is approximately 40% less than average. Ever since gold reached its high of $1794.40 on October 1, we have been cautioning speculators to wait for correction. As this report is being compiled on October 15, December gold is trading $21.50 lower, having reached a new low for the move at 1729.70. We have suggested that speculators wait until gold reaches the 1720 level before contemplating long positions. The 50 day moving average on the continuation chart is 1707.30. What we want to see is open interest decline with prices in order to get the market back into balance. Our only concern about entering long positions at current levels is if equities decline sharply, we think gold will follow.
December silver lost 41.3 cents on volume of 40,780 contracts. Open interest increased by 465 contracts, which in relation to volume is approximately 50% less than average. Like gold, we have recommended that clients stand aside in silver and wait for correction. As we are compiling this report on October 15, silver is trading 84.4 cents lower and has made a new low for the move at $32.57. The 50 day moving average on the silver continuation chart is $31.91. Like gold, our concern is if the equities market takes a spill, silver will go down with the ship. What we need to see in silver, as in gold is a fairly significant decline of open interest with prices. Until that occurs, silver is vulnerable to further declines.
The December euro gained 27 points on light volume of 199,987 contracts. Open interest declined by a mere 72 contracts. The euro is on a short-term sell signal and an intermediate term buy signal. Stand aside.
S&P 500 E mini:
The S&P 500 E mini lost 7.00 points on volume of 1,626,529 contracts. Open interest increased by 3,074 contracts, which in relation to volume is 85% less than average. During the past three times that the S&P 500 E mini has declined (October 9 10,12) the open interest build has been very minor. For example, on October 9 the E mini declined by 13.75 points and open interest increased by only 16,046 contracts, which in relation to volume is considerably less than average. On October 10,the E mini declined by 9.75 points and open interest increased by 4,494 contracts, which is considerably than average in relation to volume. In our view, the below average increase of open interest on 3 days when prices declined is indicative of a lack of conviction by bulls and bears. Speculators should be watching the movement of Apple Computer because it is a benchmark for the market. If Apple is not rallying when the S&P 500 and the NASDAQ 100 market rallies, it is a likely sign of further weakness ahead. Apple is on a short term sell signal. Long put protection should be in place.