Soybeans:

November soybeans gained 15.50 cents on volume of 142,882 contracts. Open interest declined by 1,285 contracts, which in relation to volume is approximately 50% below average. The November contract lost 4,600 contracts of open interest. Soybeans made a low of $14.87 1/4, which was 1.50 cents above the low made on October 15 of $14.85 3/4.

As this report is being compiled on October 18, soybeans have rallied 33.75 cents, which is a short term bounce because the market is massively oversold. To put this oversold condition in perspective: on the soybean continuation chart, the 50 day moving average is 16.50 3/8 while the 150 day moving average is 15.36 3/8. On the November chart, the 50 day moving average is 16.40 1/4 and the 150 day is 14.81 3/8. 

Speculators likely will use rallies to exit long positions in the November contract, which will put a lid on the rally. Clients should keep an eye on the spread relationship between the November contract and the January and March contracts. We are looking for the front month to show unusual strength versus January and March forward contracts. This will indicate the cash market is strengthening in earnest. On the other hand, when soybeans decline, watch to see whether the spreads narrow or widen. It is bullish, and a sign the market is finally bottoming, if the long November short January, March spread widens as the market declines. Also, keep an eye on volume, because the real test of a rally is the amount of fuel that is powering it higher. Lackluster volume means no enthusiasm.

The USDA released its export sales for beans for the most recent week and total sales were 525,200 tons, with 523,400 tons for the 2012-2013 season. This is not a bad number, but expectations were in a range of 650-800,000 tons. The number reported was about the same as the previous week. Is important to remember that the harvest is very close to being over, and the problem for grain exporters will be to source large amounts of soybeans. The problem is: farmers are not likely to part with soybeans at $15.00. The lack of farmer selling and the act of holding back sales until soybeans rally could be a real problem for grain exporters who must fulfill their commitments. As we said in yesterday’s report, the low 15.00 range represents solid longer-term value. We think the market will attempt to retest the lows, but speculators should be monitoring the market closely because we are at, or getting near harvest lows.

Soybean meal: On October 17, December soybean meal generated an intermediate term sell signal.

December soybean meal gained $1.90 on low volume of 46,130 contracts. Open interest increased by 40 contracts, and the December contract lost 724 of open interest. The export sales report for soybean meal was not bad, but it was lower than it has been in recent weeks. Total sales were 146,000 tons and 143,500 was for the 2012-2013 season. Like soybeans, December soybean meal is rallying and is currently trading 8.40 higher. In 450.00 range, soybean meal is at solid longer-term value. Like soybeans, we believe soybean meal is at or near its harvest lows, but we think an attempt to retest the lows are in the offing. Like soybeans, watch how December trades compared to January and March. We want to see independent strength in the December contract.

Corn:

December corn gained 7.25 on extremely low volume of 129,977 contracts. Total open interest increased by 3,039 contracts, which in relation to volume is average, but open interest in the December contract declined by 2,742 contracts. As this report is being compiled on October 18, December corn is trading 15.75 cents higher. Export sales for the most recent week showed that 166,700 tons were sold for the 2012-2013 season, which is up dramatically from the previous week of 14,000 tons. The export sales number was the highest for the last three weeks, therefore the rally in corn may be a result of a more impressive export number. On October 17, the long December 2012-short March 2013 spread closed at +0.75 cents premium to December. This is the highest the spread has traded at since August 23, and if the spread continues to widen, a further rally may be in the offing. It will be important to see where the spread closes on October 18. The spread widened to 3.00 cents on August 8 when December corn closed at $8.16 1/2. Stand aside.

Wheat:

December wheat closed 8.50 cents higher on light volume of 52,820 contracts. Open interest declined by 486 contracts. Export sales for the most recent week came in at 410,000 tons for the 2012 2013 season, which is up from 279,000 last week and was above expectations of 275,000 tons. As this report is being compiled on October 18, wheat is trading 15.75 cents higher, but is still trading in its consolidation zone. Stand aside.

Crude oil:

November crude oil lost 47.00 cents on volume of 542,260 contracts. Open interest declined by 3,612 contracts, which in relation to volume is approximately 65% less than average. For the past two days, the dollar has been sharply lower and this has not given crude oil much of a lift. On September 20, November crude generated a short-term sell signal, and on October 8, November crude generated an intermediate term sell signal. We continue to think that crude oil is headed lower and long put positions implemented in the $92.00-$93.00 area should be held.

Heating oil:

November heating oil lost .0091 on volume of 156,940 contracts. Open interest increased by 3,110 contracts, which in relation to volume is approximately 15% below average. Stand aside.

Gasoline:

November gasoline lost 6.36 cents on volume of 152,604 contracts. Open interest increased by 621 contracts, which is a small increase and significantly below average. While gasoline has fallen approximately 25 cents since October 10, gasoline has not yet generated a short or intermediate term sell signal. However, it continues to trade lower and as this report is being compiled on October 18, November gasoline is trading down 5.14 cents. Stand aside.

Copper:

December copper rallied 4.80 cents on volume of 54,922 contracts. Open interest increased by a massive 6,153 contracts, which in relation to volume is 450% above average. On October 11, copper advanced 3.35 cents and open interest also increased a massive 5,481 contracts on volume of 49,260. On that day, copper made a high of 3.7785 and then pulled back to a low of 3.6460 on October 15. From that low, the market rallied to 3.7550 on October 17. In other words copper has not done very much since October 11, and is not close to the high of 3.8395 made on September 19. As we have indicated in previous reports, the price and open interest action is acting in a bullish congruent fashion and copper is on a short and intermediate term buy signal. Despite this, we don’t see what will power the market significantly above the September 19 high.

Gold:

December gold gained $6.70 on volume of 126,558 contracts. Open interest increased by 4,047 contracts, which in relation to volume is approximately 30% above average. The problem we have with gold is the same for crude oil and silver: the sharply lower dollar of the past two trading sessions has not generated much enthusiasm for the upside. We still think gold is in a corrective phase.

Silver:

December silver gained 27.3 cents on extremely light volume of 27,769 contracts. Open interest declined by 165 contracts. Silver needs to shed significantly more open interest. Silver continues to be in a corrective phase.

Euro: On October 17, the December euro generated a short-term buy signal.

The December euro gained 82 points on volume of 237,836 contracts. Open interest increased by 1,842 contracts, which in relation to volume is approximately 60% less than average. As of October 17, the euro is on a short and intermediate term buy signal, however, what occurs commonly after a buy signal is a pullback from the high. We are not advocating long positions and certainly understand why being long the euro is unappealing. A stand aside position makes perfect sense. However, we caution our readers: Do not short the euro. The cash dollar index’s 50 day moving average crossed below its 200 day moving average, which is another reason not to short the euro.

S&P 500 E mini:

The S&P 500 E mini gained 7.75 points on light volume of 1,535,278 contracts. Volume declined by approximately 88,000 contracts from October 16 when the S&P 500 E mini gained 13.75 points and open interest declined by 847 contracts. Volume was nealy the same as October 15 when 1,527,127 contracts were traded and the S&P E mini closed 15.50 higher while open interest increased by 4,125 contracts. On October 17, open interest increased by a whopping 41,030 contracts, which in relation to volume is average, but a large number nonetheless. Looking at the rallies of October 15 and 16 and comparing the open interest increases on those two days to October 17, it appears to us that the massive increase  on the 17th represents buyers who thought they were missing the move, and sellers who thought it was a great opportunity to short the market near its highs. We think it will take some extraordinarily good news to power the market above its old high of 1468. We continue to advise long put protection. It is inexpensive due to the low VIX reading, and the trauma of the fiscal cliff could rear its head at any time. On October 11, Apple Computer generated a short-term sell signal, but remains on an intermediate term buy signal, which indicates that speculators should stand aside.