November soybeans gained 6.75 cents on volume of 182,905 contracts. Open interest declined by 2,474 contracts, which in relation to volume is approximately 50% less than average, meaning the decline was not significant. The reason for the decline was the November contract, which lost 10,582 contracts. From now, until to 1st notice day on October 31, we can expect major declines of open interest. Speculators must be out of November beans by that date.
The performance of soybeans on October 23 was nothing short of terrific. The market’s low was $15.29, which was 2 1/2 cents above the low made on October 22 of 15.26 1/2. From the time that open outcry trading began at 9:30 AM CDT, beans moved steadily higher throughout the remainder of the session, despite the massive carnage in the outside markets. We issued a special bulletin to all clients that October 23 was the date to get long. In our view, soybeans will move significantly higher from here. The volatility remains low, and therefore options are inexpensive; speculators should use the March contract. The acute part of the soybean tightness will occur in the January-February period and the March option contracts expire February 22. Despite the bullish set up for soybeans, clients must keep an eye on the equity markets in particular because a washout could be on the horizon. Apple reports its earnings after the close on Thursday, October 25. If there is an earnings miss, this could be the catalyst that sends equities sharply lower. How this will affect soybeans is unknowable, but if soybeans setback as a result, an opportunity will present itself to add to long positions. Maintain long positions in futures and options
December soybean meal closed $5.20 higher on light volume of 40,247 contracts. Open interest increased by 677 contracts, which is significantly below average. From October 17 through October 23 soybean meal has advanced for 5 consecutive days, which amounts to a gain of $23.40, or 5.17%. During the same time frame, November soybeans at gained 59 1/2 cents, or 3.98%. Open interest for meal during the October 17-October 23 time frame increased by 2,305 contracts. Price and open interest is acting in a bullish congruent fashion. Soybean meal is outperforming soybeans on the rally, and this should continue. As we mentioned before, we much prefer the long soybean meal trade to being long corn. Maintain long positions in futures and options.
December corn declined by 5.25 cents on volume of 219,294 contracts. Volume exploded approximately 100,000 contracts from October 22, when corn closed 0.25 lower and open interest increased by 600 contracts. On October 23, open interest increased by 5,009 contracts, which in relation to volume is average. If corn prices move low enough consumption should increase, which would set the stage for the next bull move. Since September 17, corn has been trading in a consolidation pattern and there is no compelling reason to be involved at this juncture.
December wheat lost 9 1/2 cents on heavy volume of 86,516 contracts. Volume was the highest since September 28 when 114,053 contracts were traded and wheat closed at 9.02 1/2. The market continues to trade in its consolidation zone, and until it definitively breaks out, there is no reason to be involved in wheat. As indicated before, wheat’s low of the day must be above its 50 day moving average if it is to generate a positive signal. Stand aside.
December crude oil lost $1.98 on volume of 530,814 contracts. Volume increased by approximately 51,000 contracts from October 22, when crude lost $1.79 and open interest increased by 2,377 contracts. However, volume on October 23 was below that of October 19 when 627,850 contracts were traded and crude oil declined $2.09, while open interest declined 7,840 contracts. On October 23, open interest declined by 1,424 contracts, which in relation to volume is approximately 85% less than average, which means there was very light liquidation. As this report is being compiled on October 24, December crude is down an additional 1.33, and has made a new low for the move at $84.94. This is the lowest price for December crude since July 2 when it reached a low of $83.79. Anyone who implemented our long put strategy in the $92-$93 area has significant profits on their positions. With respect to maintaining long puts, keep in mind the market is massively oversold and is due for a rally. The rally could take December crude oil up to the $89 area.
Heating oil: On October 23, December heating oil generated a short-term sell signal.
December heating oil lost 3.60 cents on huge volume of 219,517 contracts. This is the 2nd day in a row when heating oil’s volume was in the stratosphere. Volume shrank approximately 500 contracts from October 22, when heating oil declined by 5.08 cents and open interest declined by 5,833 contracts. On October 23, open interest declined by 3,498 contracts, which in relation to volume is approximately 35% below average. During the past 4 trading sessions, open interest has declined by 19,684 contracts while December heating oil has declined by 15 cents or 4.60%. We like the fundamentals of heating oil, but in a risk off environment, it is best to be on the sidelines. As this report is being compiled on October 24, December heating oil is trading 2.16 cents lower. The low for the day has been 3.0036, which is on the 150 day moving average of 3.00, and slightly below the 200 day moving average of 3.02 on the continuation chart. If heating oil breaks significantly below $3.00, there is no support until the $2.80 area.
December gasoline lost 4.37 cents on volume of 162,957 contracts. Volume increased by approximately 54,000 contracts from October 22, when gasoline lost 3.73 and open interest increased by 937 contracts. On October 23, open interest declined by a massive 8,123 contracts, which in relation to volume is 100% above average, meaning that liquidation was heavy. As this report is being compiled on October 24, December gasoline is down 1.34 cents and has made a new low for the move at 2.5598, which is the lowest price for December gasoline since August 3 when it made a low of 2.5412. Stand aside.
November natural gas gained 8.3 cents on light volume of 338,058 contracts. Open interest increased by 2,611 contracts, which is approximately 55% less than average meaning the increase was not significant. As we have indicated before, we think natural gas is in a trading range. Stand aside
Copper: On October 22, December copper generated a short-term sell signal.
December copper lost 5.25 cents on heavier than normal volume of 63,406 contracts. Open interest declined by 1,889 contracts, which in relation to volume is approximately 10% above average liquidation. Copper made a new low for the move at 3.5480, which was the lowest price for December copper since September 7 when it reached 3.5045. Stand aside.
December gold lost $16.90 on volume of 163,604 contracts. Open interest declined by 4,414 contracts, which in relation to volume is average. During the past 3 days, open interest has declined by 11,410 contracts while December gold has declined by $35.30. This is positive open interest action relative to price. As this report is being compiled on October 24 December gold is trading 8.20 lower and has made a new low for the move at 1698.90. Stand aside.
December silver lost 45.9 cents on volume of 44,195 contracts. Open interest declined by 188 contracts. As this report is being compiled silver is trading 6.3 cents lower and has made a new low for the move at $31.535. Stand aside.
The December euro lost 73 points on volume of 243,350 contracts. Open interest declined by 2,812 contracts, which in relation to volume is approximately 50% below average. Stand aside.
S&P 500 E mini:
The S&P 500 E mini lost 23.25 points on heavy volume of 2,304,850 contracts. Open interest declined by 28,092 contracts, which in relation to volume is approximately 50% below average. All eyes will be on the earnings of Apple computer to be released on October 25, and if negative, expect another market rout. As this report is being compiled on October 4, the December E mini is trading at 1408, which is only 19 points below its 50 day moving average of 1427. Although one could argue that the market is oversold, relative to its 50 day moving average it is only slightly oversold. As a result, clients who put on long put protection a couple of weeks ago should maintain it.