January soybeans advanced 17.25 cents on healthy volume of 268,671 contracts. Volume was higher than October 18 when soybeans traded 255,068 contracts and soybeans advanced 36.25 while open interest increased by 3,331 contracts. Volume was the highest since October 11 when 369,720 contracts were traded and soybeans advanced 25.25 while open interest increased by 2,984 contracts. On October 24, total open interest increased by 652 contracts, which in relation to volume is 90% below average. However, when factoring in the decline of open interest in the November contract of 17,902, the total open interest increase of 652 is respectable.
Many speculators are long soybeans from considerably higher levels, and any further rally will likely be met with speculative selling in the November contract. In other words, rather than roll their contracts over to January or March, they are taking losses on their November contracts and leaving the party. The January contract closed at $15.72 1/4, which is the highest close since September 28 when January beans closed at 16.02 3/4. The latest export sales report released Thursday morning showed that net exports for the 2012-2013 season were 522,000 tons. This is approximately the same as last week’s export sales. Although the number is not a barn burner, it is significantly above the average weekly sales of approximately 200,000 tons to fulfill the USDA’s projected export total. As we’ve indicated in previous reports, the bottom was likely made on October 15 when November beans made a low of 14.85 3/4. Setbacks are buying opportunities, but keep in mind, outside markets and equities in particular look especially bearish.
December soybean meal gained $5.70 on volume of 56,242 contracts. The December contract closed at $481.90, which is the highest close since September 28 (486.90). Open interest increased by a whopping 2,981 contracts, which in relation to volume is a bit over 100% above average. From October 17 through October 24, December soybean meal has advanced for 6 consecutive days and totals $29.10 while open interest has increased by 5,286 contracts. This is bullish. On Thursday, the USDA released the export sales report for soybean meal and net sales for the 2013-2014 season were 3500 tons and for 2012-2013, 175,100 tons. This number was approximately 30,000 tons above last week’s number. Setbacks are buying opportunities, but as indicated in the soybean commentary, a swoon in the equities market could drag meal lower.
December corn lost 1.50 cents on fairly heavy volume of 272,931 contracts. Volume was the highest since October 11 when 398,255 contracts were traded and corn advanced 36.25 while open interest increased by 49,911 contracts. On October 24, open interest increased by 4,757 contracts, which in relation to volume is approximately 25% less than average. For the past 3 days, corn has declined by 7 cents while open interest has increased by 10,366 contracts. Corn is acting in a bearish fashion, and the aggregate increase of open interest during the three-day decline is bearish. The degree of bearishness is underscored by the fact that the December contract lost 14,470 contracts of open interest on October 24. The total increase of open interest on the 24th indicates that new shorts were entering the market in the forward months and were able to drive the market lower. As this report is being compiled on October 25, December corn is trading 8 cents lower. We have been advising our clients to stand aside, but think there will be terrific opportunities to get long corn later in 2012 or early 2013.
December wheat gained 15.25 cents on heavy volume of 103,048 contracts. Volume was the highest since October 11 when wheat traded 115,489 contracts and December wheat advanced 16.25 while open interest increased by a whopping 13,575 contracts. On October 24, open interest increased by a stunning 9,287 contracts, which in relation to volume is 260% above average, meaning that the increase was extremely heavy. Export sales totaled 572,000 tons, which is the highest export number in a couple of months. The agriculture minister of Ukraine confirmed there will be an export ban effective November 15, but this was likely discounted by the market.
On October 24, December wheat reached $8.95, which is only 1 cent above the high made on October 11. The market action of October 11 and October 24 is almost identical. On those 2 days, wheat made a high of 8.94 and 8.95 respectively, and both closed off their highs: 8.86 (October 11) and 8.84 (October 24). From October 11, when wheat made its initial high of 8.94 on heavy volume and open interest through October 24 when the December contract reached 8.95, December wheat has advanced only 14.25 cents or 1.64% while open interest has increased by 17,126 contracts. An increase of only 14.25 cents accompanied by an open interest increase of 17,126 contracts that spans 10 trading days is unimpressive to say the least. As this report is being compiled on October 25 December wheat is trading 8.25 cents lower. Stand aside.
December crude oil lost 94 cents on volume of 571,286 contracts. Open interest increased by 679 contracts, which is an insignificant number. Hold long puts, but be mindful that crude oil is massively oversold, and could rally to the 89.00 level. Much of the action in crude oil will likely be driven by the equities market, and if equities move sharply lower, crude oil will follow.
December heating oil lost .0044 cents on volume of 143,004 contracts. Open interest increased by 2,137 contracts, which in relation to volume is approximately 30% less than average. Stand aside.
December gasoline closed unchanged on volume of 138,662 contracts. Open interest declined by 3,572 contracts, which in relation to volume is average. During the past 2 days, open interest has declined by 11,695 contracts and gasoline has lost 4.37 cents in this time frame. Gasoline generated a short-term sell signal on October 22, but has not yet generated an intermediate term sell signal.
November natural gas lost 8.5 cents on light volume of 318,554 contracts. Open interest declined by 13,829 contracts, which in relation to volume is 70% above average, meaning that liquidation was substantial. Although we believe natural gas is in a trading range, price and open interest action has been acting in a congruent fashion, which is positive. Despite this, we suggest a stand aside position.
December copper lost 1.15 cents on volume of 48,863 contracts. Open interest declined by 2,337 contracts, which in relation to volume is 90% above average, meaning that liquidation was heavy. During the past 4 trading sessions, open interest has declined by 7,952 contracts, while December copper declined by 18.50 cents. On October 22, December copper generated a short-term sell signal, but has not yet generated an intermediate term sell signal.
December silver lost 17.3 cents on volume of 44,935 contracts. Open interest declined by 1,420 contracts, which in relation to volume is 30% above average. This shows that liquidation is occurring at a greater pace than in recent sessions. The previous large decline of open interest of 1,001 contracts occurred on October 16, when silver advanced 21.6 cents on volume of 31,051 contracts. Before that the next large open interest decline of 1,120 contracts occurred on October 2 when silver declined by 28.3 cents on volume of 36,143 contracts. We had to go back to August 30 to find an open interest decline that exceeded the decline on October 24. On August 30, silver closed at $30.446 and open interest declined by 2,006 contracts on volume of 64,548 contracts while December silver declined by 47.6 cents. During the past 3 days, open interest has declined by 1,958 contracts while December silver lost 47.7 cents. As we indicated in the October 21 Weekend Wrap, silver needs to go through some significant liquidation before it is prudent to enter long positions. For further information, please review the report of October 21.
December gold lost $7.80 on volume of 148,701 contracts. Open interest declined by 2,282 contracts, which in relation to volume is approximately 35% less than average. During the past 4 days, open interest has declined by 13,692 contracts while December gold lost $43.10. The price and open interest action of gold is significantly more positive than silver. We are waiting for a signal that gold has finally bottomed.
The December euro gained 10 points on volume of 229,158 contracts. Open interest declined by 775 contracts, which is minuscule and significantly below average. We continue to think the euro is moving higher. Stand aside.
S&P 500 E mini:
The December S&P 500 E mini lost 1.50 points on volume of 1,757,712 contracts. Open interest increased by 4,535 contracts, which is minuscule and significantly below average. The S&P continues to trade in a dismal fashion, and rallies don’t get very far. This indicates a high probability that the S&P 500 will take another leg lower. There are a large numbers in the financial press and investment community who think a rally to the old highs of 1468 is likely. We do not subscribe to this point of view. Consider this: there are 45 trading days left in 2012. Many companies are reporting dismal third-quarter earnings and have lowered guidance for future quarters. Within 45 days, the United States must deal with the fiscal cliff and the market must cope with large numbers of investors many of whom will likely be liquidating equities because of a possible capital gains tax increase in 2013. For more information about this, please see the October 21 Weekend Wrap. After the market closes on October 25, Apple will report its earnings. The market will most likely take its cues from the Apple earnings report, and if is it is negative, another leg lower may be in store for investors.