Soybeans: November soybeans generated an intermediate term sell signal
November soybeans gained 1.25 cents on volume of 266,132 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 3, open interest increased by 2,156 contracts, which in relation to volume is approximately 50% less than average. Soybeans made a new low for the move at $15.04, and then proceeded to rally to close nearly unchanged. Although open interest in the November contract declined by 5,642, there was sufficient buying in the forward months to offset this decline.
On October 4, the USDA reported that net export sales of soybeans totaled 1,302,900 tons. 1,296,600 tons were for the 2012- 2013 season and 6,300 tons were for the 2013-2014 season. Export sales were nothing short of spectacular. It is possible that soybeans are approaching total sales of over 80% of the crop, which is in the process of being harvested. Since Brazil and Argentina essentially have little product to sell, the U.S. is going to be the number one supplier to the world, and this supply has to last until the beginning of the Brazilian harvest, which begins in mid-late February. If the U.S. has approximately 20% of its crop remaining, then as the season moves forward, a severe shortage of soybeans is likely. We think the move from $17.89, down to $15.04 was caused by early harvest pressure on cash prices, massive liquidation, and the market discounting better yields. With sales as robust as they are, shorts are going to be reluctant to enter new positions in the low $15.00 range. The 150 day moving average is $15.03, and clearly this represents a significant value zone. The intermediate term sell signal normally would be a confirmation signal to begin trading the market from the short side. However, with little supply remaining for the next 4-5 months, no one should short soybeans under any circumstances. Instead, speculators should be looking to position themselves on the long side of the market.
December soybean meal gained $1.50 on volume of 71,313 contracts. Volume was the highest since September 28, when soybean meal gained $13.00 and open interest declined by 1,123 contracts on volume of 81,476 contracts. On October 3, open interest declined by 1,405 contracts, which in relation to volume is approximately 15% less than average. Open interest declined in the contract months of October (- 603), December (-969), January (-329). Remarkably, open interest in soybean meal has declined for 13 consecutive sessions. The last time there was an open interest increase occurred on September 14 when soybean meal declined by 5.90 and open interest increased by 4,600 contracts on volume of 61,700 contracts. The weekly export sales number was terrific with total exports at 322,000 tons, and 316,100 tons for the 2012-2013 season and 59,000 tons for the 2011-2012 season.
From September 17 through October 3, open interest in soybean meal has declined by a total of 36,444 contracts while December meal has declined by $61.00. In the same time frame, open interest in soybeans has declined by 12,544 contracts while November soybeans have declined by $2.07. During the September 17-October 3 time frame, November soybeans have declined by 11.92% and December soybean meal has declined by 11.61%. On a year-to-date basis, soybean meal has advanced 47.48% while soybeans have advanced 27.20%.
We continue to believe that soybean meal is the big story in the grains and no one is paying attention to it. In essence, soybean meal has declined by nearly the same amount as soybeans from September 17 through October 3, and is outperforming soybeans by approximately 75% on a year-to-date basis. However, soybean meal open interest has declined by 3 times more than soybeans. We believe that soybean meal is priced attractively at current levels. The 150 day moving average for the November contract is $423.40, and the 150 day moving average on the continuation chart is 449.20. Speculators should be looking to position themselves on the long side of soybean meal.
December corn lost 1.50 cents on relatively heavy volume of 282,651 contracts. Volume was the highest since September 28, when 369,867 contracts were traded and corn advanced the daily 40 cent limit while open interest increased by 26,547 contracts. On October 3, open interest increased by 4,268 contracts, which in relation to volume is approximately 30% less than average. After making its high for the move during the evening session on October 1, corn has not had the ability to rally any further. During the past five trading sessions, (September 27-October 3), open interest has increased by 41,957 contracts while December corn has advanced by 31.00 cents. This is a large open interest build in relation to a 31 cent advance. Corn remains on a short-term sell signal and an intermediate term buy signal. If speculators are inclined to trade corn from the long side, stops should be placed slightly below the October 2 low of $7.46. We think there is far more upside in soybeans and soybean meal than corn, and would advise speculators to save their powder for the meal and bean market. The export sales report for corn was 326,800 tons, which is far less than is required to reach the USDA export target.
December wheat gained 1.50 cents on volume of 69,100 contracts. Open interest declined by a massive 4,082 contracts, which in relation to volume is 125% above average. Export sales totaled 307,000 pounds, which is a big disappointment. At this juncture, we believe the long side of wheat should be avoided. Speculators should focus on markets that are most likely to have a significant move. Stand aside.
November crude oil lost $3.75 on heavy volume of 661,524 contracts. Volume was the highest since September 19, when crude traded 807,916 contracts while open interest declined by 13,827 contracts and November, crude declined by $3.32. On October 3, open interest increased by 14,826 contracts, which in relation to volume is average. Stand aside.
November heating oil declined by 5.91 cents on heavy volume of 210,267 contracts. Volume was the highest since August 27, when 214,920 contracts were traded and heating oil closed at $3.1118. Open interest declined by 3,754 contracts, which in relation to volume is 30% below average. Stand aside.
November gasoline lost 6.97 cents on volume of 167,664 contracts. Open interest increased by 462 contracts. Stand aside.
November natural gas lost 13.6 cents on volume of 398,729 contracts. Open interest increased by 7,404 contracts. Although natural gas continues to be on a short and intermediate term buy signal, we continue to advise caution on the long side at current levels. We believe that natural gas is in a trading range roughly bound by $3.50 on the upside and $2.70 on the low.
December copper lost 1.70 cents on volume of 40,788 contracts. Volume was the lightest since July 18, when copper traded 38,089 contracts in copper closed at $3.4730. Open interest increased by 218 contracts. Stand aside.
December gold closed 4.20 higher on light volume of 132,150 contracts. Open interest increased by 3,080 contracts, which in relation to volume is average. As we compile this report on October 4, December gold has made a new high for the move at $1797.70. Speculators should continue to wait for a correction.
December silver gained 2.1 cents on volume of 34,627 contracts. Open interest increased by 718 contracts, which in relation to volume is approximately 10% less than average. Like gold, wait for a correction before entering positions on the long side.
The December euro lost 16 points on volume of 226,992 contracts. Open interest declined by 1,013 contracts, which in relation to volume is approximately 70% less than average. We continue to think the euro is headed higher, despite problems in Europe. Stand aside.
S&P 500 E mini:
The S&P 500 E mini gained 3.75 points on volume of 1,554,801 contracts. Volume was the lightest since September 24 when 1,261,866 contracts were traded and the S&P 500 closed at 1451.50. We believe the market is going to test the 1468 high made on September 14, and an unexpectedly positive employment report will probably take the E mini there. Continue to hold long put protection.