Volume in most commodities was significantly lower than usual due to the Columbus Day holiday on October 8.
November soybeans lost 0.50 cents on volume of 219,554 contracts. Total open interest declined by 727 contracts, and the November contract lost 12,172 contracts of open interest. There was sufficient buying in the back months to bring the open interest down to the three digit level. The backwardation (inversion) widened slightly with January beans down 3.00 cents and March losing 11.00 cents. This is positive action. The market is on hold until the October 11 USDA supply demand report. We are recommending that speculators buy January 2013 soybeans and sell March 2013. We do not think it is wise to be outright long prior to the report, because there could be a surprise by the USDA. The spread we are recommending could work regardless if soybeans are sharply lower, or sharply higher. In any event, losses will be mitigated in a spread position.
December soybean meal closed $1.40 higher on volume of 40,069 contracts. Open interest increased by 750 contracts, which is approximately 15% less than average. This is the second day in a row that open interest has increased in soybean meal. Like soybeans, the backwardation increased somewhat with January gaining 60.00 cents and the March contract losing $2.70. Again, we think that a long December 2012 short March 2013 soybean meal spread is a safer way to trade the market, especially with the October 11 report on the horizon. Do not enter new outright positions prior to the report
December corn lost 6.00 cents on very light volume of 146,212 contracts. Volume declined by approximately 14,000 contracts from October 5, when corn lost 9.00 cents and open interest declined by 4,529 contracts. On October 8, open interest declined by 3,549 contracts, which in relation to volume is average. For the past three days, open interest has declined by 11,398 contracts while December corn has declined by 14.75 cents. This is very positive price and open interest action. Open interest in the December contract declined by 7,041 contracts, and there was sufficient buying in the back months to whittle that number in half. Another positive is that volume shrank on the decline, even though corn made a new low for the move at $7.40, which was the lowest price for December corn since September 28 when it made a major low at $7.05. The market is going to tread water until the October 11 report, and we suggest speculators stand aside until until report is released.
December wheat gained 0.75 cents on very light volume of 46,949 contracts. Open interest increased by 1,289 contracts, which in relation to volume is average. Stand aside.
Crude oil: On October 8, November crude oil generated an intermediate term sell signal.
November crude oil lost 55.00 cents on volume of 422,895 contracts. Volume was the lightest since October 2 when 366,655 contracts were traded and open interest increased by 5,444 contracts, while November crude oil declined by 59.00 cents. On October 8, open interest declined by 12,290 contracts, which in relation to volume is approximately 10% above average. On September 20, crude oil generated a short-term sell signal, and the intermediate term sell signal generated on October 8 means that speculators should be approaching crude oil from the short side. Due to the volatile nature of crude, and the geopolitical tensions that can flare at any time, we suggest that speculators use long crude oil put options. This enables speculators to take advantage of the downside, but protects them from a major geopolitical shock. As we compile this report, crude oil is trading $2.92 higher. Often, when a short and/or intermediate signal is generated, the market has a countertrend rally, and this is likely case today. The volume and open interest stats for trading on October 9 will tell us a lot more. Additionally, the petroleum stocks report will be released tomorrow, which may be an ideal day to implement long put positions in crude oil.
November heating oil lost 1.16 cents on volume of 129,647 contracts. Open interest increased by 369 contracts. As this report is being compiled on October 9, November heating oil is trading 5.82 cents higher. Stand aside.
November gasoline lost 5.94 cents on very light volume of 118,568 contracts. Open interest declined by 1,482 contracts, which in relation to volume is approximately 50% less than average. As this report is being compiled on October 9, November, gasoline is trading 7.21 cents higher. Stand aside.
December copper lost 6.00 cents on light volume of 39,444 contracts. Volume was the lightest since July 18, when 38,089 contracts were traded. On October 8, open interest declined by 2,433 contracts, which in relation to volume is 150% above average. This is massive liquidation in the face of light volume. On October 9, China announced a new stimulus program, and its affect on copper has been nil. As this report is being compiled on October 9, December copper is trading unchanged after reaching 3.7530. In previous reports, we have been warning our readers that copper’s performance does not warrant long positions, despite it being on a short and intermediate term buy signal. If the market cannot rally on positive news from China, what will power the market higher? Even the Shanghai composite index has moved 1.97% higher on the China stimulus news. Compound this with a high ratio of longs to shorts in the managed money category, and this makes the market vulnerable to further downside action.
December gold lost $5.10 on very light volume of 98,082 contracts. Open interest declined by 2,606 contracts, which in relation to volume is average. We need to see more downside action, and further declines in open interest before it is prudent to enter new longs. As this report is being compiled on October 9, December gold is trading $8.70 lower.
December silver lost 55.5 cents on volume of 34,697 contracts. Open interest increased by 106 contracts. Silver needs to correct further, perhaps $1.00-1.50 lower.
The December euro lost 58 points on volume of 162,437 contracts. Open interest declined by 1,071 contracts, which in relation to volume is approximately 70% less than average. Although the price and open interest action is congruent, the chart leaves much to be desired. Like the S&P 500 E mini, the December euro topped out on September 14, and has not come close to the high ever since. From September 14, the euro declined to 1.281 on October 1, then rallied to the high made on October 8 of 1.303. As this report is being compiled on October 9, the euro is trading 1.09 cents lower. Stand aside.
Australian dollar: On October 8, the Australian dollar generated a short and intermediate term sell signal.
S&P 500 E mini:
The December S&P 500 E mini lost 5.75 points on light volume of 963,036 contracts. Open interest declined by 1,772 contracts, which is a very minor decrease. We continue to advise long put protection.