November soybeans lost. 29.75 cents on volume of 259,052 contracts. Volume increased by approximately 58,000 contracts from October 1 when soybeans declined by 40.75 and open interest increased by 753. Additionally, volume on October 2 was the highest since September 20 when soybeans declined by 50.75 and open interest increased by 3,372 contracts. On October 2, open interest declined by 4,290 contracts, which in relation to volume is approximately 30% below average. The November contract showed that open interest declined by 11,759 contracts, which is where most speculators hold positions. Based upon the volume and open interest stats, it appears that speculators are beginning to feel the pain and liquidating as they continue to receive margin calls.
On October 2, a major trade house released its estimates for yield and the final harvest numbers. They estimate that yield will rise to 38.2 bushels per acre versus the September USDA estimate of 35.3 bushels per acre. The trade house estimates the total crop at 2,849,000,000 versus the September USDA number of 2,634,000,000. The market has been in the process of discounting a higher yield, and we suspect that when the October 11 USDA supply demand report is released, they will raise estimated exports, which will offset the increase in yield. As this report is being compiled on October 3, it is highly likely that an intermediate term sell signal will be generated. Generally speaking, when a short and/or intermediate term signal (s) is generated, the market will rally, and then retest the most recent low. On occasion, after the market generates short/intermediate term sell signals, the market continues to move south. This occurred in the sugar market after it generated an intermediate term sell signal on August 8 and a short-term sell signal on August 10. In order for soybeans not to generate an intermediate term sell signal on October 3, the market would have to rally up to $15.45 on October 3. If the market continues to move south after October 3, we may get a sharp explosive upside move that could quickly reverse the short and intermediate term sell signals. As we said in yesterday’s report, October 5 may be a window of opportunity to begin to look to get long soybeans, however, we are partial to soybean meal. It will be important to see continued liquidation on Wednesday, Thursday and Friday.
December soybean meal lost $11.60 on volume of 58,047 contracts. Unlike soybeans, volume did not increase very much from October 1 when 57,239 contracts were traded and open interest declined by 3,983 contracts. On October 2, open interest declined by 482 contracts, which is the lowest decline since September 13 when open interest declined by 500 contracts and soybean meal declined by $1.90. The open interest for the October contract declined by 512 and December open interest declined by 968. From September 17 through October 2 soybean meal open interest has declined by a total of 35,039 contracts while December soybean meal has declined by $62.50. In the same time frame, soybean open interest has declined by 14,700 contracts while November soybeans have declined by $2.08 1/2. Based upon the action of October 2, it appears that the major open interest declines in soybean meal are coming to an end. The market has seen a washout in speculative interest, which is very healthy for the market. October 5 may be a window of opportunity to get long soybean meal. While soybeans are likely to generate an intermediate term sell signal on October 3, soybean meal will not, which is testament to the underlying strength in meal.
December corn gained 1.50 cents on volume of 201,743 contracts. Open interest increased by 4,609 contracts, which in relation to volume is average. The December contract lost 7,736 contracts of open interest, which shows that some holders of long positions were liquidating. The market made a low of $7.46 on October 2, and the low on October 3 is $7.47. This occurred while the soybean complex and crude oil complex were sharply lower. As we have indicated before, we believe the market can rally up to its 50 day moving average of $7.88. Corn remains on a short-term sell signal and an intermediate term buy signal. Any speculators that want to get long corn for a trade should use the October 2 low of $7.46 to exit any long positions.
December wheat closed 12.75 cents lower on volume of 65,676 contracts. Open interest declined by 1,257 contracts, which in relation to volume is approximately 10% less than average. Stand aside.
November crude oil lost 59.00 cents on light volume of 366,655 contracts. Open interest increased by 5,444 contracts, which in relation to volume is approximately 35% less than average. For the past three sessions, volume has averaged somewhat above 372,000 contracts per day versus the year-to-date average daily volume of 578,265. We have been cautioning our readers to stand aside crude oil and as this report is being compiled on October 3, November crude oil is trading $2.94 lower. Stand aside.
November heating oil lost 1.03 cents on light volume of 127,570 contracts. Open interest declined by 758 contracts, which is 75% less than average. As this report is being compiled, heating oil is trading down 5.17 cents. Stand aside.
November gasoline lost 5.09 cents on very light volume of 117,480 contracts. Open interest declined by 1,122 contracts, which in relation to volume is approximately 60% less than average. During the past few days, we’ve been warning our readers that declining open interest while gasoline prices were advancing was bearish. As we compile this report on October 3, November gasoline is trading 7.01 cents lower. Stand aside.
November natural gas closed 5.1 cents higher on volume of 486,335 contracts. Open interest increased by a whopping 42,219 contracts, which in relation to volume is a huge 350% above average. In yesterday’s report, we cautioned our readers about getting overly enthusiastic on natural gas. Our concern was that trade selling would put a lid any significant advance. The market action on October 2 has all hallmarks of heavy trade selling at the upper end of the range. We suspect there were few speculators who were selling at the top of the range, and if so, would be doing it in small numbers. As this report is being compiled on August 3, November natural gas is trading 16.9 cents lower. Stand aside.
December copper gained 1.55 cents on volume of 47,967 contracts. Open interest declined by 89 contracts. Although the market is holding up well, we simply do not like the current picture of global economies. As this report is being compiled, December copper is trading 2.05 cents lower. Stand aside.
December gold lost $7.70 on very light volume of 124,635 contracts. Volume was the lightest since September 17 when 126,276 contracts were traded and on September 11 when volume was 1118,628 contracts. On October 2, open interest declined by a massive 5,426 contracts, which in relation to volume is 70% above average. From September 14 through October 2, open interest in gold has increased by 11,033 contracts, but, December gold has advanced by only $9.90, or 0.56%. Gold is giving indications of stalling at current levels and has been trading in a sideways pattern since September 14. Stand aside and wait for a correction.
December silver lost 28.3 cents on volume of 36,143 contracts. Open interest declined by 1,120 contracts, which in relation to volume is approximately 20% above average. Market continues to be overbought. Stand aside.
The December euro gained 29 points on volume of 234,566 contracts. Open interest declined by 1,784 contracts, which in relation to volume is approximately 70% less than average. Despite Europe’s financial woes, we continue to believe the euro is headed higher, and advise readers to stand aside.
S&P 500 E mini:
The S&P 500 E mini gained 4.25 points on volume of 1,615,231 contracts. Open interest increased by 500 contracts. Ever since the market made its high on September 14, it has traded sideways to lower. The only event that could propel the S&P 500 E mini higher would be a big surprise in this Friday’s employment report. Even if the report is unexpectedly positive, we question whether the E mini has the juice to move significantly beyond the September 14 high. Long put protection is advised.