November soybeans closed 2.25 cents lower on volume of 221,214 contracts. Open interest declined by 1,069 contracts, which in relation to volume is approximately 60% less than average. The USDA released its grain stocks report. As of September 1, stocks in all positions were 169 million bushels, which was a 21% drop from last year’s stocks report, but approximately 34 million higher than trade estimates. As this report is being compiled on September 28, November soybeans are trading 26.25 cents higher primarily because corn and wheat are sharply higher. What we want to see going forward is a retest of the low of $15.57 1/2, and see whether the low will hold. Over 75% of the soybean crop, which is the process of being harvested has been sold, which will eventually create an extreme supply shortage. On September 21, November soybeans generated a short-term sell signal, but has not generated in intermediate term sell signal. As indicated in yesterday’s report. we believe that soybeans are within 5-7 trading days away from making a significant low. A conservative way of playing the market is to purchase out of the money calls in the March contract. In our view, there is a good chance that soybeans will trade north of $20.00.
December soybean meal closed $3.00 higher on relatively heavy volume of 90,374 contracts. The year to date average daily volume in soybean meal is 75,664 contracts, and during the past two trading sessions volume has been approximately 20% above that figure. Open interest declined by a massive 5,578 contracts, which in relation to volume is slightly more than 125% above average. From September 17 through September 27, open interest in soybean meal has declined by 29,451 contracts while December meal has declined by $51.50 or -9.80%. During the same time span, open interest in soybeans has declined by 9,494 contracts while November soybeans have declined by $1.68 1/4, or -9.68%. In other words, during nine trading sessions, soybean meal has shed three times the amount of open interest than soybeans, and both have declined by almost the same percentage. The open interest decline has been concentrated in the October contract, but December meal also has seen open interest losses and on September 27, open interest declined by 1,867 contracts. Like soybeans, we continue to think that soybean meal is within 5-7 days of making a significant low. A conservative way to play soybean meal is to buy out of the money calls in the March contract.
December corn lost 8.50 cents on volume of 242,323 contracts. Volume declined approximately 11,000 contracts from September 26, when corn declined by 19.00 cents and open interest declined by 4,497 contracts. On September 27, open interest increased by 5,088 contracts, which in relation to volume is slightly below average. On September 28, the USDA released its grain stocks numbers and the big surprise was in corn and wheat. Corn stocks were expected to be 1,126 million bushels, but the USDA reported that stocks in all positions were 988 million bushels, which came as a major shock to everyone. As a consequence, December, March, May corn are currently up the 40 cent daily limit. December corn generated a short-term sell signal on September 11, and the limit up move on September 28 does not nullify the short term sell signal. It will be interesting to see what transpires with open interest action on September 28, but we won’t have these final numbers until Monday morning. Stand aside.
Wheat: On September 27, December wheat generated a short-term sell signal.
December wheat lost 13.75 cents on volume of 80,178 contracts. Open interest declined by 2,136 contracts, which in relation to volume is average. The USDA grain stocks report showed that wheat stocks in all positions amounted to 2.104 billion bushels, which is down from trade expectations of 2.281 billion bushels. On September 27, wheat generated a short-term sell signal, and very often when a short-term sell signal is generated, the market has a short-term rally. With the grain stocks report, what we may be looking at is a major change in trend for both wheat and corn. The open interest action for Friday will tell us whether new longs were entering the market en masse. If we see a major open interest build, wheat may be headed north, but for the short term sell signal to be negated, a daily low for December wheat must be above $9.07.
November crude oil gained $1.87 on disappointing volume of 439,391 contracts. Volume was the lowest since September 25 when 436,492 contracts were traded and crude oil declined by 56.00 cents, while open interest declined by 6,420 contracts. Remarkably, the rally on September 27 was the largest in nominal terms since crude oil gained $1.85 on August 31 on volume of 511,483 contracts while open interest increased by 23,438 contracts. On September 27, open interest declined by 2,883 contracts, which in relation to volume is approximately 75% less than average. The contrast between the performance on August 31 and September 27 couldn’t be any clearer. Stand aside.
November heating oil gained 4.83 cents on volume of 150,450 contracts. Volume declined by approximately 43,000 contracts from September 26, when heating oil declined .0044 cents and open interest increased by 4,260 contracts. In other words, on September 27, heating oil increased tenfold in price, but volume dramatically tapered off from the previous day. Additionally, open interest declined by a massive 7,848 contracts, which in relation to volume is approximately 125% above average. As we have said in previous reports, the open interest and price action leaves a lot to be desired and as a result, there is no reason to be involved in heating oil at this juncture.
November gasoline gained 2.34 on heavy volume of 189,344 contracts. Open interest declined by 6,769 contracts, which in relation to volume is approximately 30% above average. September 27 was the third day in a row that open interest declined, while gasoline prices advanced. During the three day time span, open interest has declined by 17,138 contracts, while November gasoline has advanced 10.95 cents. This is clearly bearish open interest action relative to the price advance. Stand aside.
December copper gained 3.40 cents on volume of 51,948 contracts. Open interest increased by 64 contracts, which is a poor showing considering the magnitude of the advance. We continue to advocate a stand aside position despite copper being on a short and intermediate term buy signal due to the slowing of the global economies, especially China.
December gold gained $26.90 on volume of 195,357 contracts. Interestingly, volume declined from September 26 when 219,437 contracts were traded and December gold declined by $13.20 while open interest declined by 8,946 contracts. In other words, volume shrank by approximately 24,000 contracts from September 26, even though the advance on the 27th was twice as large as the decline on September 26. On September 27, open interest increased by 11,579 contracts, which in relation to volume is approximately 130% above average. The open interest increase on September 27 was greater than the 5,594 increase on September 13 when gold advanced 38.40. Additionally, it was the highest open interest increase since August 31 when open interest advanced by 13,512 contracts on volume of 212,417 contracts while gold advanced $30.50. We continue to advocate that speculators should wait for a correction down to the $1720 level.
December silver gained 72.6 cents on light volume of 48,878 contracts. Volume was the lightest since September 19, when 45,882 contracts were traded and December silver declined by 13.00 cents while open interest declined by 1,024 contracts. On September 27, open interest increased by 3,235 contracts, which in relation to volume is 150% above average. From September 18, through September 27, open interest increased by 13,988 contracts, but silver advanced by only 42.7 cents. Since making the high for the move at 35.26 on September 21, open interest has increased by 8,158 contracts, yet silver has been unable to make new highs. Wait for a correction of approximately $2.00 before entering new long positions.
The December euro gained 56 points on volume of 288,516 contracts. Open interest increased by 1,133 contracts, which in relation to volume is approximately 60% below average. Price and open interest action continues to act in a congruent fashion, which is positive, and although the situation in Europe appears to have deteriorated for the umpteenth time, we would recommend against shorting the market. One never knows what kind of surprise the European Central Bank will pull on the market.
S&P 500 E mini:
The S&P 500 E mini gained 14.00 points on volume of 1,758,799 contracts. Open interest increased by 28,475 contracts, which in relation to volume is 25% less than average. The economic fundamentals in the United States are clearly deteriorating and the momentum of this deterioration will continue to weigh on the S&P 500 E mini. Continue to hold long put protection.