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September soybeans closed 1.25 cents higher on extremely low volume of 129,008 contracts. Volume declined by approximately 21,000 contracts from August 13 when soybeans closed 51.00 cents lower and open interest declined by 4,401 contracts. Additionally, volume was the lowest since May 25 when 119,016 contracts were traded and soybeans gained 6.00 cents while open interest increased by 63 contracts. The low volume may be the product of a very narrow range of 24.75 cents versus the 21 day average true range of 44.125 cents. On August 14, open interest declined by 3,079 contracts, which in relation to volume was average. We continue to believe the rally in soybeans is not over and and that higher prices are on the horizon. The market could get choppy before resuming its uptrend.
October soybean meal gained $1.70 on volume of 64,760 contracts. Volume increased approximately 4,000 contracts from August 13 when soybean meal declined by $16.50 and open interest declined by 1,028 contracts. On August 14, open interest increased by 839 contracts, which in relation to volume is 50% less than average. Per yesterday’s recommendation to purchase a long October 2012 short December 2012 soybean meal spread, the spread widened out by 70.00 cents. The spread closed at $9.10 which is the highest the spread has ever traded at going back to January 2012. The recent low for the spread occurred on August 3 when the October-December soybean meal spread closed at $4.90 premium to October. This is a reasonable low risk trade that capitalizes on the very tight near-term demand for soybean meal. Despite record high prices, soybean meal continues to be exported in record numbers.
December corn closed 3.25 cents lower on volume of 188,512 contracts. Volume declined by 175,332 contracts from August 13 when corn declined 17.00 cents and open interest declined 3,719 contracts. Additionally, volume was the lowest since March 23, 2012 when 181,237 contracts were traded and corn closed 2.00 cents higher while open interest declined by 1,705 contracts. On August 14, open interest declined by 8,306 contracts, which in relation to volume was almost a 100% increase above average. Like soybeans, corn traded in a narrow range of 13.25 cents on August 14 which is significantly less than its 21 day average true range of 25.00 cents. We continue to believe it is likely that corn will have a rally up to the $8.29-$8.31 area. Once this occurs, we suggest that clients write calls on distant out of the money strikes for the December contract. The strike that is chosen should be within your risk tolerance. The closer the strike is to the futures price the riskier it is.
December wheat closed 17.50 cents lower on light volume of 114,630 contracts. Volume declined by approximately 49,000 contracts from August 13 when wheat closed 28.50 cents lower and open interest declined by 4,496 contracts. Volume was the lowest since August 6 when 88,108 contracts were traded and wheat closed 2.00 cents higher while open interest increased by 5,867 contracts. On August 14, open interest declined by 4,922 contracts, which in relation to volume is approximately 80% above average. The open interest action in conjunction with the price decline is very healthy and we expect the market should move lower during the next couple of weeks. Once this occurs, our clients clients will have an opportunity to implement bullish positions.
September crude oil gained 70.00 cents on volume of 469,180 contracts. Volume declined approximately 110,000 contracts from the day before when crude oil lost 14.00 cents and open interest declined by 7,645 contracts. Open interest increased by 10,494 contracts, which in relation to volume is average. Since August 1, crude oil has advanced $5.84 or 6.68% while open interest has increased by 74,140 contracts. The market wants to go higher and as of August 15, an intermediate term buy signal has not been generated. Crude oil is currently trading $1.36 higher on more rumors of heightened tension with Iran and Saudi Arabia ordering its citizens to leave Lebanon. The longs are clearly in control and as pointed out in yesterday’s report, the market has to overcome the 200 day moving average of $96.68 and our key pivot point of $96.90.
September gasoline gained 1.07 cents on very light volume of 101,452 contracts. Volume declined approximately 30,000 contracts from August 13 when gasoline lost 1.32 cents and open interest increased by 2,791 contracts. Additionally, volume was the lowest since August 6 when 93,156 contracts were traded and gasoline lost 0.88 cents while open interest increased by 47 contracts. On August 14, open interest declined by 2,203 contracts, which in relation to volume is average. As this report is being written on August 15, September gasoline is trading 7.77 cents higher.
September heating oil gained 1.63 cents on light volume of 80,983 contracts. Volume on August 14 was the lowest of 2012. Open interest declined by 3,345 contracts which in relation to volume is nearly 100% greater than average. We do not expect consumption for heating oil to increase until after Labor Day and therefore action will be muted. As this report is being compiled, heating oil is trading 4.85 cents higher. On August 6, heating oil generated a short-term buy signal and on August 8 generated in intermediate term buy signal.
September copper gained .0055 cents on very light volume of 45,010 contracts.Volume declined by approximately 16,000 contracts from August 13 when copper declined 3.90 cents and open interest increased by 4,628 contracts. Additionally, volume was the lowest since August 6 when 43,867 contracts were traded and copper closed 2.15 cents higher while open interest increased by 719 contracts. On August 14, open interest increased by 640 contracts, which in relation to volume is approximately 30% below average.
December gold lost $8.20 on volume of 126,429 contracts. Volume was nearly the same as August 13. Open interest declined by 1,875 contracts, which is approximately 30% below average. Since August 6, which comprises seven trading sessions, open interest and price have been acting congruently, which is positive. This is the longest streak of positive price and open interest action in several months. Unfortunately, the speculative community is not embracing gold at the moment. It appears that speculators are not bullish, but they are not bearish either. The market needs a catalyst one way or the other, and speculators should be patient. Previously, we suggested writing out of the money puts in distant strikes, which takes advantage of gold’s narrow trading range and reduces risk compared to an out right long position.
September silver closed unchanged on very light volume of 26,516 contracts. Open interest increased by a massive 1,835 contracts, which in relation to volume is over 200% of average. In other words, there was reduced participation by the speculative community, but those speculators that traded had very strong opinions about the direction of the metal. To put the open interest increase in perspective, the last time that silver had an open interest increase nearly as much as August 14 occurred on July 10 when open interest increased by 1,754 contracts, but silver declined by 56.2 cents. The last time that open interest surpassed the increase on August 14 occurred on July 21 when open interest increased 6,034 contracts, but again, silver declined by $1.55. The market remains on a short and intermediate term sell signal. In previous reports, we suggested writing puts in out of the money distant strikes for the December contract.
The September Euro closed essentially unchanged on volume of 183,504 contracts. Open interest increased by 767 contracts. As this report is being written on August 15, the Euro is trading 45 points lower. Stand aside.
S&P 500 E mini:
The S&P 500 E mini lost 1.00 points on volume of 1,440,382 contracts. Open interest increased by 36,462 contracts, which in relation to volume is average. The intraday volume stats were interesting because only two 30 minute periods accounted for 356,829 contracts traded, or nearly 25% of total volume. This occurred between 8:30-9:00 a.m. and 12:30-1:00 p.m. and the downside trading range for each period was 5.50 and 5.25 points respectively. Keep in mind the E mini trades 23 hours 45 minutes per day, and all it took was one hour of mild selling to increase volume. While watching the S&P 500 E mini, it was apparent that volume increased on pullbacks, but decreased when the market rallied. This is a red flag for anyone long the E mini. During the past six trading sessions (since August 7) open interest has increased by 105,340 contracts and during this time the E mini has gained 10.50 points or .76%. It appears the longs are in control, but shorts are aggessively taking the other side, which is acting to stem the advance.
10 Year Treasury Note:
On August 14 the September 10 year treasury note generated a short-term sell signal. On August 14, notes declined by 15.5 points on volume of 967,826 contracts while open interest increased by 11,492 contracts.