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Soybeans:

September soybeans lost 0.75 cents on very light volume of 124,976 contracts. Volume declined approximately 2,000 contracts from the day before when soybeans gained 36.25 and open interest declined by 2,474 contracts. Soybeans reached a high of $16.72 3/4, but closed at $16.56 1/4. On August 16, open interest increased by 416 contracts, which in relation to volume is 75% less than average. While the market has been firm, it has not had enough new buyers to move soybeans higher. Remarkably, the USDA issued their weekly export sales report and it showed that 924,600 metric tons of soybeans had been sold for the 2012-2013 season. This is a huge number, especially since these sales are being transacted at stratospheric prices. As of yesterday’s export sales report, over 50% of the 2012-2013 crop has already been sold. The average for the past five years at this time has been somewhat less than 25%. Keep in mind, the sales reflect a crop that hasn’t been harvested yet. Since the Brazilian crop won’t begin to enter the pipeline until late in the first quarter of 2013, the United States will be the only major source of supply.

Soybean meal:

October soybean meal lost $3.10 on very low volume of 52,765 contracts. Volume fell approximately 3,500 contracts from August 15 when soybean meal gained $15.10 and open interest increased by 1,983 contracts. The market made a high at 508.50 but sold off and closed at 500.50. On August 16, open interest increased by a massive 3,309 contracts, which in relation to volume is more than 100% of average. During the past three days, soybean meal open interest has increased by 6,131 contracts, while soybean open interest has declined by 5137 contracts. Both commodities are trading on significantly lower volume, but soybean meal open interest shows that longs and shorts have a major disagreement on the direction of prices. On the other hand, the reduction of open interest in soybeans indicates that longs and shorts are in agreement regarding soybean prices. The previously recommended long October 2012 short December 2012 soybean meal spread widened by $1.10 on August 16. Stay with the spread and use the $4.90 low made on August 3 as an exit point on the spread.

Corn:

December corn gained 3.25 cents on volume of 208,884 contracts. Volume declined by approximately 59,000 contracts from August 15 when corn gained 15.00 cents and open interest increased by 6,297 contracts. On August 16, open interest increased by 11,807 contracts, which in relation to volume is more than 100% of average. From August 10 when the USDA issued its report, open interest has increased by 33,790 contracts. Yet during this time frame December corn lost 1.75 cents. Readers should take note that open interest increases are not moving corn prices higher. This indicates aggressive selling probably by commercials. Our position has been if corn rallies up to the $8.29-$8.31 area, out of the money calls should be written on the December contract. Keep in mind that corn prices are near the highest ever recorded in the United States and this is a tempting environment in which to make sales. Another factor acting to limit corn price advances is the demand destruction that is occurring at current prices.

Wheat:

December wheat gained 15.00 cents on light volume of 86,206 contracts. Volume declined approximately 10,000 contracts from August 15 when wheat advanced 7.00 cents and open interest increased by 92 contracts. Volume was the lowest since July 30 when 81,680 contracts were traded and wheat advanced by 16.50 while open interest increased by 3,519 contracts. Open interest increased by 2,346 contracts, which in relation to volume is average. The market continues to act in a bullish fashion with open interest increasing as prices advance and declining as prices move lower. As indicated before, we want to see how the market trades between now and the end of the month. We think wheat could be the big upside surprise of the year. For some odd reason, wheat has a tendency to attract large numbers of shorts, even when fundamentals do not merit short positions

Crude oil:

September crude oil gained $1.27 on volume of 521,076 contracts. Volume declined by 225,717 contracts from August 15 when crude oil advanced 90.00 cents and open interest increased by 25,654 contracts. Volume was the lightest since August 14 when 469,180 contracts were traded and crude oil gained 70.00 cents while open interest increased by 10,494 contracts. On August 16, open interest declined by 10,717 contracts, which in relation to volume was average. It was some somewhat surprising that crude oil had a huge drop-off in volume and a decline of open interest while prices advanced to the highest level since May 15 ($96.35). Despite this, it appears that crude wants to go higher. As indicated before, crude has to overcome the resistance of the 200 day moving average of $96.68 and our pivot point of $96.89. For the market to generate an intermediate term buy signal the low of the day has to be above the pivot point.

Heating oil:

September heating oil gained 3.77 cents on volume of 153,611 contracts. Open interest declined by 1,661 contracts, which in relation to volume is 50% below average. The market is not acting well and for the past four days, open interest has declined by 5,932 contracts while heating oil has advanced by 10.46 cents. This is bearish open interest action relative to price. We anticipate that market action will improve as we move into fall.

Gasoline:

September gasoline closed unchanged on very light volume of 123,719 contracts. Volume decreased by approximately 12,000 contracts from August 15 when gasoline advanced 8.26 cents and open interest increased by 6,150 contracts. On August 16, open interest increased by 2,802 contracts, which in relation to volume is average. Gasoline generated a short-term buy signal on July 16 and an intermediate term buy signal was generated on August 6. Relative to its 50 day moving average of $2.74, gasoline is massively overbought. As indicated before, the summer driving season is coming to a close and being long gasoline at these levels is unwise.

Copper:

September copper gained 3.30 cents on volume of 60,944 contracts. Volume increased approximately 16,000 contracts from August 15 when copper closed 0.95 cents lower while open interest increased by 760 contracts. On August 16, open interest declined by 1,304 contracts, which in relation to volume is average. As indicated in yesterday’s report, we believe a temporary bottom has been made in the copper market and that speculators should stand aside.

Gold:

December gold gained $12.60 on light volume of 117,416 contracts. Volume increased approximately 9,000 contracts from August 15 when gold gained $6.20 and open interest declined by 2,132 contracts. On August 16, open interest increased by 353 contracts, which in relation to volume is a 80% less than average. The market is holding its own, but has not had the catalyst to launch gold over the $1640.00 mark. The apparent “risk on” attitude prevailing in the markets is not rubbing off on the precious metals. As noted in yesterday’s report, the 10 year treasury note generated a short-term sell signal on August 14. On August 16, the treasury note generated in intermediate term sell signal. This means that there is a high likelihood that interest rates will continue to rise and this should negatively impact precious metals and commodities.

Silver:

September silver gained 40.00 cents on volume of 59,012 contracts. Volume was the highest since June 29 when 62,256 contracts were traded and silver gained $1.32 while open interest declined by 1,401 contracts. On August 16, open interest increased by 1,244 contracts, which in relation to volume is average. Like gold, silver has the same problem about attracting buyers. As suggested earlier for both gold and silver, out of the money puts should be written based upon your risk tolerance. The closer the strike is to the futures price the riskier the trade will be.

Euro:

The September Euro gained 73 points on volume of 223,113 contracts. Volume increased by 63,000 contracts from August 15 when the Euro declined 42 points and open interest increased by 2,798 contracts. On August 16, open interest declined by 3,031 contracts, which in relation to volume is 50% below average. Stand aside.

10 Year Treasury Note: On August 16, the 10 year Treasury Note generated an immediate term sell signal.

The September 10 year treasury note lost seven points on volume of 1,098,799 contracts. Volume declined by approximately 150,000 contracts from August 15 when notes lost 18 points and open interest increased by 17,994 contracts. On August 16 open interest increased by 15,188 contracts, which in relation to volume is 50% less than average. As noted above, an intermediate term sell signal has been generated and it was only on August 14 that a short-term sell signal occurred. The market is very oversold and due for a rally. Currently, the 50 day moving average is 134-13, and it is not out of the question that a rally could carry treasury notes up to this level. However, the market is very weak and rallies of any size may not occur until the market has fallen further.

S&P 500 E mini:

The S&P 500 E mini gained 9.50 points on volume of 1,498,399 contracts. Volume gained approximately 390,000 contracts from August 15 when the E mini gained 1.25 points and open interest increased by 13,142 contracts. Volume was the highest since August 2 when 2,839,713 contracts were traded and open interest increased by 73,282 contracts while the E mini lost 8.50 points. On August 16, open interest increased by 7,356 contracts, which in relation to volume is 80% less than average. It is interesting to note that open interest increased at its smallest pace since August 8 when open interest increased 6,276 contracts and the S&P advanced 1.25 points on volume of 1,222,051 contracts. A judgment cannot be made based upon one day’s activity, but volume was relatively high on August 16 and price advanced by the greatest amount since August 3. However, the open interest increase did not keep pace with the six previous sessions, which may indicate there is some reticence about making commitments at current levels. Readers with outstanding long  equity positions in stocks should protect these with long puts, which are inexpensive due to the low volatility. We continue to prefer the long side of Apple rather than being involved in the E mini.