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Soybeans:
September soybeans lost 5.50 cents on volume of 155,571 contracts. Volume shrank by approximately 69,000 from August 21 when soybeans gained 49.75 and open interest increased by 12,271 contracts. On August 22, open interest declined by 1,700 contracts, which in relation to volume is approximately 50% less than average. September soybeans have been making fractional new highs for the move, but have not been able to take out the July 20 high of August soybeans of $17.77 3/4. This high needs to be taken out by the front month before soybeans can take another leg higher. On August 23, the USDA reported that total export sales were 735,600 metric tons. The interesting part of the report was that 591,400 contracts were for the 2012-2013 season. In other words, high priced soybeans are not slowing demand, which is remarkable considering that soybeans are trading at the highest prices in history.
Soybean meal:
October soybean meal lost $5.60 on volume of 85,784 contracts. Volume was approximately 3,000 contracts above August 21 when soybean meal gained $11.10 and open interest increased by 2,886 contracts. On August 22, open interest increased by 983 contracts, which is about 50% below average. On August 23, the USDA reported terrific export sales for soybean meal. Export sales totaled 346,900 metric tons and 183,600 of this was for the 2012-2013 season. The long October-short December meal spread narrowed by 80.00 cents. As this report is being written on August 23, the spread has narrowed by another $1.60. Use $4.90 as a point to exit the spread.
Corn:
December corn lost 4.00 cents on volume of 237,387 contracts. Volume declined approximately 27,000 contracts from August 21 when corn advanced 15.00 cents and open interest increased by 20,379 contracts. On August 22, open interest declined by 1,442, which in relation to volume is 70% less than average. Export sales of corn as reported by the USDA totaled 485,200 metric tons and 278,300 metric tons are for export in the 2012-2013 season. This appears to be a very respectable export sales number considering the lofty prices of corn. According to Dow Jones, U.S. corn prices are being undercut by Brazil and Argentina and that sales from Brazil to China are being transacted at an 85 cent discount to U.S. corn. As recommended yesterday, short out of the money call positions were exited.
Wheat:
December wheat lost 5.00 cents on volume of 82,193 contracts. Volume fell approximately 17,000 contracts from August 21 when wheat gained 19.25 and open interest increased by 6,569 contracts. On August 22, open interest declined by 141 contracts. Export sales totaled 531,000 metric tons, which is an average number. We are awaiting a further setback in wheat before bullish positions are recommended.
Crude oil:
October crude oil gained 42.00 cents on lighter than normal volume of 428,958 contracts. Volume was the lowest since August 6 when crude oil traded 419,723 contracts and gained 80.00 cents while open interest increased by 2,274 contracts. As indicated in prior reports, for crude oil to generate in intermediate term buy signal, the low for the day must be above $97.00. As this report is being compiled on August 23, crude oil made a high at $98.29, but has fallen sharply from the high and is now trading at $95.91, which means that an intermediate term buy signal will not be generated on August 23.
Heating oil:
October heating oil gained a minor .0055 cent on volume of 139,834 contracts. Volume increased by approximately 34,000 contracts from August 21 when heating oil gained 3.02 cents and open interest increased by 7,763 contracts. On August 22, heating oil again had a massive increase in open interest and added 7,410 contracts, which in relation to volume is 75% above average. This is the second day in a row that massive increases in open interest have occurred, but price has moved only fractionally. We suspect that much of this activity is due to commercial buying and selling.
Gasoline:
October gasoline gained 3.14 cents on volume of 145,848 contracts. Volume increased by approximately 40,000 contracts from August 21 when gasoline gained 3.39 cents and open interest declined by 178 contracts. On August 22, open interest increased by 1,046 contracts, which in relation to volume is approximately 65% less than average. Although there are a number of bullish factors in the gasoline market, based upon the most recent COT report, gasoline is a very crowded trade. The consumer is more sensitive to gasoline price increases than ever before, and this will no doubt dramatically impact consumption, especially as the summer driving season winds down.
Copper:
September copper gained a fraction of percent (+0015) on volume of 62,757 contracts. Volume declined by approximately 24,000 contracts from August 21 when copper gained 8.20 cents and open interest declined by 3,470 contracts. On August 22, open interest declined by 972 contracts, which in relation to volume is approximately 30% less than average. The market made a new high for the move at $3.4865, which was the highest price since July 20 when the high for copper was $3.5285. If the market can stay above $3.4325 on August 23, a short-term buy signal will be generated for September copper.
Gold: Gold will generate an intermediate term buy signal if the low stays above $1,640.00 on August 23.
December gold lost $2.40 on volume of 148,255 contracts. Volume increased by approximately 7,000 contracts from August 21 when December gold gained $19.90 and open interest increased by 12,028 contracts. On August 22, open interest increased by 6,548 contracts, which in relation to volume is approximately 30% above average. Also gold made a new high for the move at $1658.20 which is the highest price for December gold since May 3 when the high was $1659.10. As this report is being compiled on August 23, gold is trading $32.70 higher, which is terrific performance considering that the S&P 500 E mini is trading 11.50 points lower and the grains are trading sharply lower as well. This is the third day in a row that both gold and silver have traded uncorrelated to other key markets. This is very bullish. Another remarkable aspect of the gold move which started on August 15, is the very low increase of open interest through August 22. For example, from August 15-August 22 total open interest increased by only 17,108 contracts while gold’s price went from a low of $1592.10 to a high of $1658.20, or a move of approximately $66.00. This indicates to us that hedge funds and commodity trading advisors are not buying into the rally yet, which we view as very positive. It is only a matter of time before they enter the market en masse. One final point: Although gold may be overbought in relation to its 50 day moving average of $1601.59 on the continuation chart, the reality is the market is not overbought when taking into account the small number of new positions that have been entered into since August 15.
Silver: On August 22 September silver generated in intermediate term buy signal.
September silver gained 12.8 cents on volume of 61,021 contracts. Volume increased by approximately 13,000 contracts from August 21 when silver gained 83.6 cents and open interest declined by 600 contracts. Additionally, volume was the highest since June 29 when 62,256 contracts were traded and silver advanced by $1.32 while open interest declined by 1,401 contracts. On August 22, open interest declined by 907 contracts, which in relation to volume is approximately 30% less than average. From August 15 when the silver made a low of $27.43, to the high of August 22 of $29.885, open interest actually declined by 2,189 contracts. Normally, we would label this as bearish behavior. However, there is a larger percentage of silver shorts compared to gold and therefore it is reasonable to expect that shorts are covering while longs are happy to take profits, or reduce their losses. In other words, it appears that current players see the recent move as a bear market rally. This would explain the open interest action for both gold and silver. We strongly disagree with this and having watched many bull and bear markets in gold and silver, this is definitely not a rally in a bear market. With silver on a short and intermediate term buy signal, speculators should wait for setbacks before implementing bullish positions. This can take the form of writing puts on distant strikes, purchasing long calls, or acquiring futures contracts.
Euro: The September Euro generated a short-term buy signal on August 22.
The September Euro gained 62 points on relatively heavy volume of 265,297 contracts. Volume declined approximately 4,000 contracts from August 21 when the Euro gained 1.19 and open interest increased by 1,449 contracts. On August 22, open interest declined by 9,336 contracts, which in relation to volume is approximately 15% above average. The Euro made a new high for the move at 1.2543, which is the highest price since July 5 when it reached 1.2622. Do not short the Euro.
U.S. Dollar Index: The cash dollar index generated a short-term sell signal on August 22. It is likely that an intermediate term sell signal will be generated on August 23.
10 Year Treasury Notes:
The 10 year treasury note gained 22.5 points on heavy volume of 1,188,397 contracts. Volume increased by approximately 200,000 contracts from August 21 when notes increased by 3 points and open interest increased by 664 contracts. On August 22, open interest declined by a massive 38,497 contracts, which in relation to volume is a slightly above average, but a large number nonetheless. During the recent decline, open interest increased and many of these shorts were chased out in yesterday’s rally. As we have said before, speculators should wait for a rally to the 134-00-134-11 area before implementing bearish positions. The market remains on a short and intermediate term sell signal.
S&P 500 E mini:
The S&P 500 E mini closed unchanged on heavier than normal volume of 1,685,319 contracts. Volume declined approximately 48,000 contracts from August 21 when the E mini lost 2.25 points and open interest increased 246 contracts. On August 22 open interest increased by 20,852 contracts, which in relation to volume is approximately 50% below average. The central question that needs to be answered is whether the high of 1424.75 made on August 21 is going to be the high water mark for a while. Now that the earnings season is over the tally is in and apparently only 58% of over 2300 companies beat analysts estimates while 48% recorded higher-than-expected revenues. Both figures are the lowest since the first quarter of 2009. There is much to dislike about this market, and we had made our views clear that our preference is to be long Apple Computer. Long put protection should be in place to protect outstanding positions in equities.
