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Soybeans:

September soybeans lost 20.75 cents on volume of 201,194 contracts. Volume increased approximately 45,000 contracts from August 22 when soybeans lost 5.50 and open interest declined by 1,700 contracts. On August 23, open interest increased by 4,182 contracts, which in relation to volume is slightly below average. The September contract forged a new high at $17.64 3/4, but fell back to close at $17.27 1/4. As indicated in yesterday’s report, export sales of soybeans for the 2012-2013 season in the latest reporting week was out of the ballpark. As a result, over 50% of the crop has been sold, but has not yet been harvested. It would be terrific to see a setback, but with sales as robust as they are, it is hard to imagine a scenario under which a major pull back would occur. The September-November bull spread has been narrowing ever since it made a secondary top on July 19 of +39.00 cents premium to September. As of August 23, that spread has narrowed to 12.25 cents premium to September. In other words, though demand is strong, the front month is losing to the new crop November contract. This may signal some short term weakness, which may be an opportunity to establish bullish positions.

Soybean meal:

October soybean meal lost $6.30 on volume of 84,645 contracts. Volume was about the same as it was on August 22. On August 23, open interest declined by 4,003 contracts, which is healthy for a bull market on price declines. The long October short December soybean meal spread is not working and as mentioned in the soybean commentary, the weakness may signify a short-term pullback. Speculators should definitely exit the spread and as this report is being composed on August 24, the spread is trading at $4.10 premium to October. There may be a terrific opportunity to re-enter a bull spread at a later date, but for now it is best to stand aside.

Corn:

December corn lost 20.00 cents on volume of 294,767 contracts. Volume was the highest since August 13 when 363,844 contracts were traded and corn lost 17.00 cents, while open interest declined 3,719 contracts. On August 23, open interest declined by 7,609 contracts, which in relation to volume is average. At this juncture, it does not appear that corn has the wherewithal to forge new highs. We suggest that speculators stand aside until we get some clarification about the immediate direction of corn.

Wheat:

December wheat lost 22.25 cents on volume of 87,263 contracts. Volume increased only 5,000 contracts from August 22 when wheat fell 5.00 cents and open interest declined by 141 contracts. The minor increase in volume on a decline of this magnitude is positive On August 23, open interest increased by 515 contracts, which in relation to volume is considerably below average.

Crude oil:

October crude oil lost $1.03 on volume of 466,874 contracts. Volume increased approximately 30,000 contracts from August 22 when crude oil gained 42.00 cents and open interest increased by 15,594 contracts. On August 23, open interest increased by 8,424 contracts, which in relation to volume is approximately 20% less than average. The market made new high at $98.29, which was the highest price since May 10 when crude oil reached $98.50. The market came close to generating an intermediate term buy signal, but the sell off negated it.

Heating oil:

October heating oil gained a fraction (+.0040) on light volume of 119,225 contracts. Volume declined by approximately 20,000 contracts from August 22 when heating oil gained a fractional amount and open interest increased by 7,410 contracts. On August 23, open interest declined by 5,109 contracts, which in relation to volume is approximately 30% above average. For the past three days, changes of open interest have been large while the market has had little movement. Heating oil needs to have a setback with open interest action that is congruent with price, before implementing bullish positions.

Gasoline:

October gasoline gained 1.02 cents on volume of 152,053 contracts. Volume increased by approximately 6,000 contracts from August 22 when gasoline gained 3.14 cents and open interest increased by 1,046 contracts. On August 23, open interest declined by 1,588 contracts, which in relation to volume is 50% less than average. Stand aside.

Copper: On August 23, September copper generated a short-term buy signal.

September copper gained 3.80 cents on volume of 83,526 contracts. Volume was the highest since August 21 when 86,146 contracts were traded and September copper gained 8.20 cents while open interest declined 3,470. On August 23, open interest declined by 2,698 contracts, which in relation to volume is a slightly above average. During the past six trading days, September copper has advanced 14.15 cents while open interest has declined 11,213 contracts. This is bearish. The Shanghai Composite Index lost nearly 1% and closed at the lowest level in a couple of years. Clearly, this index is telling us that things are not well in China. However, the will of the Chinese government to prop up the economy is not to be underestimated. If they were to announce some major money printing program, copper could make a significant move to the upside. Therefore, while it may be tempting to short copper because of the terrible open interest action, the short-term buy signal is indicating otherwise.

Gold: On August 23, December gold generated an intermediate term buy signal.

December gold gained $32.30 on volume of 164,943 contracts. Volume was the highest since August 2 when 172,751 contracts were traded and gold advanced $13.00 while open interest declined 1,901 contracts. On August 23, open interest increased by 5,384 contracts, which in relation to volume is slightly above average. During the past four trading sessions, open interest has increased by 25,245 contracts, while  gold advanced $53.40. Now that gold is on a short and intermediate term buy signal, speculators should be looking to position themselves on the long side of the market on pullbacks.

Although it is a positive development that open interest is increasing with price, the numbers are not very impressive. Additionally, volume indicates that participation by the speculative community is low. As indicated in yesterday’s post, we interpret this as a positive because it means there is a tremendous amount of money remaining on the sidelines that will be put to work. After Labor Day, when prices are significantly higher, money managers and commodity trading advisors are going to realize they missed the sweet spot of the move when risk reasonably low. Although prices have advanced at a healthy pace, especially for silver, in essence we are witnessing what could best be described as a stealth bull market due to its lackluster volume and tepid increases of open interest. Another positive is both gold and silver appear to be trading on their own fundamentals for the past couple of days, which have produced moves that are uncorrelated to equity indices and grains.

Silver:

September silver gained 90.00 cents on heavy volume of 94,163 contracts. Volume was the highest since June 27 when 102,857 contracts were traded and silver declined 9.6 cents, while open interest declined 2,164 contracts. On August 23, open interest increased by 2,627 contracts, which in relation to volume is average. This is the first increase in open interest since August 20, when silver advanced 59.1 cents and open interest increased by 2,559 contracts on volume of 39,065 contracts. As indicated in the commentary on gold, professional money managers are not entering the market en masse, which in our view indicates the market has much farther to go. Although silver is overbought from a price standpoint, when evaluating volume and open interest during the advance, it clearly is not. Preferably, the market trades sideways to lower during the coming week, which would be a terrific set up to implement bullish positions, if clients are not on board.

Euro: 

The September Euro gained 36 points on volume of 231,004 contracts. Open interest declined by approximately 34,000 contracts from August 22 when the Euro gained 62 points and open interest declined by 9,336 contracts. On August 23, open interest increased by 1,698 contracts, which is significantly below average. On August 22, the September Euro generated a short-term buy signal. Although, clients may not feel comfortable trading the Euro from the long side, do not short the market.

10 Year Treasury Notes:

The September 10 year treasury note gained 12 points on fairly heavy volume of 1,064,850 contracts. Volume declined by approximately 123,000 contracts from August 22, when notes gained 22.5 points and open interest declined by 38,497 contracts. On August 23, open interest for notes declined by 19,197 contracts, which in relation to volume is approximately 30% less than average. Speculators that were shorting the market on the recent decline, are now covering these positions as the market moves higher. The high on August 23 was 133-25.5, and the high on August 24 has been 133-30.5. Notes are trading at the upper end of their recent two week trading range and near its 50 day moving average. Preferably, we want to see a retest (s) of the upper end of the August 24 range before implementing bearish positions.

S&P 500 E mini: 

The S&P 500 E mini lost 0.25 on volume of 1,593,533 contracts. Volume declined approximately 90,000 contracts from August 22 when the S&P 500 E mini closed unchanged and open interest increased by 20,852 contracts. On August 23, open interest declined by 9,031 contracts, which in relation to volume is approximately 75% less than average. As indicated before, speculators with outstanding equity positions should have long put protection with one of the major indices.