Soybeans:
November soybeans closed 7.00 cents lower on volume of 143,062 contracts. Volume declined by approximately 46,000 contracts from August 30 when soybeans gained 7.00 cents and open interest increased by 6,374 contracts. On August 31, open interest declined by 2,436 contracts, which in relation to volume is approximately 30% below average. As this report is being compiled on September 4, November soybeans have made a high of $17.89 and is currently trading 11.25 cents higher on the day. The high of 17.89 is 8 1/4 cents above the high made on August 30. As indicated in the September 2 Weekend Wrap, speculators should be wary of being long at current levels at this time. It is worthwhile to review the September 2 report in order to understand our reasoning. We believe soybeans will trade significantly higher from current levels, but not now.
Soybean meal:
October soybean meal declined by $2.20 on volume of 58,923 contracts. Volume declined approximately 29,000 contracts from August 30 when soybean meal closed $4.80 higher and open interest increased by 1,679 contracts. On August 31, open interest declined by 2,640 contracts, which in relation to volume is approximately 50% above average. Please note the decline of open interest in soybean meal exceeded the decline in soybeans, however, soybeans traded 250% greater volume than soybean meal. Like soybeans, we believe that soybean meal will trade significantly higher, but now is not the time to be long. Please review the September 2 Weekend Wrap.
Corn:
December corn lost 8.75 cents on volume of 190,362 contracts. Volume declined approximately 29,000 contracts from August 30 when corn closed 5.00 cents lower and open interest declined by 13,235 contracts. On August 31, open interest declined by 11,312 contracts, which in relation to volume is approximately 200% above average. From August 22 through August 31, open interest has declined by a total of 82,982 contracts during eight consecutive days. Of those eight days there was only one day where corn rallied and that occurred on August 29 when it advanced 18.00 cents on volume of 265,654 while open interest declined by 11,524 contracts. It is a healthy development to see corn shed its large open interest. This sets the market to move higher once the harvest season is out of the way. Harvest pressure will continue to weigh on prices.
Wheat:
December wheat lost 13.50 cents on volume of 70,822 contracts. Volume declined by approximately 17,000 contracts from August 30 when wheat declined 2.75 and open interest declined by 1,249 contracts. The decline of volume from August 30 cannot be taken seriously considering that was the day before the Labor Day holiday. On August 31, open interest declined by 3,523 contracts, which in relation to volume is approximately 70% above average. We are friendly to wheat, but continue to suggest a stand aside position for now. U.S. wheat continues to be priced at a premium to other global suppliers. As we indicated in the September 2 Weekend Wrap, the lower dollar will eventually make U.S. grains more competitive in the global market.
Crude oil:
October crude oil gained $1.85 on volume of 511,483 contracts. Volume increased approximately 111,000 contracts from August 30 when crude lost 87.00 cents and open interest declined by 5,339 contracts. On August 31, open interest increased by a massive 23,438 contracts, which in relation to volume is approximately 60% above average. The open interest increase on August 31 was the largest since August 15 when 746,813 contracts were traded and open interest increased by 25,654 while crude oil prices increased by 90.00 cents and closed at $94.62. From August 15 through August 31 open interest has increased a total of 61,186 contracts, and during that time, crude oil has advanced $1.85 from the close of $94.62 on August 15 to the close on August 31 of $96.47.
Considering the build in open interest of over 60,000 contracts, it is a disappointing that crude oil has advanced by less than $2.00 during a period of two weeks. Despite numerous attempts, crude has not been able to generate an intermediate term buy signal. Volume on August 31 was the highest since August 16 when crude oil traded 521,076 contracts and prices advanced $1.27 while open interest declined by 10,717 contracts. When combining the higher than usual volume (especially on the day before holiday) with the massive increase in open interest, speculators must be wary of a top or temporary top. The market looks somewhat tired in the $97-$98 level, and it may take an outside catalyst to send the market significantly higher.
Heating oil:
October heating oil gained 4.69 cents on volume of 125,035 contracts. Volume declined by approximately 16,000 contracts from August 30 when heating oil declined by 1.09 cents and open interest increased by 4,030 contracts. On August 31, open interest increased by 1,239 contracts, which relative to volume is approximately 50% below average. There is no reason to be involved in heating oil at this juncture.
Gasoline:
October gasoline gained 6.48 cents on volume of 126,774 contracts. Volume increased approximately 2,000 contracts from August 30 when gasoline lost .0088 and open interest declined by 96 contracts. On August 31, open interest increased by 4,705 contracts, which in relation to volume is approximately 30% above average. Much of the increase in the price of gasoline can be attributed to hurricane Isaac. Like heating oil, there doesn’t seem to be a compelling reason to be involved in gasoline at this juncture.
Copper:
December copper gained 1.00 cent on volume of 55,922 contracts. Volume declined approximately 12,000 contracts from August 30 when copper declined by .0020 and open interest declined by a massive 5,237 contracts. On August 31, open interest declined by 1,824 contracts, which is a bit above average. The market has major problems sustaining any kind of a rally and the open interest action on rallies has been abysmal. If there are a series of favorable money printing announcements, copper may have one last thrust higher at which point, it will likely be an excellent time to implement bearish positions.
Gold:
December gold gained $30.50 on volume of 212,417 contracts. Volume increased by approximately 110,000 contracts from August 30 when gold declined by $5.90 and open interest increased by 1,748 contracts. Volume was the highest since July 27 when 335,338 contracts were traded and gold advanced $2.90 while open interest declined by 5,015 contracts. Additionally, volume was impressive considering that August 31 was the day before the Labor Day weekend. On August 31, open interest exploded by increasing 13,512 contracts, which in relation to volume is more than 200% above average. As indicated in the crude oil commentary, sometimes a major increase in volume accompanied by a large increase in open interest can signal a top or temporary top. The market is extremely overbought relative to its 50 day moving average of $1611.94. Additionally, the COT stats released on August 31 indicate that speculators are piling into gold. New positions should not be entered into at current levels.
Silver:
December silver gained 99.6 cents on volume of 61,576 contracts. Volume shrank approximately 3,000 contracts from August 30 when silver declined by 47.6 cents and open interest declined by 2,006 contracts. On August 31 open interest increased by 623 contracts, which in relation to volume is approximately 60% below average. The COT report released on August 31 indicates that managed money longs hold positions at the highest level in many months. Additionally, the market is massively overbought, much more so than gold. For example, December silver’s 50 day moving average is $28.12, 150 day moving average $30.37, 200 day moving average $30.52. New positions should not be entered into at current levels. The market needs to have a significant setback before it safe to enter new long positions.
Euro:
The September Euro gained 73 points on relatively heavy volume of 316,164 contracts. Volume was the highest since August 2 when 479,233 contracts were traded and the Euro declined 63 points, while open interest increased by 6,598 contracts. On August 3, volume came close to the volume of August 31 when 301,346 contracts were traded and the Euro advanced 2.02 cents and open interest declined by 3,273 contracts. On August 31, open interest increased by 2,214 contracts, which in relation to volume is approximately 70% less than average. We think the Euro will continue to move higher.
10 Year Treasury Notes:
The September treasury note gained 18.5 points on relatively heavy volume of 1,292,863 contracts. Volume declined by approximately 650,000 contracts from August 30 when notes advanced 11 points and open interest declined by 18,100 contracts. On August 31, open interest increased by 24,991 contracts, which in relation to volume is approximately 30% below average. It is highly likely that notes will generate a short and intermediate term buy signal on September 4. However, notes are trading at the higher end of the range and in our view it would be inadvisable to trade notes from the long side.
S&P 500 E mini:
The September S&P 500 E mini gained 8.00 points on surprisingly heavy volume of 2,054,873 contracts. The volume on Friday surpassed volume (1,949,528) on August 3 when the S&P E mini closed 27.00 points higher and open interest declined by 17,755 contracts. It is unusual to see fairly heavy volume on the day before a long holiday weekend, especially since the close was not out of the ordinary. Also, the range on August 31 was 16.75 which is only slightly above the 21 day average true range of 15.29. Although volume was relatively heavy, the open interest increase was minuscule at +2,870, which relative to volume is essentially an unchanged number. This means that old longs were exchanged for new longs and old shorts were exchanged for new shorts. We still like Apple Computer, however, Apple is significantly overbought relative to its 50 day moving average of $617.14. If long Apple, protective sell stops preferably with a limit should be placed to protect profits.
