Volume and open interest analysis for December 10, 2012

Soybeans:

January soybeans gained 2.50 cents on volume of 271,514 contracts. Volume was the highest since October 11 when 369,720 contracts were traded and soybeans closed at $15.48 1/2. Additionally, volume on December 10 and December 7 were above the average daily volume year to date of 206,695 contracts. The past two sessions are the first back-to-back high volume days in recent memory. Increasing volume can signal that a major move is underway. On December 10, total open interest declined by 5,307 contracts, which in relation to volume is approximately 10% less than average. The January contract was responsible for the loss of 22,775 contracts of open interest. The price action was disappointing, and for the first time since February 16, 2012, the January-March spread declined to 0.75 cent premium to March.  This is bearish. From February 24, 2012 through December 7, 2012, the spread always traded with January at a premium to March. Also, on the continuation chart, the 50 day moving average has crossed below the 200 day moving average. The USDA report showed that US carryout declined by 10 million bushels from 140 million to 130. Global stocks increased 3.9 million tons from the December 2011 report. As this report is being compiled on December 11, January soybeans are trading 7.50 lower. Stand aside.

Soybean meal:

January soybean meal gained $2.00 on volume of 64,469 contracts. Total open interest increased by 1,420 contracts, which in relation to volume is average. The January and March contracts accounted for a loss of 1,707 of open interest. The USDA report showed that usage is projected to increase by 200,000 tons, which is attributed to increased exports. Unlike soybeans, soybean meal continues to show fairly strong inversion of the front months versus back months. This is very positive. Stand aside.

Soybean oil:

January soybean oil gained 2 points on volume of 116,307 contracts. Total open interest declined by 1,067 contracts, which in relation to volume is approximately 50% less than average. The USDA report showed that total exports were increased by 600,000 tons and that the US stocks to usage ratio was lowered to 7.5% from 7.9% in November. Additionally, stocks to usage is dramatically lower than it was in the December 2011 report of 12.85%. Stand aside.

Corn:

March corn lost 7 cents on volume of 203,149 contracts. Total open interest increased by 967 contracts, which is minuscule and dramatically below average. The December and March contracts lost a total of 4,554 contracts. US corn stocks were left unchanged from the November report of at 647 million. Surprisingly, exports were left unchanged, and, nothing else in the report changed. Since it is highly likely that acreage will be cut in the January 2013 report, perhaps the USDA will cut exports in that report. As this report is being compiled on December 11, March corn is trading 5 cents lower and has made a new low for the move at 7.23 3/4. Stand aside.

Wheat:

March wheat lost 12.25 cents on volume of 115,775 contracts. Open interest increased on the decline by 2,058 contracts, which in relation to volume is approximately 25% less than average. The USDA cut exports by 50 million bushels which increased the stocks to usage ratio by 2.7% to 31.6%. Stocks to usage in the December 2011 report was 33.3%. As this report is being compiled on December 11, March wheat is trading 29.75 cents lower. Stand aside.

Crude oil:

January crude oil lost 37 cents on volume of 468,908 contracts. Open interest declined by a meager 236 contracts. The market is trading in a lackluster fashion and there is no reason to be involved with crude at this juncture. Stand aside.

Natural gas:

January natural gas declined by 9.1 cents on heavy volume of 484,964 contracts. Volume was the highest since October 18 when 487,122 contracts were traded and January natural gas closed at 4.028. Open interest declined by 6,673 contracts, which in relation to volume is approximately 40% less than average, meaning that liquidation was not heavy considering the magnitude of the decline and that natural gas made a new low for the move on December 10. The market continues to break down, and is conforming with its seasonal tendency to decline into January and early February. As this report is being compiled, natural gas has made a new low for the move at 3.391. Stand aside.

Copper:

March copper gained 4.30 on volume of 53,755 contracts. Open interest increased by 2,201 contracts, which in relation to volume is approximately 50% above average, meaning that buyers were unusually aggressive and moving copper prices higher. It is highly likely that copper will generate a short-term buy signal on December 11, which is confirmation of the intermediate term buy signal. However, as we’ve cautioned before when a buy or sell signal is generated, there is usually a pullback. For now, stand aside.

Gold:

February gold advanced $8.90 on very light volume of 87,677 contracts. Volume was the lightest since October 30 when 61,227 contracts were traded and February gold closed at $1714.30. The terrible volume on the advance confirms that enthusiasm from the speculative community is waning. Despite this, open interest increased by a massive 3,322 contracts, which in relation to volume approximately 50% above average, meaning that buyers were very aggressive and moving prices higher. As this report is being compiled on December 11, February gold is trading $5.10 lower. We cautioned in the past to wait to see how gold traded when the dollar was sharply lower/higher and/or the stock market was sharply lower/higher. On December 11, S&P 500 E mini is trading 10.75 higher and the dollar sharply lower, all of which should be reasonably bullish for gold. Hoowever, gold has been trading on the minus side since opening at 5:00 PM CST on December 10. Stand aside.

Silver:

March silver gained 24.6 cents on extremely light volume of 26,963 contracts. Volume was the lowest since October 30 when 16,569 contracts were traded and March silver closed at $31.89. On December 10, open interest increased by 684 contracts, which in relation to volume is average. Although both gold and silver had  the lowest volumes since October 30, the increase of open interest in gold was considerably greater than silver. Like gold, we wanted to see how silver traded when the dollar was sharply lower/higher, or that the stock market was sharply lower/higher. Silver is putting in a considerably worse performance on December 11 than gold, and this puts us in the camp of standing aside in silver despite it being on a short and intermediate term buy signal.

Euro:

The December euro closed 11 points higher on light volume of 193,750 contracts. Open interest increased by 1,140 contracts, which in relation to volume is approximately 70% less than average, meaning that buyers were moving the market slightly higher but were not doing so in a very aggressive manner. On December 3, the December euro generated a short-term buy signal, which confirmed the intermediate term buy signal. As we indicated at the time the signal was generated, the market has a tendency to snapback because the buy signal represents a somewhat overbought condition. The euro did just that, which should have given clients enough time to implement bullish positions. As we have indicated before, exit points should be under the December 7 low of 1.2877.

S&P 500 E mini:

The S&P 500 E mini gained 4.25 points on very light volume of 1,202,309 contracts. Volume was lower than November 26 when the E mini traded 1,225,696 contracts, and lost 2.00 points, while open interest increased by 6,242 contracts.  On December 10, open interest increased by a substantial 24,308 contracts, which in relation to volume is approximately 5% less than average, but a healthy number nonetheless. The Federal Reserve will hold a press conference on Wednesday to discuss its monetary policies.

In the December 2 Weekend Wrap, we discussed how the E mini has traded in the month of December going back to the year 2000. We encourage readers to re-review this report to provide some perspective on what is happening in the market.  From December 1 through December 10, the E mini has advanced 5.50 points or 0.39%. As we said in the December 2 report, the average gain during the month of December for 2000-2011 is 1%. If the S&P 500 E mini closes 9.00 points higher on December 11, this gets you the 1% since December 1. During yesterday’s rally, and today, the market looks tired and the volume is unimpressive. Maintain long put positions.