Volume and open interest analysis for December 18, 2012

Soybeans:

March soybeans lost 27.75 cents on relatively heavy volume of 274,554 contracts. Volume was the highest since December 13 when 277,462 contracts were traded and soybeans advanced 3 cents while open interest increased by 11,291 contracts. On December 18, open interest declined by 5,321 contracts, which in relation to volume is approximately 5% less than average. The catalyst for Tuesday’s decline was the cancellation of 420,000 tons of soybeans by the Chinese government. The Brazilian crop is in excellent shape, and looks to be the biggest ever. Perhaps China sees the large crop as an opportunity to acquire their soybeans at much lower prices. The market continues to decline on December 19 and is presently trading 24.75 cents lower. Stand aside.

Soybean meal:

March soybean meal lost $9.20 on fairly heavy volume of 86,649 contracts. Volume was the highest since November 28 when it reached 99,575 contracts, and March soybean meal closed at $425.30. On December 18, total open interest declined by 442 contracts, which is a minuscule decline and dramatically below average. The January contract lost 10,476 contracts of open interest. There were sufficient numbers of new entrants into the market to whittle down the total open interest to a relatively small number. However, the build of open interest in the March contract is bearish. As this report is being compiled on December 19, March soybean meal is trading $10.80 lower. Stand aside.

Corn:

March corn lost 4 cents on very light volume of 125,593 contracts. Volume declined approximately 2,500 contracts from December 17, which was the lowest volume since October 22 when corn traded 118,241 contracts. For the last 2 trading sessions corn has declined by 10.75 cents and volume on both days has been the lowest in nearly 2 months. This certainly will not be the case on December 19 because volume at the time this report is being compiled is 151,427 contracts. On December 18, open interest declined by a massive 4,960 contracts, which in relation to volume is approximately approximately 50% above average. This is the 2nd day in a row the open interest decline relative to volume has been heavy. As this report is being compiled on December 19, March corn is trading 12.25 cents lower and has made a new low for the move at $7.05 3/4. The continuation low was made on September 28 in the December contract at $7.05. Stand aside.

Wheat:

March wheat gained 3.25 cents on volume of 67,283 contracts. Open interest increased by 2,052 contracts, which in relation to volume is approximately 20% above average. As this report is being compiled on December 19, March wheat is trading 5.75 lower, but has not taken out the low of December 18 of $8.01 1/2 Stand aside.

Crude oil:

February crude oil gained 73 cents on lighter than usual volume of 439,704 contracts. Volume was the lightest since December 4 when 383,918 contracts were traded and crude oil declined by 59 cents, while open interest declined by 781 contracts. On December 18, open interest declined by 18,095 contracts, which in relation to volume is approximately 20% above average. During the past 3 days crude oil has advanced $1.99 while open interest has declined by 58,036 contracts. This is bearish open interest action relative to the price advance. The Energy Information Administration released their stocks report and there was a minor draw, but crude oil stocks remain at high levels. For example, current stocks are 372.6 million barrels versus 334.2 million barrels at this time last year. On December 19,2011, February crude closed at $94.05, and on Wednesday December 21, 2011 (the day of the EIA report) crude closed at 98.85 up $1.43. Thus far, the rally in crude has been tepid and open interest action is not indicative of a new bull market, at least at this juncture. As of December 19, crude oil remains on a short and intermediate term sell signal. 

 Natural gas:

February natural gas advanced 5.7 cents on volume of 341,156 contracts. Open interest increased by 4,634 contracts, which in relation to volume is a proximately 45% below average. Stand aside.

Copper:

March copper declined by 1.25 cents on light volume of 40,792 contracts. Open interest increased by 1655 contracts, which in relation to volume is approximately 50% above average. We have been cautioning clients that copper is in a trading range and as this report is being compiled on December 19, March copper is trading 4.80 cents lower. Please see the December 16 Weekend Wrap for more on copper. Stand aside.

Gold:

February gold declined $27.50 on higher than normal volume of 196,353 contracts. Open interest increased by 4,009 contracts, which in relation to volume is approximately 5% less than average. The reasons for the decline in the precious metals are unclear, but one possibility could be the impact of increased taxes beginning in 2013, which is affecting the investment landscape in all areas. As of December 19,  gold will not generate an intermediate term sell signal. It has been on a short-term sell signal ever since October 22. Stand aside.

Silver:

March silver declined by 61.1 cents on volume of 47,320 contracts. Open interest declined by 594 contracts, which in relation to volume is approximately 50% below average. This is surprisingly light liquidation considering the magnitude of the decline, and that March silver made a new low for the move at $31.40. As this report is being compiled on December 19, March silver is trading 50.4 cents lower and has made a new low for the move at $31.075. Stand aside.

British pound:

The British pound gained 45 points on volume of 83,654 contracts. Volume increased by approximately 6,000 contracts above December 17 when the British pound gained 35 points and open interest increased by 3,449 contracts. On December 18, open interest increased by a whopping 5,262 contracts, which in relation to volume is approximately 150% above average, meaning that buyers were aggressive and in control. December 18 was the 5th day in a row that open interest increased dramatically above average. The December contract, which is about to go off the board had unchanged open interest. Also, on December 18 the British pound made a new high at 1.6267, which is the highest price since September 21 when the December British pound reached 1.6304. We think the British pound is massively overbought, and is due for a correction. Stand aside.

Euro:

The March euro gained 59 points on fairly light volume of 181,392 contracts. Volume increased by approximately 8,500 contracts from December 17 when the euro advanced 1 point and open interest declined by 642 contracts. On December 18, open interest increased by a massive 8,368 contracts, which in relation to volume is approximately 75% above average, meaning that new buyers were entering the market aggressively, but participation (volume) was relatively low considering that the euro made a new high for the move at 1.3252. The December contract, which is about to go off the board had unchanged open interest. These contracts will have to be liquidated, and this will mean there will be days when the euro advances, but total open interest declines due to the liquidation in the December contract. This also is applicable to the British pound.

On December 19, the March euro has reached a new high for the move at 1.3321, which is the highest price since early April 2012 when the June euro reached 1.3387. Although the market is overbought, in relation to its 50 day moving average, it is not overbought with respect to the number of new longs that have entered the market since the rally began. We think the Commitments of Traders Report, which will be released on Friday December 21 will show that managed money continues to be net short. Since the rally began in earnest on December 10, through December 18, open interest in the euro has increased by only 22,010 contracts,, or somewhat less than 10%. By contrast, since December 10, open interest in the British pound has increased by 78,327 contracts or an increase of approximately approximately 45%. During this time frame, the British pound advanced 1.33% versus the euro, which has increased by 2.29%. One other point to keep in mind is that volume in the euro generally is twice to three times that of the British pound.  

S&P 500 E mini:

The S&P 500 E mini gained 14 points on heavy volume of 3,378,187 contracts. Open interest increased by 71,335 contracts, which in relation to volume is a proximately 3% below average. To those clients who are holding long puts, we recommend that these be liquidated on a further setback. The fiscal cliff issue is far from over and we expect the market to pull back further before it is resolved. Stand aside.