January soybeans gained 15 cents on light volume of 151,093 contracts. Open interest declined by 4,160, which in relation to volume is average. The January contract accounted for the liquidation of 7,153 contracts. The market has definitely been struggling at the upper end of its recent trading range, and the decline of open interest on the advance confirms, along with low volume. As this report is being compiled on December 4, January soybeans have made a high of $14.61, which is 1.75 cents below the high made on December 3. Additionally, January soybeans currently are down 16.50 cents. It appears possible, there will be a retest of the low of 13.72 1/4 made on November 16. Stand aside.
January soybean meal gained $3.70 on light volume of 52,732 contracts. Total open interest declined by 578 contracts, which in relation to volume is approximately 50% below average. Liquidation in the January contract amounted to 2,450 and March 273 contracts. Soybean meal will possibly retest the lows made on November 16 of $420.90. Stand aside.
January soybean oil gained 47 points on very light volume of 96,494 contracts. Open interest declined by a whopping 9,738 contracts, which in relation to volume is approximately 300% above average, meaning that liquidation was heavy on the advance. As this report is being compiled on December 4, January soybean oil is down 104 points. Stand aside.
March corn gained 2 cents on very light volume of 168,391 contracts. Volume was the lowest since November 23 when 132,207 contracts were traded, while corn gained 4.50 and open interest declined by 12,901 contracts. On December 3, total open interest declined by 7,269 contracts, which in relation to volume is approximately 60% above average, meaning that liquidation was heavy. The December contract accounted for liquidation of 3,668 contracts and March, 4,289 contracts. Corn made a high of 7.64, which is 3.50 cents lower than the high made on November 28 of 7.67 1/2. Corn is struggling at the upper end of its trading range, but the firm cash market and heavy rainfall in Argentina is supporting. The support zone for March corn is between 7.39 and 7.43. Stand aside.
March wheat lost 2.75 cents on light volume of 77,015 contracts. Total open interest declined by 2,438 contracts, which is approximately 20% above average, meaning that liquidation was heavier than usual. 2,080 contracts were liquidated in the December contract and 893 in March. Stand aside.
January crude oil gained 18 cents on volume of 438,707 contracts. Open interest declined by 2,113 contracts, which in relation to volume is approximately 75% less than average. We continue to maintain a neutral to somewhat friendly stance and think the market will grind higher, but we are not to enthusiastic about crude. Oil remains on a short and intermediate term sell signal. Stand aside.
January heating oil lost .0045 cents on volume of 118,242 contracts. Open interest increased by 2,295 contracts, which in relation to volume is approximately 10% below average. This is the first day out of 10 that open interest did not act in a bullish congruent fashion based upon the closing price. As we indicated in the report of November 30, heating oil had to prove itself by closing over some key areas of resistance. As this report is being compiled on December 4, January heating oil is trading 5.02 cents lower. Stand aside.
January natural gas gained 3 cents on light volume of 256,044 contracts. Open interest declined by 3,500 contracts, which in relation to volume is approximately 45% less than average. Natural gas made a low of $3.526 on December 3, and on December 4, 3.525, which is the lowest price since September 25 when nat gas reached 3.49. The 200 day moving average is 3.52, and if the market breaks below this, the next area support would be $3.36. Stand aside.
February gold advanced $8.40 on light volume of 109,852 contracts. Open interest declined by 1,522 contracts, which in relation to volume is approximately 35% less than average. As this report is being compiled on December 4, February gold is trading $25.20 lower, and has broken below the key support areas of 1703-1705. It is interesting to note that the dollar is lower due to the euro rally, but all grains are lower as well as is the petroleum complex. In the November 30 report, we expressed our concern about the decline in gold and silver because we were unable to ascertain the catalyst, or the origin of selling. The way things stand on December 4, it appears that gold is on its way to retesting the low made on November 5 of $1672.50 and its 200 day moving average of 1665. Gold remains on a short-term sell signal but an intermediate term buy signal. Stand aside.
March silver gained 48 cents on extremely light volume of 34,264 contracts. Volume was the lowest since November 1 when 33,107 contracts were traded and silver closed at $32.323. Open interest declined by 1,148 contracts, which in relation to volume is approximately 40% above average meaning that liquidation was heavier than usual on the advance. December 3 marked the second day in a row in which the daily high was lower than the previous day and December 4 will be the third in a row.
In yesterday’s report, we thought the market would fill the recent gap and this would provide a buying opportunity. We could not been more wrong. Overnight, the market plunged through the gap and has taken out the low of $32.90 made on November 28. This is a bearish development, and clients should be out of the market and on the sidelines. The concern is not that silver declined, the problem is the magnitude of the decline without a corresponding sharp decline in the equity market. Also, even with the dollar lower, the commodity sector in general, and the precious metals in particular are not benefiting from this. At this juncture, it is best to let the market find its support. Despite the sharp move downward on December 4, silver remains on a short and intermediate term buy signal.
The Australian dollar declined by 5 points on light volume of 110,212 contracts. Open interest increased by 1,104 contracts, which in relation to volume is approximately 45% less than average. The Australian central bank cut its lending rate 25 basis points to 3.00%. Obviously the market had discounted this move, and the Australian dollar is currently trading 64 points higher. Stand aside.
Euro: On December 3, the December euro generated a short-term buy signal.
The December euro gained 59 points on volume of 278,775 contracts. Open interest declined by 421 contracts, which is a minuscule number and dramatically below average. With the euro on a short and intermediate term buy signal, it should be traded from the long side although this is not a recommendation to implement a position. Usually, after a buy signal is generated, the euro should pulls back before retesting its recent high. On December 4, the euro continues to advance and has made a new high for the move of 1.3109 on fairly light volume. This indicates that shorts are not panicking yet.
The news coming out of Europe continues to be bearish, and this is providing courage to the shorts. This is what I call being “trapped by the narrative.” This is when a given market is trading opposite to the news, and speculators or investors will rationalize staying in the position, despite it is moving against them because the narrative takes precedence over price action. During the past 3 sessions, the euro has advanced by 1.25 cents while open interest has declined by only 507 contracts. This is extremely mild liquidation on the advance. Additionally, the average volume per day for the last 3 days is 267,778 contracts, which is below the average volume per day year to date of 270,246 contracts. With the massive number of shorts in the market, it appears the euro has the fuel to move higher, perhaps more than anyone thinks. One note of caution: the euro is beginning to approach the highs made on September 17 (1.3183) and October 17 (1.3147). Typically, when a market reaches a potential triple top, it pulls back. The potential danger is that the market makes a fractional new high and then heads south. Before recommending bullish positions, the market needs to have a pullback to perhaps the 1.2950 level. The euro’s 50 day moving average is 1 2912.
S&P 500 E mini:
The December S&P 500 E mini lost 7.50 points on volume of 1,688,527 contracts. Open interest advanced on the decline by 16,206 contracts, which in relation to volume is approximately 50% less than average. The E mini made a new high for the move at 1424.00, which was made before the stock market opened. This is the highest price for the E mini since November 7 when it reached 1431.75. With all the talk about the fiscal cliff, the real issue is going to be about lifting the debt ceiling limit. This was a very contentious issue last year, and it promises to be a repeat performance this year. It is possible the debt ceiling will be reached by the end of December, but certainly by January at the latest. If the administration wants to iron out the fiscal cliff issue along with the debt ceiling problem, a delay beyond December 31 is likely. There is no compelling reason to buy stocks unless the much ballyhooed Santa Claus rally takes place. As our readers know, (see Weekend Wrap December 2) the average return for December from 2000 through 2011 has only been 1%. We continue to think long puts make sense in the current environment.