January soybeans gained 23.75 cents on volume of 168,160 contracts. Volume was the highest since November 16 when 170,094 contracts were traded and soybeans declined by 18.75, while open interest declined by 3,154 contracts. On December 5, total open interest increased by 2,537 contracts, which in relation to volume is approximately 30% less than average. The January contract lost 3,039 contracts of open interest, but there were enough new entrants into the market to bring the total to a number positive. Export sales were terrific at 42 million bushels, which is the second highest number of the season.
Although volume was the highest in 2 weeks, the below average increase of open interest on the biggest upside move since November 27 is disappointing. On December 6, January soybeans made a new high for the move at $14.91 1/2. It is impressive that the market is trading in positive territory on the December 6 even though the dollar is sharply higher, which generally speaking is negative for commodities. The December 11 USDA report is just around the corner, and clients should stand aside until after the report. Soybeans remain on a short and intermediate term sell signal.
January soybean meal gained $6.00 on volume of 51,454 contracts. Total open interest declined by 650 contracts, which in relation to volume is approximately 45% less than average. The December and March contracts lost a total of 1,555 contracts of open interest. The export sales number for soybean meal was off the charts and was the highest for the season at 463,630 tons. As of the recent export sales report, soybean meal commitments total approximately 70% of projected USDA sales. Only 48,000 tons per week is required to reach that target. During the past 3 days, January soybean meal has advanced $11.40, but open interest has declined by 1,755 contracts. This is bearish open interest action relative to price. The fundamentals for soybean meal are strong, but the meal market, but volume and open interest action needs to improve. Stand aside.
January soybean oil gained 94 points on volume of 145,372 contracts. Total open interest declined by 9,126 contracts, which in relation to volume is approximately 150% above average, meaning that liquidation was extremely heavy on the advance. This is bearish open interest action relative to price. Export sales cooled considerably from the past 2 weeks, with sales of only 19,000 tons. As of the latest report, soybean sales are running approximately 45,000 tons ahead of its USDA projection for the 2012 2013 season. Stand aside.
March corn advanced 5.75 cents on volume of 202,201 contracts. Total open interest increased by 3,952 contracts, which in relation to volume is approximately 15 percent less than average. The December contract lost 3,250 of open interest and March lost 319. Export sales were disappointing at only 2 million bushels. As this report is being compiled, March corn is trading 9.25 lower. Support should be in the 7.39-7.43 area. Stand aside.
March wheat gained 3.50 cents on extremely light volume of 63,840 contracts. Volume was the lightest since the day after Thanksgiving on November 23 when 52,720 contracts were traded and wheat advanced 2.50, while open interest declined by 23,474 contracts. On December 5, total open interest declined by 1,979 contracts, which in relation to volume is approximately 20% above average. Open interest declined in the December through May contracts and totaled 2,483. Export sales were disappointing at 13 million bushels, which is significantly below the average of 18,290,000 bushels per week needed to meet USDA export projections. As this report is being compiled on December 6, March wheat is trading 6.75 lower. Stand aside.
January crude oil declined by 62 cents on volume of 450,061 contracts. Open interest declined by 9,339 contracts, which in relation to volume is approximately 5% less than average. As this report is being compiled on December 6, January crude oil is trading $1.72 lower, and has reached a new low for the move of $85.68. Although we have been neutral to slightly friendly with numerous reservations, the crude oil market is being hit by the sharp rise in the dollar. Crude remains on a short and intermediate term sell signal and there is no reason to be involved in the market at this juncture.
January heating oil lost 1.33 cents on volume of 117,130 contracts. Open interest declined by 1,935 contracts, which in relation to volume is approximately 30% less than average. This is the second time in the past 3 trading sessions that open interest increased on a price decline. Although at one time it looked like heating oil was going to move significantly higher, the recent price and open interest action indicates that this is off the table for now. As this report is being compiled on December 6, January heating oil is down 4.61 cents, and has made a new low for the move at $2.9347, which has broken the low of 2.9387 made on November 5. Stand aside.
January natural gas gained 16.1 cents on volume of 321,938 contracts. The average daily volume year to date for natural gas is 379,502 contracts. It says a lot when natural gas rallies approximately 4 1/2% and volume is approximately 15% below the average daily volume year to date. The open interest increase was just as tepid and increased by only 4,465 contracts, which in relation to volume is approximately 40% less than average. Stand aside.
February gold declined by $2.00 on volume of 160,443 contracts. Open interest declined by 5,898 contracts, which in relation to volume is approximately 40% above average. This is the 8th consecutive day that open interest has declined, which brings the total to 64,787 contracts, while February gold has declined by $55.40. Gold made a new low for the move at 1686, which is approximately $14.00 above the low made on November 5 of 1672.50. Although the dollar is trading sharply higher, gold is trading $6.60 higher. The risk to gold is that the equities market rolls over and takes the precious with it. Stand aside.
March silver gained 14.9 cents on light volume of 42,595 contracts. Open interest declined by 815 contracts, which in relation to volume is approximately 10% less than average. During the past 4 days, open interest has declined by 6,703 contracts, while March silver declined by $1.474. This is bullish open interest action relative to price. Silver made a new low for the move at $32.585, which was the lowest since November 19 when silver reached 32.42. Like gold, the danger to silver is a slide in equity prices. Stand aside.
The December euro lost 21 points on volume of 260,090 contracts. Open interest increased by 1,106 contracts, which in relation to volume is approximately 75% less than average. As this report is being compiled on December 6, the December euro is trading 1.23 lower, and has made a low of 1.2951. As we said after the euro generated the short term buy signal, which confirmed the intermediate term buy signal, the euro would pull back to the 1.2950 area. We don’t know whether this is a one day event, or if there is going to be some additional selling. The euro should find support at the following prices: 1.2934, 1.2905 and 1.2888. The key to today’s action will be whether or not open interest increases. We think it is fine to wait until tomorrow to enter bullish positions and before we begin writing the daily report, we will send out a special bulletin to inform clients of the volume and open interest action for December 6.
S&P 500 E mini:
The S&P 500 E mini gained 2.75 points on heavier than normal volume of 2,076,388 contracts. Volume was the highest since November 28 when 2,146,545 contracts were traded and the S&P E mini advanced 9.50 points ,while open interest declined by 6,865 contracts. On December 5, open interest increased by a minuscule 7,186 contracts, which is dramatically below average.
Zerohedge has written an excellent piece on margin debt rising to an 18 month high in today’s edition.
“Today we get the October data and find that things have gone from bad to worse, because Margin Debt rose once more, this time to 318 billion, the highest in a year and a half, but more troubling is that Net Free Credit (i.e. Real disposable cash to meet margin calls) sank even deeper into the red, at a whopping 44 billion, the lowest since the summer of 2011.”
“This simply means that like last month, if and when margin calls start coming in, speculators will have no choice but to commence liquidating levered positions as there is simply not enough cash to fund capital losses. Which probably explains the resilience of the S&P: 1 or 2 percent down days and Congress will get a far greater impetus to get the fiscal cliff deal done. Which, paradoxically, is precisely what needs to happen.”
On December 7, the employment report will be issued by the Department of Labor, and this will have a major effect on trading on Friday. Unless there is a tremendous upside surprise, we expect the market to continue trading in a range bound fashion until there is a break one way or the other on the fiscal cliff issue. Maintain long puts.