Volume and open interest analysis for February 12, 2013

Soybeans:

March soybeans lost 10.75 cents on volume of 244,297 contracts. Total open interest declined by 2,585 contracts, which in relation to volume is approximately 50% below average. The March contract lost 15,311 of open interest. The May 2013 contracts through July 2014  gained open interest. Despite the sharp move lower, soybeans remain on a short term buy signal and an intermediate term sell signal. Stand aside.

Soybean meal:

March soybean meal lost $2.70 on heavy volume of 111,120 contracts. Total open interest increased by 126 contracts, which is minuscule and dramatically below average. The March contract lost 12,679 of open interest. From February 4 through February 12, open interest has declined by 802 contracts, while soybean meal has declined by $22.60. The open interest decline from February 4 through February 12 is positive relative to the price decline. Soybean meal generated a short-term sell signal on February 11, and as this report is being compiled on February 13, it continues to trade poorly. The March-May soybean meal spread closed at 80 cents premium to March,and this is the lowest in nearly a year. We continue to think that the long side of the soybean meal trade is yet to come, but for now clients should stand aside.

Soybean oil:

March soybean oil lost 14 points on volume of 129,293 contracts. Total open interest increased by 5,203 contracts, which in relation to volume is approximately 55% above average, meaning that new shorts were entering the market and driving prices lower. The March contract lost 7,554 of open interest. On February 13, March soybean oil is made a low of 50.56 cents, which is slightly above its 50 day moving average of 50.37 on the soybean oil continuation chart, and slightly lower than the 50 day moving average of 50.71 on the March soybean oil chart. The soybean oil trade looks very promising, and we recommend that clients begin to put on long positions on any setback and use 50.56 as an exit point. As of February 13, soybean oil remains on a short and intermediate term buy signal. It clearly is the leader of the soybean complex.

Corn:

March corn lost 6 cents on heavy volume of 446,723 contracts. Volume increased by approximately 46,000 contracts from February 11 when corn lost 6.75 cents and open interest increased by 8,476 contracts. On February 12, open interest increased by 10,436 contracts, which in relation to volume is average. Although, open interest in the March contract declined by 26,097 contracts, there was sufficient buying in the May 2013 through July 2014 contracts to offset the decline. Since February 4, through February 12, open interest has increased by 22,548 contracts while March corn has declined 39.75 cents. This is bearish open interest action relative to the price decline.

Although March corn generated a short-term sell signal on February 11, which confirmed the intermediate term sell signal, readers should not get bearish at current levels. The March-May spread widened to 0.75 cents premium to March, which is the highest price for the spread since January 14. Additionally, from February 4 when the spread closed at 2.00 cents premium to May, March corn declined from $7.34 1/4 to 6.96 1/4 on February 12. Yet the spread inverted during the decline in corn prices. This is bullish. Although we are not advocating long positions at this juncture, clients should not enter new short positions.

Wheat:

March wheat lost 9.50 cents on heavy volume of 181,319 contracts. Volume increased from February 11 when 162,987 contracts were traded and March wheat declined by 14.75 cents while open interest increased by 7,334 contracts. On February 12, open interest increased by 9,686 contracts, which in relation to volume is approximately 120% above average meaning that new short selling was very heavy. The most recent COT report was tabulated as of February 5. Since then, open interest in wheat has increased by 22,335 contracts while March wheat has declined by 25.50 cents. This is bearish open interest action relative to the price decline. While there is overwhelming bearish sentiment in the wheat market, we do not share those views. We see the decline in wheat as part of the seasonal downtrend that is affecting the grains in general. Wheat could move to as low as $7.11. However, as wheat moves lower, feed demand will increase and the wheat continues to be the best buy on the world market. Wheat remains on a short and intermediate term sell signal, and speculators should stand aside.

Crude oil:

March crude oil gained 48 cents on volume of 684,492 contracts. Volume declined by 147,071 contracts from February 11 when crude gained $1.31 and open interest increased by 14,354 contracts. On February 12, open interest increased by 22,570 contracts, which in relation to volume is approximately 30% above average, meaning that new buyers were entering the market in heavy numbers and driving prices higher. The open interest increase was the largest since January 29 (+27,653). We don’t see a compelling reason to be long crude oil at this juncture, especially when equity markets are at their highs, and we believe the risk is to the downside. As this report is being compiled on February 13, crude oil is made a new high for the move at $98.11, but did not surpass 98.24, the high on January 30. Stand aside.

Copper:

March copper gained 2.15 cents on fairly heavy volume of 65,841 contracts. Open interest increased by a minuscule 255 contracts, which is dramatically below average. February 12 was the third day in a row that copper has not been acting in as strong a manner as it has in the past. Copper remains in a trading range and is on a short and intermediate term buy signal.

Gold:

April gold gained 50 cents on volume of 152,094 contracts. Open interest increased by 1,596 contracts, which in relation to volume is approximately 50% less than average. Gold made a new low for the move at $1639.50. The gold market continues to trade in a bearish fashion, and the 50 day moving average is below the 150 day average, and within the next week or so, the 50 day moving average will likely cross below the 200 day average. Stand aside.

Platinum:

April platinum gained $21.10 on volume of 11,956 contracts. Open interest increased by only 123 contracts, which is 50% below average. This is the first day, since platinum generated a short and intermediate term buy signal on January 11 that an open interest increase has been this small considering the magnitude of the advance. We are bullish on platinum, but at current levels, we recommend that clients stand aside. In our view, the platinum market needs a classic washout before it is wise to enter the market.

Silver: On February 12, silver generated a short-term sell signal which reverses the short term buy signal generated on January 23.

March silver gained 10.9 cents on volume of 52,590 contracts. Volume was the highest since February 7 when 67,332 contracts were traded and open interest declined by 1,451 contracts while March silver declined by 47.4 cents. On February 12, open interest increased by 1,742 contracts, which in relation to volume is approximately 30% above average. March silver is now on a short and intermediate term sell signal, and clients should stand aside.

Euro:

The March euro gained 54 points on volume of 292,679 contracts. Volume was the highest since February 7 when 452,064 contracts were traded and the March euro declined by 1.22 cents while open interest declined by 4,615 contracts. On February 12, open interest declined by 3,659 contracts, which in relation to volume is approximately 45% less than average. During the past 5 days, open interest has declined 17,794 contracts while the March euro lost 1.42 cents. This is bullish open interest action relative to the price decline. It is positive that open interest has been declining, and this makes the euro less likely to have a severe decline. More work on the downside would be healthy and a further decline in open interest would be welcome.

S&P 500 E mini:

The S&P 500 E mini gained 3.25 points on light volume of 1,262,160 contracts. Open interest increased by 11,943 contracts, which in relation to volume is approximately 50% less than average. We continue to think there is massive risk on the downside, and a table that measures investor sentiment was released by Bank of America/Merrill Lynch. Sentiment More Bullish Than 99% Of All Prior Readings

The chart shows that sentiment is at stratospheric levels, which in our view makes it dangerous to be long most commodities. Another major problem is that there is a massive divergence between the number of stocks above their 50 day moving averages, which peaked at 2115 on January 22 and declined to 1929 on February 12, versus the advance of the S&P 500 cash index. Since January 22, through February 12, the S&P 500 cash index has advanced 33.45 points, but the number of stocks over their 50 day moving averages has declined by 186 issues or approximately 8.75% in this time frame. This underscores the severe overbought situation that currently exists in the market.