March soybeans lost 6.50 cents on volume of 253,067 contracts. Volume was the highest since December 20 when soybeans lost 26.25 on volume of 299,585 contracts and open interest declined by 11,799 contracts. On January 11, open interest increased by 1,669 contracts, which in relation to volume is approximately 70% below average. Open interest declined in the March and May contracts by 1,335 and 1,737 respectively. As we said in the January 13 Weekend Wrap, we believe the lows are likely in for soybeans. As this report is being compiled on January 14, March soybeans are currently trading 41 cents higher and have made a new high for the move to 14.23, which is the highest price since January 2 when the high was 14.35. Soybeans remain on a short and intermediate term sell signal, and we recommend that clients stand aside.
March soybean meal lost $1.30 on volume of 103,686 contracts. Volume was the highest since November 12 when 106,718 contracts were traded and March soybean meal closed at 416.90. On January 11, open interest increased by a meager 33 contracts and the March contract lost 2,006 contracts of open interest. Like soybeans, we believe the low of 392.40 made on January 11 is going to be the low that will hold for awhile. As this report is being compiled, March soybean meal has advanced $11.30. Soybean meal remains on a short and intermediate term sell signal. Stand aside.
March corn gained 10 cents on extremely heavy volume of 569,660 contracts. Based upon our research, we believe the volume traded on January 11 was the highest of any day during 2012. On July 11, volume was 550,005 contracts and on June 27 551,412 were traded. We could not find a day that volume exceeded 569,660 contracts. On January 11, open interest increased by 17,940 contracts, which in relation to volume is approximately 20% above average, meaning that commitments were somewhat heavier than usual, but not reflective of a massive rush into the market by new participants. As we stated in the January 13 Weekend Wrap, the long to short ratio of managed money was at extremely low levels, which is one indication the bottom is in for corn. We suspect that much of the volume on Friday is attributable to offsetting trades between longs and shorts, which kept the increase relatively low. After making a high of 7.23 3/4, the market pulled back to close at 7.08 3/4. As this report is being compiled, corn has made a new high for the move at 7.26 3/4, which took out Friday’s high. Corn remains on a short and intermediate term sell signal. Stand aside.
March wheat gained 10.25 on extremely heavy volume of 190,768 contracts. Volume was the highest since November 9 when 231,721 contracts were traded and March wheat closed at 9.01 1/2. On January 11, open interest declined by 7,620 contracts, which in relation to volume is approximately 60% above average, meaning that liquidation was fairly heavy on the advance. Wheat made a new high for the move at 7.73, which was below the high made on January 2 of 7.88. Also on Friday, wheat made a new low for the move at 7.36 1/4, which took out the low made on January 4 of 7.39 3/4. For wheat to continue on a upward trajectory, export demand will have to increase, otherwise it will just follow corn. Wheat remains on a short and intermediate term sell signal. Stand aside.
February crude oil lost 26 cents on volume of 604,531 contracts. Volume declined by approximately 128,000 contracts from January 10 when crude oil advanced 72 cents and open interest increased by 5,112 contracts. On January 11, open interest increased by 15,755 contracts, which in relation to volume is average, but a fairly large number nonetheless. It is interesting to note the open interest increase occurred while crude was trading lower for the session. It appears that new shorts were attempting to drive prices lower, but the lows did not hold and oil closed just fractionally lower. The open interest increase on Friday was only exceeded by the 26,049 contract increase on November 30 when crude advanced 84 cents on volume of 426,847 contracts and closed at $89.49. Crude oil remains on a short and intermediate term buy signal, and we suggest clients stand aside until the market has had a healthy pullback.
February natural gas gained 13.4 cents on fairly heavy volume of 430,873 contracts. Volume was the highest since December 13 when 548,515 contracts were traded and February natural gas closed at $3.389. On January 11, open interest declined by a massive 18,386 contracts, which in relation to volume is approximately 65% above average meaning that liquidation was very heavy. This is not terribly surprising given that managed money is heavily short natural gas. Stand aside.
March copper lost 5.50 cents on volume of 50,525 contracts. Open interest declined by 2,763 contracts, which in relation to volume is approximately 120% above average meaning that liquidation was very heavy. Copper remains on a short and intermediate term buy signal. However, the market appears to be in a trading range without a strong direction. We think there better markets to trade than copper.
February gold lost $17.40 on fairly heavy volume of 207,934 contracts. Volume was the highest since January 4 when 276,607 contracts were traded and gold declined by $25.70 while open interest declined by 5,301 contracts. On January 11, open interest increased by 1,503, which in relation to volume is approximately 65% less than average. Gold remains on a short and intermediate term sell signal. Stand aside.
Platinum: On January 11, April platinum generated a short and intermediate term buy signal.
April platinum lost $3.10 on volume of 16,693 contracts. Open interest increased by 442 contracts, which in relation to volume is average. We are bullish on platinum, and suggest clients review the January 13 Weekend Wrap on platinum if they have not done so already. As this report is being compiled, the spread between gold and platinum has narrowed considerably with platinum up $28.40 and gold + $8.00. The market remains overbought and needs to have a correction before we can recommend that new long positions be entered. As an alternative, we suggested that clients consider the physical platinum ETF, PPLT. Stand aside until a correction occurs.
March silver lost 51 cents on heavier than normal volume of 52,787 contracts. Volume was approximately 4,000 contracts above the volume on January 10 when silver advanced 66.9 and open interest increased by 2,281 contracts. On January 11, open interest declined by 1,486 contracts, which in relation to volume is average. Stand aside.
The March British pound lost 31 points on volume of 100,522 contracts. Volume declined approximately 30,000 contracts from January 10 when the pound advanced 1.37 and open interest increased by 1,458 contracts. On January 11, open interest increased by 841 contracts, which is 55% below average. As we’ve said before, we prefer the euro trade.
The March euro gained 87 points on volume of 308,519 contracts. Open interest increased by 3,890 contracts, which in relation to volume is approximately 50% less than average, meaning that speculators are still not buying into the euro rally to any great extent. We view this as positive, especially since leveraged funds are short the euro according to the latest COT report. The euro made a new high on Friday of 1.3373, and as this report is being compiled on January 14, has made another new high at 1.3413. The market is getting overstretched at this juncture, and a setback is to be expected. Do not enter new positions at current levels.
S&P 500 E mini:
The S&P 500 E mini gained 0.25 points on very low volume of 1,151,438 contracts. Volume was the lowest since December 28 when 1,062,992 contracts were traded and the E mini lost 24.00 points, while open interest increased by 3,560 contracts. On January 11, open interest increased by a meager 2,453 contracts, which is dramatically below average. Despite making a new high for the move at 1471.50, volume shrank nearly 400,000 contracts from January 10 when the S&P E mini gained 11.25 points and open interest declined by 4,342 contracts. The E mini continues to trade in a unimpressive lackluster fashion, and unless clients want to protect themselves on the downside by buying puts, or shorting out of the money calls, there is no reason to be involved in the E mini.
We want to call your attention to a piece in Zerohedge.com on January 14 titled “Hedge Funds Most Levered And Long Since 2004.” One of the key quotes from the article is “Leverage among managers who speculate on rising and falling shares climbed to the highest level to start any year since at least 2004, according to data compiled by Morgan Stanley.” The article goes on to say “Margin debt at NYSE firms rose in November to the most since February 2008, data from NYSE Euronext show.” This should be of great concern to anyone who is heavily long because collectively, this group of traders tend to buy at tops. They get wildly bullish, when in fact they should be cautious.