Export sales will be released on January 4 due to the New Year’s holiday.

Soybeans:

March soybeans lost 17.25 cents on volume of 156,134 contracts. Open interest increased on the decline by 2,657, which in relation to volume is approximately approximately 25% below average. On January 3, soybeans continue to decline with March being down 13.75 and has made a new low for the move at $13 72 1/2. China canceled 315,000 tons of soybeans for 2012-2013 delivery, and the harvest in Brazil has begun with some early sales in the pipeline. Soybean oil took a large jump (1.35 cents) on the reinstatement of the bio diesel tax credit for last year, and was extended through the end of 2013. We will be monitoring soybean oil to see if this begins to add some fuel to a further rally.

Soybean meal:

March soybean meal lost $13.70 on heavy volume of 87,255 contracts. Volume was the highest since December 19 when 94,253 contracts were traded and open interest declined by 6,326 contracts while March meal declined by $8.60. On January 2, open interest declined by only 98 contracts, which is rather surprising considering the magnitude of the decline, and that soybean meal made a new low for the move at 403.30.

Corn:

March corn lost 7.50 cents on volume of 172,676 contracts. Volume was the highest since December 20 when 261,311 contracts were traded and open interest declined by 4,800 contracts while March corn lost 6.50. On December 20, corn had made a new low for the move at 6.87 1/2. On January 2, open interest increased by a massive 16,148 contracts, which in relation to volume is a staggering 275% above average meaning that new shorts and longs were piling into the market and  the shorts were in control.

The major increase in open interest caused us to go to our records to see if there had been any comparable increases of open interest on a decline. The closest analog to the action of January 2 occurred on September 12, 2012 when December corn declined by 8.25 cents on volume of 350,276 contracts and open interest increased by 14,025 contracts. The increase of open interest in relation to volume was 55% above average, which is dramatically below the increase on January 2. We have good reason to think the massive increase of open interest on January 2 was due to speculators entering new short positions and commercials entering new long positions. In the January 1 Weekend Wrap, we noted that commercials added 18,246 contracts to their long positions and liquidated 34,656 contracts of their short positions. Managed money on the other hand liquidated 29,955 contracts of their long positions and added 8,771 contracts to their short positions.

According to the COT report released last Friday, managed money was long corn by a ratio of 3.43:1. To put this number in perspective consider that on July 3, 2012, which was the tabulation date of the COT report, the long to short ratio was 5.07:1 and March corn closed at $6.82 1/4. The prior week, on the June 26 COT tabulation date, the long to short ratio was 2.20:1, and March corn closed at 6.33 1/2. On the July 10 COT tabulation date, the long to short ratio was 7.15:1 and March corn closed at 7.22 3/4. It is obvious that the current long to short ratio is extremely low when it is compared to the markets of several months ago and corn prices were trading at approximately the same level.

The massive increase of open interest on January 2 may well represent latecomers to the party who are getting short at the bottom of the range. There is a gap that will probably be filled, which occurred between July 3 (6.83 1/2) and July 5 (6.93). However,one caveat to keep in mind: Once the gap is filled, there is no support until 6.46 1/2. Next week, the USDA will issue its supply and demand report, and there could be some major upside surprises for corn. Do not short the market, and if short, cover these positions before the report on January 11. Otherwise, stand aside.

Wheat:

March wheat lost 22.75 cents on heavier than normal volume of 87,655 contracts. Volume was the highest since December 19 when wheat traded 87,608 contracts and open interest increased by 3,500 contracts while wheat declined by 5.50. On January 2, open interest increased by a massive 5,805 contracts, which in relation to volume is approximately 160% above average meaning that new shorts were piling in and driving the market lower. Stand aside.

Crude oil: On January 2, February crude oil generated a short-term buy signal.

February crude oil gained $1.30 on heavier than normal volume of 488,512 contracts. Volume was the highest since December 19 when 507,852 contracts were traded and crude oil advanced $1.58, while open interest declined by 10,961 contracts. On January 2, open interest increased by a disappointing 3,134 contracts, which in relation to volume is approximately 65% below average. Crude oil made a new high for the move at 93.87, which is the highest price since October 19 when crude oil reached $94.42. From December 11 through January 2, crude oil has advanced $6.80 while open interest has declined by 66,975 contracts. This is bearish open interest action relative to the price advance.

Another sign that crude oil is trading weakly at current levels is the lackluster volume on the advance. For example, yesterday’s volume was approximately 67,000 contracts below the average daily volume for 2012 of 555,461 contracts and when this is combined with the tepid increase of open interest, you have a market that is vulnerable to a good-sized setback. As we said in yesterday’s report, the market has to do considerable amount of work on the downside before we can recommend bullish positions. Although the market is holding up well, for it to continue to advance, aggressive buyers have to be willing to enter the market at higher prices. Unless there is a major geopolitical catastrophe, it does not appear this is going to occur anytime soon. If crude oil holds the January 3 low of 92.49, it will generate  an intermediate term buy signal. As clients know, when a short and/or intermediate term buy signal occurs, there is a setback lasting 1 to 2 days and sometimes more, which then sets up the buying opportunity. For now stand aside.

Natural gas:

February natural gas lost 11.8 cents on volume of 321,633 contracts. Open interest increased by 9,466 contracts, which in relation to volume is approximately 20% above average, meaning that participants were usually aggressive and that shorts were in control. This is the second day in a row that natural gas prices have fallen and open interest has increased. As this report is being compiled on January 3, natural gas is trading 2.9 cents lower. Stand aside.

Copper:

March copper gained 8.35 cents on volume of 55,729 contracts. Volume was the highest since December 19 when 59,802 contracts were traded and March copper declined 4.80 while open interest declined 985 contracts. On January 2, open interest increased by a massive 3,806 contracts, which in relation to volume is approximately 160% above average, meaning that new longs were extremely aggressive and moving prices significantly higher. Copper made a new high for the move at $3.7590, which is the highest price since October 18 when it reached $3.7710. The high on January 3 also is 3.7590. As this report is being compiled on January 3, copper is trading 4.05 cents lower, and will likely generate a short-term buy signal. However, we expect the market to continue to pullback. Stand aside.

Gold:

February gold gained $13.00 on volume of 150,490 contracts. Volume was the highest since December 20 when 200,791 contracts were traded and gold made the low for the move at $1636.00 and declined by $21.80 while open interest declined 7,242 contracts. On January 2, open interest increased by 4,189 contracts, which in relation to volume is average. As we stated in yesterday’s report, gold is not close to generating a short or intermediate term buy signal. As this report is being compiled on January 3, February gold is trading $23.50 lower. Continue to stand aside.

Silver:

March silver gained 78 cents on volume of 39,905 contracts. Open interest increased by a minuscule 59 contracts, which is dramatically below average. As this report is being compiled on January 3, silver is trading 55.7 cents lower. As stated in yesterday’s report, silver is not going to generate a short or intermediate term buy signal. Stand aside.

British pound:

The British pound gained 2 points on volume of 78,113 contracts. Volume was the highest since December 27 when 78,685 contracts were traded and the pound declined by 20 points, while open interest declined by 3,079 contracts. On January 2, open interest increased by a massive 5,182 contracts, which in relation to volume is approximately 160% above average, meaning that new buyers were extremely aggressive and were able to push the market to a fractional new high, but this didn’t hold and the market closed essentially unchanged. The Australian dollar had a massive open interest increase of 9,489 contracts on volume of 78,991 and the Canadian dollar increased open interest by 1,340 contracts on volume of 63,284. In short, it appears that speculators were rushing in and buying at the top, especially in the Australian dollar, which is managed money’s favorite currency, even though it has under performed the euro by a wide margin during the 4th quarter. Additionally, the euro bested the Australian dollar during all of 2012 gaining 1.90% versus the Australian dollar gaining 1.51%. The high on January 2 was 1.6314, which is slightly above the high made on December 19 of 1.6304, and the identical high of 1.6304 made on September 21 in the December contract. Stand aside.

Euro:

The March euro lost 24 points on volume of 170,432 contracts. Open interest declined by 2,487 contracts, which in relation to volume is approximately 35% below average, meaning that liquidation was fairly light. In the December 23 Weekend Wrap, we discussed the behavior the euro during December and January of 2010 in 2011. In this discussion, we provided the euro’s trading history during this period and reiterated that swings in the euro during January can be significant. Additionally, since our report, we have been cautioning clients that a pullback to the 1.3100-1.3150 area was to be expected. As this report is being compiled on January 3, the euro is trading 1.15 lower and has made a new low for the move at 1.3066. As we indicated in yesterday’s report, conceivably the market could trade near its 50 day moving average of 1.2983, which represents fair value for the past couple of months. We encourage readers to review the December 23 Weekend Wrap to gain perspective on how the euro may trade during January 2013. We remain bullish and the setback is healthy.

 S&P 500 E mini:

The S&P 500 E mini gained 37.00 points on volume of 1,943,131 contracts. Volume was the highest since December 21 when the S&P gained 14.50 points on volume of 2,116,725 and open interest increased by 3881 contracts. On December 20, the E mini gained 7.50 points on volume of 1,991,837 contracts while open interest increased by 10,183. On January 2, open interest increased by 11,152 contracts, which is approximately 75% below average. Although the momentum of the market points higher, the abysmal volume and open interest stats require every clients attention. Consider that average daily volume during 2012 was 1,874,620 contracts, and even though the market traded dramatically higher, volume was only approximately 69,000 contracts above the average daily volume for 2012. If the advance of December 31 of 36.00 points is added to the advance on January 2, the E mini has gained a total of 73 points, but open interest has actually declined by 18,083 contracts (December 31 -29,235). It appears the market is going to retest the 1468.00 high made on September 14, and this may occur if the employment report be issued tomorrow is surprisingly positive. We think there are terrific individual stocks to own as well as ETF’s, but see no reason to be long the E mini at this juncture.