The USDA export sales report will be released on Friday due to the Martin Luther King holiday.
Soybeans:
March soybeans lost 14.75 cents on volume of 157,861 contracts. Volume declined approximately 28,000 contracts from January 22 when soybeans advanced 22.50 cents and open interest increased by 7,882 contracts. On January 23, open interest increased by 3,319 contracts, which in relation to volume is approximately 5% below average. It would have been positive had open interest declined, especially after the open interest build the previous day. The market continues to trade in a sideways pattern, and the next issue that could propel the market higher may be the logistical problems of moving soybeans from the interior of Brazil to ports to meet their export commitments. Soybeans remain on a short and intermediate term sell signal. Stand aside.
Soybean meal:
March soybean meal lost $5.10 on volume of 61,038 contracts. Volume declined by approximately 5,000 contracts from January 22 when soybean meal advanced $7.20 and open interest increased by 4,354 contracts. On January 23, open interest declined by 551 contracts, which in relation to volume is approximately 50% less than average. It is positive that open interest declined, but soybean meal continues to be the laggard and is significantly underperforming soybeans and soybean oil. Soybean meal remains on a short and intermediate term sell signal. Stand aside.
Soybean oil:
March soybean oil lost 40 points on volume of 70,629 contracts. Volume declined approximately 13,000 contracts from January 22 when soybean oil advanced 75 points and open interest increased by 2,111 contracts. On January 23, open interest declined by a hefty 4,206 contracts, which in relation to volume is approximately 140% above average, meaning that liquidation was heavy, even though the decline in soybean oil was rather tame. The market has needed a pullback, and relative to its 50 day moving average, remains overbought. To provide some context on how well soybean oil is performing, consider that year to date through January 23, March soybean oil has advanced 4.69% while soybeans have advanced 1.95% and soybean meal has declined by 0.69%. On January 15, March soybean oil generated a short-term buy signal, but has not yet generated in intermediate term buy signal.
Corn:
March corn declined 7.75 cents on volume of 221,016 contracts. Volume increased approximately 50,000 contracts from January 22 when corn advanced 1 cent and open interest increased by 4,700 contracts. On January 23, open interest declined by 1,428 contracts, which in relation to volume is approximately 65% less than average. The decline of open interest on the price decline is positive and corn has been acting in a bullish congruent fashion with respect to open interest and price action for several days. On January 22, March corn generated a short-term buy signal but has not generated an intermediate term buy signal. As we stated when the buy signal was generated, corn should have a pullback, but that it would be fairly shallow. We think the market has discounted all the bad news of low ethanol production and terrible exports. The big surprise could be if demand picks up, which clearly has not been discounted. Global stocks of corn remain at more than 20 year lows.
Wheat:
March wheat lost 4.50 cents on volume of 82,261 contracts. Volume declined approximately 26,000 contracts from January 22 when March wheat declined by 12 cents and open interest declined by 3,963 contracts. On January 23, open interest declined by 1,310 contracts, which in relation to volume is approximately 35% less than average. Like corn, wheat has has been acting in a bullish congruent fashion with respect to price and open interest action. The difference between wheat and corn is that wheat has not generated a short-term buy signal. Stand aside.
Crude oil:
March crude oil declined by $1.45 on huge volume of 950,824 contracts. Volume was the highest since February 7, 2012 when 1,150,665 contracts were traded and crude oil closed at 101.32. Open interest increased by 15,463 contracts, which in relation to volume is approximately 30% less than average. The open interest build on the price decline on heavy volume is bearish. The decline on January 23 was the largest since December 21 when crude oil declined $1.47 on volume of 337,737 contracts, while open interest declined 999 contracts and crude oil closed at $89.23. The difference in volume and open interest action relative to price on January 23 and December 21 could not be more different. On January 23, crude oil made a fractional new high of 96,92 above the January 22 high of $96.89. In the report of January 22 and previous posts, we wrote about the dismal open interest action on the rally. The price and open interest action on January 23, is additional confirmation that long positions should not be taken. Crude oil remains on a short and intermediate term buy signal.
Natural gas:
March natural gas lost .003 (essentially unchanged) on light volume of 327,581 contracts. Open interest increased by 208 contracts. Natural gas remains on a short and intermediate term sell signal. Stand aside.
Copper:
March copper lost 2.05 cents on volume of 49,348 contracts. Volume declined approximately 19,000 contracts from January 22 when March copper advanced 2.60 cents and open interest increased by 2,077 contracts. On January 23, open interest increased by 3,273 contracts, which in relation to volume is approximately 160% above average. Copper remains on a short and intermediate term buy signal, but in our view there is no compelling reason to be long.
Gold:
February gold lost $6.30 on volume of 187,353 contracts. Volume declined approximately 13,000 contracts from January 22 when February gold advanced $6.20 and open interest increased by 9,048 contracts. On January 23, open interest declined by 5,451 contracts, which in relation to volume is approximately 20% above average. As this report is being compiled on January 24, February gold is trading $17.80 lower and has made a low of $1664.20, which is the lowest price since January 14. Gold remains on a short and intermediate term sell signal. Stand aside.
Platinum:
April platinum lost $6.70 on very light volume of 8,019 contracts. Volume declined by approximately 8,100 contracts from January 22 when platinum advanced $24.50 while open interest declined by 178 contracts. On January 23, open interest increased by 242 contracts, which in relation to volume is approximately 20% above average. As this report is being compiled, April platinum is trading $7.10 lower, but is quite firm compared to gold and silver. The market remains overbought, and we suggest that clients wait until it is corrected further.
Silver: On January 23, March silver generated a short-term buy signal.
March silver gained 26.2 cents on volume of 37,807 contracts. Volume declined by approximately 13,000 contracts from January 22 when March silver gained 24.5 cents and open interest increased by 1,837 contracts. On January 23, open interest increased by 1,916 contracts, which in relation to volume is approximately 140% above average. During the past 3 sessions, open interest has increased by 4,462 contracts while March silver has advanced 62.9 cents. This is bullish open interest action relative to price. On January 23, March silver reached its highest price since December 18 when it made a high of $32.60. The decline of volume as the market moved to new highs indicates the move was running out of steam. As is usually the case when a short/intermediate term signal is generated, there is a pullback, which we are seeing on January 24. Since January 14, silver has closed higher every day and thertefore it is entitled to a pullback. The impact of the dramatic price decline of Apple Computer on January 24 cannot be underestimated with respect to its affect on other markets. Its shares are widely held by almost every hedge fund, mutual fund and financial institution in the world.
British pound:
The March British pound lost 5 points on volume of 117,515 contracts. Open interest declined by 1,629 contracts, which in relation to volume is approximately 45% less than average. On January 17, the March British pound generated a short and intermediate term sell signal. The market has not had the pullback which usually accompanies a short and/or intermediate term sell signal. The pound remains oversold and clients should not enter bearish positions at current levels. As this report is being compiled on January 24, the pound has made a new low at 1.5752, which is the lowest price since August 28 when it made a low of 1.5752.
Canadian dollar:
The The March Canadian dollar lost 68 points on volume of 104,806 contracts. Open interest increased by 1,723 contracts, which in relation to volume is approximately 30% less than average. The Canadian dollar made a new low at 99.83, which is the lowest price since November 19 when it reached 99.76. In the Weekend Wrap of January 13 and 20, we wrote about the high long to short ratio of leveraged funds in the Canadian dollar and compared the performance of the euro, British pound and Australian dollar. We concluded the Canadian dollar was massively overbought relative to its performance and that liquidation would begin once it was blatantly apparent the Canadian dollar was headed lower. Therefore, we were surprised, that open interest did not decline, even though the Canadian dollar was moving to two-month lows. This tells us there is more liquidation ahead. A0s this report is being compiled, the March Canadian dollar is trading 36 points lower and has made a new low for the move at 99.52.
Euro:
The March euro gained 10 points on volume of 235,219 contracts. Open interest increased by 2,535 contracts, which in relation to volume is approximately 50% less than average. We have been bullish on the euro ever since a short-term buy signal was generated on December 3, which confirmed the intermediate term buy signal. On December 7, we encouraged clients to implement bullish positions, and the euro continues to be in a bull market, despite the fact that leveraged funds remain short according to the latest Commitment of Traders Report. As this report is being compiled, the March euro is trading 52 points higher. Continue to hold long positions and maintain stops at 1.3262 or slightly below.
S&P 500 E mini:
The S&P 500 E mini gained 0.75 points on light volume of 1,194,237 contracts. Open interest increased by a massive 45,956 contracts, which in relation to volume is approximately 50% above average. During the past 4 sessions open interest has increased 167,637 contracts while the S&P 500 E mini has gained 25.75 points. This is a massive increase of open interest relative to the minor price advance. It took a massive amount of new buying, but the total four-day advance was only a little more than 25 points. To put this advance in perspective, consider that on January 2, the S&P 500 E mini advanced 37.00 points on 1,943,131 contracts, but open interest increased only 11,152 contracts. Another example occurred on November 19, when the E mini advanced 22.75 points and open interest declined by 1,714 contracts on volume of 1,748,890. In short, the massive increase of open interest during the past 4 days is occurring at the very high end of the range, but it is not moving the market dramatically higher. The abysmal volume on the advance is another matter of concern. As we have advised before, clients should avoid being long the indices. Instead, look for stocks that outperformed during the 4th quarter, but have corrected close to their 50 day moving averages. This is important in the event of a broad market pullback. Additionally, sell stops should be in place for all positions. Unfortunately, institutions and retail investors who are long Apple Computer, are finding out the hard way why it is important to have sell discipline. The stock of Apple Computer is in the process of taking away almost all profit made during the past year.
