Volume and open interest analysis for January 4, 2013

Soybeans:

March soybeans lost 19.25 cents on volume of 173,894 contracts. Volume was the highest since December 20, when 299,585 contracts were traded and March soybeans lost 26.25, while open interest declined by 11,799 contracts. On January 4, open interest increased by 1,174 contracts, which in relation to volume is approximately 65% less than average. March soybeans touched the low of $13.56, which was the exact low made on November 16. In our view, shorts and longs should be out of the market prior to January 11 USDA report. Stand aside.

Soybean meal:

March soybean meal lost $5.20 on volume of 91,011 contracts. Volume was the highest since December 19, when 94,253 contracts were traded and March meal declined by 8.60, while open interest declined 6,326 contracts. On January 4, open interest increased by 3,470 contracts, which in relation to volume is approximately 50% above average, meaning that new shorts were entering the market and driving prices lower. March soybean meal made a new low for the move at 393.20, which nearly matches the low of 393.00 made on July 24, 2012. As with soybeans, we recommend that anyone short or long soybean meal market liquidate their positions prior to the January 11 USDA report. Stand aside.

Corn:

March corn lost 9 cents on heavier than normal volume of 235,859 contracts. Volume was the highest since December 20, when 261,311 contracts were traded and corn declined by 6.50 while open interest declined by 4,800 contracts. On January 4, open interest declined by 1,603, which in relation to volume is approximately 70% less than average. As we indicated in the January for Weekend Wrap, anyone short corn market should liquidate their positions prior to the January 11 USDA report. Additionally, longs should be out of the market as well.  Please see the January 6 Weekend Wrap. Stand aside.

Wheat:

March wheat lost 8.25 cents on volume of 82,193 contracts. Although wheat made a new low for the move at $7.39 3/4, which was 10 cents below the previous low made on January 3 of 7.49 3/4, volume shrank by approximately 3,300 contracts from January 3. The shrinkage of volume when wheat made a significantly lower low from the previous day, may indicate that wheat has temporarily bottomed. Another indication of a temporary low may be the sharp increase in open interest of 4,616 contracts, which in relation to volume is approximately 120% above average, meaning that new shorts were piling in and aggressively and driving prices lower. On January 2, March wheat declined by 22.75 cents and open interest increased by 5805 contracts, which in relation to volume is approximately 160% above average. However, the low on that day was 7.52 1/2. Caution should be exercised if short wheat and all positions, long or short should be liquidated prior to the January 11 USDA report.

Crude oil:

February crude oil gained 17 cents on volume of 511,030 contracts. Volume was approximately 3,000 contracts higher than December 19 when 507,852 contracts were traded and February crude advanced $1.58, while open interest declined by 10,961 contracts. On January 4, open interest declined by 5,431 contracts, which in relation to volume is approximately 50% less than average. Remarkably, ever since crude oil generated a short-term buy signal on January 2 and an intermediate term buy signal on January 3, the market hasn’t had a pullback despite its overbought status. We think this is a testament to the underlying strength of crude, but still believe that speculators should wait for a setback. We think the market should find support at $90.92 and 90.23 and 88.96.

Natural gas:

February natural gas gained 8.9 cents on volume of 258,885 contracts. Open interest declined by 2,011 contracts, which in relation to volume is approximately 55% less than average. Stand aside.

Copper:

March copper lost 2.35 cents on volume of 49,389 contracts. Volume on January 4 nearly matched the volume on January 3 of 49,808 contracts, while open interest increased by 1,180 contracts. On January 4, open interest declined by only 56 contracts which is minuscule and dramatically below average. On January 3, March copper generated a short-term buy signal and is already on an intermediate term buy signal, therefore copper should be traded from the long side.

Gold:

February gold lost $25.70 on volume of 276,607 contracts. Volume was the highest since November 28 when 486,315 contracts were traded and gold declined by $25.80 while open interest declined by 27,236 contracts. On January 4, open interest declined by 5,301 contracts, which in relation to volume is approximately 5% less than average. Gold made a new low for the move at 1626.00, which is the lowest price since August 21 when the low made was $1623.40. Gold is on a short and intermediate term sell signal. Stand aside.

Silver:

March silver lost 77.4 cents on volume of 73,418 contracts. Volume was the highest since December 20 when 95,560 contracts were traded and silver declined by $1.438, while open interest increased by 1,755 contracts. On January 4, open interest declined by a massive 4,186 contracts, which in relation to volume is approximately 120% above average, meaning that liquidation was unusually heavy. Silver made a new low for the move at $29.24, which is the lowest price since August 21 when the low made was 28.825. Silver remains on a short and intermediate term sell signal. Stand aside.

British pound:

The March British pound lost 44 points on volume of 126,786 contracts. Volume was the highest since December 14 when 143,742 contracts were traded and the March pound gained 57 points, while open interest increased by 11,168 contracts. On January 4, open interest declined by a massive 6,062 contracts, which in relation to volume is approximately 75% above average. During the past 2 days, the pound has lost 1.28 cents and open interest has declined by 12,185 contracts. This is positive open interest action relative to price. We suspect that the low made on January 4 of 1.5945 will be the low for quite some time. The pound remains on a short and intermediate term buy signal. As we have said before, we much prefer the long side of the euro than the pound.

Euro:

The March euro gained 11 points on heavy volume of 263,118 contracts. Volume was the highest since December 14 when 337,113 contracts were traded and the March euro advanced 83 points, while open interest declined by 2,446 contracts. On January 4, open interest declined by 1,081 contracts, which in relation to volume is approximately 70% below average. It is an extremely positive development the euro made a new low for the move at 1.3005 and rallied to close higher on the day. Additionally, the small decline of open interest indicates that weak sellers have been taken out of the market. During the past 3 trading sessions, open interest has declined by 10,584 contracts while the euro has declined by 1.28 cents. Clients should be looking to enter long positions at current levels with a stop near the January 7 low of 1.3025. We think the correction is over and the euro will move higher from here.

S&P 500 E mini:

The March S&P 500 E mini gained 4. 25 points on light volume of 1,515,817 contracts. Volume was the lowest since December 31, when 1,481,651 contracts were traded and the March S&P gained 36 points, while open interest declined by 29,235 contracts. On January 4, open interest action was dismal with a decline of 14,540 contracts, which in relation to volume is approximately 50% less than average. The open interest action relative to price has been horrible since the rally began on December 31 with open interest declining by 29,711 contracts through January 4. During this time, the E mini has advanced a total of 73.75 points. On January 4, the E mini reached 1463.00, which is a new high for the move and 5 points shy of the 1468.00 high made on September 14. There are some terrific individual stocks and ETFs that should be purchased, but we would stand aside in the E mini.