Volume and open interest analysis for November 27, 2012

Soybeans:

January soybeans gained 24.50 cents on light volume of 149,789 contracts. Volume was the highest since November 16 when 170,094 contracts were traded and January beans lost 18.75 cents, while open interest declined by 3,154. Open interest declined by 3,327 contracts, which in relation to volume is average. The January contract lost 6,340 of open interest. January soybeans made a new high for the move at 14.51, which is a fractionally higher than the high of $14.48 3/4 made on November 12. Soybeans look tired at current levels, and we believe a retest of the lower end of the trading range is likely. Stand aside.

Soybean meal:

January soybean meal gained $6.50 on very good volume of 95,845 contracts. Volume was the highest since November 12 when 106,586 contracts were traded and open interest increased by 1,424 while January meal declined by $18.30. On November 27, open interest declined by a mere 152 contracts, which is minuscule and dramatically below average. The December contract accounted for the liquidation of 5,274 contracts, but offsetting this was open interest increases from January 2013 through January 2014 contracts. This is very positive open interest action relative to price. Although one day’s action has been positive, clients should be on the lookout for continued strength in meal which may be an early warning that the soybean complex is bottoming. Stand aside.

Soybean oil:

January soybean oil advanced 83 points on volume of 157,371 contracts. Volume was the highest since November 16 when 178,792 contracts were traded and soybean oil made a secondary low at 46.94. Additionally, volume in soybean oil exceeded that of soybeans. Per the Weekend Wrap of November 25, volume on November 16 was one of the highest of 2012. On November 27, total open interest declined by 10,234 contracts, which in relation to volume is approximately is 160% above average. The December 2012 and January 2013 contracts were responsible for the liquidation of 11,892 contracts. For more information about our thoughts on soybean oil, please refer to the November 25 Weekend Wrap. Stand aside.

Corn:

March corn advanced 12.75 cents on heavy volume of 353,367 contracts. Volume was the highest since November 13 when 449,435 contracts were traded and corn made a new low for the move at $7.10 1/2, while open interest declined by 8,936 contracts and corn declined by 5.50 cents. On November 27, total open interest declined by 25,322 contracts, which in relation to volume is approximately 185% above average, meaning that liquidation was heavy. The December 2012 contract liquidated 50,957 contracts, but open interest increased for the March 2013 through July 2014 contracts. After observing corn during a consistent period of poor export sales, we have concluded the market is not concerned about this at the moment. Another factor to consider is that the USDA may cut its Argentine estimate in the upcoming December 11 USDA supply demand report. The current estimate is that the Argentine crop would total 28 million tons. It is highly likely that an intermediate term buy signal will be generated on November 28, but not a short-term buy signal, which would be confirmation that corn should be traded from the long side. Stand aside.

Wheat:

March wheat advanced 24.75 cents on heavy volume of 141,442 contracts. Volume was the highest since November 16 when December wheat declined 7.50 on volume of 161,429 contracts and open interest declined by 3,101 contracts. On November 27, total open interest increased by 2,268 contracts, which in relation to volume is approximately 30% below average, meaning the increase of open interest relative to volume was subpar. However, when taking into account that 16,187 contracts were liquidated in the December contract, the performance of wheat from a price and open interest standpoint was outstanding. The major concern and the factor driving the prices higher is the terrible crop ratings as wheat enters its dormant stage. The ratings are the lowest on record, and the lack of soil moisture, combined with the anticipated lack of rainfall in the coming weeks, is strongly supporting wheat prices. Like corn, the terrible export sales numbers seem to be unimportant at this juncture. As of November 28, March wheat has not generated a short or intermediate term buy signal. Stand aside.

Crude oil:

January crude oil lost 56 cents on light volume of 358,606 contracts. Open interest increased on the decline by 9,204 contracts, which in relation to volume is average. During the past 2 days, open interest has increased on two days of declining prices. As this report is being compiled on November 28 January crude is trading 98 cents lower. Stand aside.

Heating oil:

January heating oil lost 3.47 cents on higher than normal volume of 162,469 contracts. Open interest declined by 4,766 contracts, which in relation to volume is approximately 20% above average. This is the 6th day in a row that price and open interest action has been acting in a bullish congruent fashion. During the next day or 2 we will be examining a possible entry point on the long side and  conditions that may set up heating oil for a move higher. For now, stand aside.

Natural gas:

January natural gas gained 2.4 cents on light volume of 286,539 contracts. Total open interest declined by 12,625 contracts, which in relation to volume is approximately 75% above average, meaning that liquidation was heavy. During the past 2 days open interest has declined by 21,008 contracts while natural gas has declined by 14.2 cents. As this report is being compiled on November 28, natural gas has made a new low for the move at 3.737. There is support at $3.72, 3.66 and 3.51. Stand aside.

Gold:

December gold lost $7.30 on heavy volume of 309,948 contracts. Volume was the highest since November 7, when gold traded 306,101 contracts and declined by $1.00, while open interest increased by 3,239 contracts.. On November 7, December gold made its low of $1703.00. The prior low occurred on November 5 when gold reached its lowest price since August 31 and made its low of 1672.50. On November 27, open interest declined by 13,062 contracts, which in relation to volume is approximately 60% above average, meaning that liquidation was heavy. As this report is being compiled on November 28, December gold is trading 24.90 lower. Unlike silver, gold never generated a short-term buy signal, which would’ve reversed its October short-term sell signal. However, on November 28, gold has made a low at $1705.50 which should provide some support, as this represents lower end of the trading range. Stand aside.

Silver:

December silver lost 15.6 cents on heavy volume of 104,427 contracts. Volume declined approximately 2,000 contracts from November 26 when silver advanced 2.1 cents. On November 27, open interest declined by 2,669 contracts, which in relation to volume is average. The liquidation in gold on November 27 was considerably greater than silver. As we said in yesterday’s report, the 50 day moving average would provide support for silver, and that a pull back to this area was to be expected, especially since silver generated a short-term buy signal buy signal on November 26. As this report is being compiled, silver has pulled back and made a low of 32.90, but is currently trading 26.6 cents lower. It is likely that a new volume record will be set for silver in 2012 on November 28. If clients have not gotten on board yet, it is likely there will be some kind of retest of today’s lows. While it is unlikely that silver will break through the low of November 28, it is possible that it may retest the 50 day moving average of $33.21 during the next day or two. Clients should be looking for a spot to implement bullish positions.

Australian dollar:

The Australian dollar lost 9 points on volume of 102,691 contracts. Open interest increased by 465 contracts. Stand aside.

Euro:

The December euro lost 29 points on volume of 244,759 contracts. Open interest declined by 5,971 contracts, which in relation to volume is average. Although open interest has been declining for the past 6 days, undoubtedly much of this is due to market participants liquidating December contracts. The euro looks tired, and we suspect that we are at, or very near to the highs for the move. The euro made a high of 1.3012 on November 27, which was the highest price for the December euro  since October 31 when it reached 1.3027. The euro generated a short-term sell signal on November 5, and remains on that signal, but is on an intermediate term buy signal, which means clients should stand aside.

S&P 500 E mini:

The S&P 500 E mini lost 5.75 points on volume of 1,646,357 contracts. Open interest increased by 1,620 contracts, which is a minuscule number and dramatically below average.. As this report is being compiled on November 28, the E mini is trading 5.50 higher on volume that is greater than November 27. During the past 3 days, the E mini has not been able to trade above 1407.75. As we indicated in yesterday’s report, the E mini and the other markets will be buffeted by the fiscal cliff fiasco. With this overhanging the market, it is difficult to ascertain the immediate direction of the market. One final point, the Shanghai Composite Index closed at another new low on November 28.