January soybeans lost 44.25 cents on volume of 259,926 contracts. Volume was twice as high as November 8 when 127,712 contracts were traded and January soybeans declined by 11.25, while open interest declined by 1,364 contracts. Volume was the highest since October 24 when 268,671 contracts were traded and January soybeans closed 17.25 higher, while open interest increased by 652 contracts.
On November 9, open interest declined by 11,011 contracts, which in relation to volume is 70% above average, meaning that liquidation was heavy. From November 2 through November 9 open interest has declined by 31,496 contracts while January soybeans declined by $1.08 3/4. Despite the decline into new low territory, price and open interest are acting in a congruent fashion, which is constructive. What we haven’t seen thus far is open interest increasing when soybeans decline. If soybeans continue to decline, undoubtedly the speculative community will get increasingly bearish and will begin to add short positions as the trade buys on the way down. Soybeans closed below their 200 day moving average for the first time since mid-February 2012. For more information on soybeans, please see the Weekend Wrap of November 11. As this report is being compiled on November 12 January soybeans are trading 47.25 cents lower. Stand aside.
December soybean meal lost $13.20 on heavy volume of 91,362 contracts. Open interest increased by approximately 30,000 contracts from November 8 when soybean meal declined $6.60 and open interest declined by 343 contracts. Volume was the highest since October 11 when 92,772 contracts were traded and December meal gained 9.60, while open interest increased by 1,183 contracts. On November 9, open interest declined by 4,168 contracts, which in relation to volume is 80% above average, meaning that liquidation was heavy. From November 2 through November 9, open interest has declined by 5,432 contracts, while December soybean meal has declined by $34.60. Stand aside.
December corn lost 2.50 cents on huge volume of 470,531 contracts. Volume increased approximately 174,000 contracts from November 8 when corn lost 3 cents and open interest declined by 4,918 contracts. Additionally, volume exceeded the 457,645 contracts traded on August 10, but was below the 550,005 contracts traded on July 11. On November 9, open interest increased by 9,872 contracts, which in relation to volume is approximately 5% below average. The market made a high of 7.55, which was the highest price for December corn since November 1 when it made a high of 7 63 1/4. Corn then proceeded to fall apart and close at 7.38 3/4. The increase of open interest on a reversal accompanied by heavy volume is a bearish indicator. Clients of OIA know that we have been leery of the long side of corn for quite some time. As indicated in the November 11 report, we stated that if the market hit 7.32, it would likely test the 7.05 area. Also, we warned about the ruling from the EPA which is due out on November 13, and could significantly impact the price of corn if there is any retrenchment in the current ethanol mandate. As this report is being compiled on November 12, December corn is currently trading down 22.75, and has made a new low for the move at 7.12 1/2. Stand aside.
December wheat closed 16 cents lower on heavy volume of 230,721 contracts. Volume increased by approximately 2,500 contracts from November 8 when wheat advanced 8.50 and open interest increased by 6,321 contracts. Volume was the highest since May 21 when 246,134 contracts were traded and wheat closed at 7.29 1/4. On November 9, open interest increased by a massive 13,033 contracts, which in relation to volume is approximately 115% above average, meaning that longs and shorts held extremely strong positions about the direction of wheat prices. During the past 4 days from November 6 through November 9, open interest has increased by 38,178 contracts while December wheat advanced a slight 20.50 cents.
The massive increase of open interest and the relatively small increase in December wheat prices is troubling. It shows that aggressive sellers are keeping a lid on prices. On November 9, December wheat made a new high for the move at 9.16 1/2 after the USDA crop report was released, then proceeded to sell off for the rest of the session to close (8.86 1/2) near the low of 884. 9.16 1/2 was the highest price for December wheat since September 17 when it reached 9.26 1/2.
On November 8, December wheat generated a short and intermediate term buy signal, but as we said at the time and reiterated the point in the November 11 report, markets very often have a countertrend move after generating a buy signal (or sell signal). We are seeing the effect of this on November 12 because December wheat is trading 29.25 cents lower, and has made a new low for the move at 8.56, which is the lowest price since October 30, when December wheat made a low of $8.52 3/4. Although it is typical to see a countertrend move after the generation of a buy signal(s), it is atypical to see that countertrend move morph immediately into a new sell signal(s). This is not to say it won’t happen, just that is a rare occurrence. Due to the massive open interest build over the past 4 days, we should begin to see fairly substantial liquidation because any longs who purchased wheat at a minimum price of 8.67 (the low on November 6) all the way up to the high on November 9 of 9.16 1/2 have losses, and many of these are quite large as of November 12. Due to the potential negative news of the ethanol mandate to be released by the EPA on November 13, we have suggested that clients wait until after the issuance of the report before considering long positions. We continue to think this is a wise course of action, and it will allow us to monitor open interest action to see whether sufficient liquidation has occurred. Stand aside.
December crude oil gained 98 cents on volume of 604,448 contracts. Open interest declined by 6,174 contracts, which in relation to volume is approximately 50% less than average. Stand aside.
December heating oil gained 5.01 cents on light volume of 101,467 contracts. Open interest declined by 3,047 contracts which in relation to volume is average. Stand aside.
December gasoline gained 9.19 cents on volume of 156,815 contracts. Open interest increased by 3,415 contracts, which in relation to volume is approximately 5% below average. Stand aside.
December natural gas lost 10.5 cents on light volume of 276,910 contracts. Open interest declined by 11,748 contracts, which in relation to volume is approximately 70% above average, meaning that liquidation was fairly heavy. Although we have been following natural gas on a irregular basis, we are becoming more interested in it. Price and open action consistently act in a bullish congruent fashion. We will be doing more research on natural gas to determine the timing for a possible trade on the long side. For now, stand aside.
December copper lost 2.40 cents on heavy volume of 83,076 contracts. Open interest increased on the decline by 2,414 contracts, which in relation to volume is approximately 5% above average. The market made a new low for the move at 3.4030, which is the lowest price for December copper since August 31 when December copper reached a low of 3.4075. Copper consistently has open interest increases when the price declines and open interest declines when the price advances. This is bearish action, although it is quite likely the market will rally having reached a significant low point on the chart. Stand aside.
December gold gained $4.90 on volume of 179,968 contracts. Open interest increased by a massive 9,376 contracts, which in relation to volume is approximately 100% above average, meaning that buyers and sellers were making strong commitments, however the longs were in control, but not by much considering the massive increase of open interest. The market continues to struggle and has not been able to close above its 50 day moving average. Stand aside.
December silver gained 35.9 cents on volume of 60,941 contracts. Open interest increased by 986 contracts, which in relation to volume is approximately 30% below average. Like gold, silver is struggling at current levels, and we continue to recommend a stand aside position.
The December euro lost 36 points on fairly heavy volume of 287,305 contracts. Open interest declined by 122 contracts. The euro made a new low for the move at 1.2693, which is its lowest price since September 7, when the December euro reached 1.2641. On November 5, the December euro generated a short-term sell signal, but has not yet generated in intermediate term sell signal. Stand aside.
S&P 500 E mini:
The S&P 500 E mini gained 0.50 points on healthy volume of 2,551,183 contracts. Open interest declined by 8,818 contracts. The E mini made a new low for the move at 1363.50, and is overdue for a short-term rally. The remarkable aspect of the decline of the E mini is that rallies have been shallow, which is a very bearish indicator. It appears that in order to get a major rally, there will have to be some news event that will act as a catalyst. Maintain long puts.