November soybeans closed 1.25 cents higher on low volume of 176,888 contracts. Open interest increased by 1,536 contracts, which in relation to volume is 50% below average. For the past three days when soybeans have traded lower, total open interest has been increasing. Although the open interest build has been light thus far, it will be interesting to see whether the bearish open interest action will dominate the massive liquidation which must occur in the November contract.
On October 16, the November contract lost 5,034 contracts of open interest and there was sufficient new participants entering the market to overcome the decline. The COT report, which is tabulated on Tuesday (October 16) and released this Friday will show us where the build has occurred. For the past four trading sessions, the daily high in soybeans has been successively lower and the high on October 17 is lower than the previous session. Soybeans will trade in a sideways to lower pattern, until there is a catalyst to move them sharply higher. On October 15, November soybeans made its low for the move of 14.85 3/4.
To put this number in perspective, consider the last time that November soybeans traded near the 14.85 3/4 low. On July 3, 2012, November soybeans made a high of $14.78, but the front tradable month of soybeans (August) closed at $15.29 1/2. The last time the August contract traded near $14.85 3/4 occurred on on June 29. This was at the very beginning of the drought and before the robust export sales of soybeans was known. In short, soybeans are in a solid value zone, but this does not mean they cannot move lower. Soybeans, like any market tends to overshoot on the upside and on the downside. Watch the November-March soybean spread, and if the November contract continues to lose to the March, soybeans will continue to trade lower.
December soybean meal lost $3.30 on light volume of 48,831 contracts. Open interest increased by a massive 2,012 contracts, which in relation to volume is 65% above average. During the past two days, open interest has increased by 3,026 contracts while soybean meal has lost $10.90. This is bearish price and open interest action. The December through May contracts all had open interest increases. It is apparent that the harvest low in soybean meal and in the entire bean complex has not yet occurred. Speculators should be watching the December-March spread and as long as December is losing to March, the market will continue to head lower.
December corn lost 1.00 cents on light volume of 154,962 contracts. Open interest increased by a massive 6,474 contracts, which in relation to volume is 65% above average. Interestingly, the open interest increase in corn and soybean meal on a percentage basis in relation to volume was almost identical. It appears that ever since corn had the big rally on October 11, it has lost its luster, and its appeal on the long side. Lower prices during the next month or two will boost consumption, and this will lead to a new bull market by the end of 2012, or early 2013. Stand aside.
December wheat lost 0.50 on light volume of 58,835 contracts. Open interest declined by 928 contracts, which in relation to volume is approximately 30% less than average. On the world market, wheat is overpriced as is corn, and the price of both will likely continue to lose value during the next month or two. Stand aside.
November crude oil gained 24.00 cents on volume of 531,339 contracts. Open interest increased by 4,591 contracts, which in relation to volume is approximately 60% less than average. On October 16 and 17, crude oil has continued to trade in a lackluster fashion, despite a sharply lower dollar, which is usually quite bullish for crude oil. In our view, this is one additional factor that supports the long put positions we have recommended in the 92-93 dollar level.
November heating oil lost 1.06 cents on volume of 163,795 contracts. Open interest declined by 342 contracts, which is a minuscule number and significantly below average. Stand aside.
November gasoline lost .0050 on volume of 150,297 contracts. Open interest increased by 4,975 contracts, which in relation to volume is approximately 30% above average. On October 16, November gasoline closed at $2.8453, which is slightly below its 50 moving average of 2.85. As this report is being compiled on October 17, gasoline has fallen an additional 5.14 cents, which puts it solidly below the 50 day moving average for the first time since early July. On the gasoline continuation chart, the market looks considerably worse than the November chart, and the 50 day moving average is below the 200 day moving average. Stand aside.
December copper lost .0050 on extremely light volume of 31,605 contracts. Open interest declined by 801 contracts, which in relation to volume is average. As this report is being compiled, copper is trading 4.95 cents higher, which is likely the result of a very positive housing starts report. It certainly is not the result of any significant move in the Shanghai Composite Index because the market closed a mere 6 points higher. Stand aside.
December gold gained $8.70 on very light volume of 115,568 contracts. Open interest declined by 524 contracts, which in relation to volume is 75% less than average. Continue to wait for a further correction.
December silver gained 21.6 cents on extremely light volume of 31,051 contracts. Open interest declined by 1,001 contracts, which in relation to volume is approximately 30% above average. This is the largest decline of open interest since October 2 when open interest declined by 1,120 contracts while silver declined by 28.3 cents. Silver needs to keep shedding open interest in order to become technically stronger. Stand aside and wait for a further correction.
The December euro gained 1.01 on volume of 273,704 contracts. Open interest declined by 5,478 contracts, which in relation to volume is approximately 10% less than average. In yesterday’s report, we said that if the December euro low was above 1.3022, the euro would generate a short-term buy signal. As we compile this report on October 17 the December euro is trading 79 points higher and the low for the day has been 1.3090, which is 40 points above yesterday’s close. In the evening session, the market gapped up at the opening and maintained that gap during the remainder of the session. The catalyst for the move was likely due to Moody’s Investor Services maintaining their investment grade rating on Spanish bonds. As a result, the yield on the ten year note has dropped to six month lows. Stand aside.
S&P 500 E mini:
The December S&P 500 E mini gained 13.75 points on volume of 1,623,211 contracts. Open interest declined by 847 contracts, which is a very bearish number considering the magnitude of the advance. During the past two days, the S&P 500 E mini has advanced by 29.25 points while open interest has advanced only 3,278 contracts. To put the two-day open interest increase in perspective: this represents 1/10 of 1% of the two-day volume of 3,150,338 contracts. If the open interest increase was just average, 78,758 contracts would have been added during the two day period. Although volume on October 16 was approximately 96,000 contracts above October 15, the fact remains volume is anemic when compared to average daily volume on a year to date basis of 1,906,912 contracts, or September’s average daily volume of 2,036,067 contracts. As this report is being compiled on October 17, the E mini is trading 4.50 points higher on low volume. Maintain long put protection. Apple computer remains on a short term sell signal.