November soybeans lost 11.25 cents on volume of 209,367 contracts. Open interest declined by 6,494 contracts, which in relation to volume is approximately 15% above average. The total open interest decline can be attributed to the massive loss of open interest in the November contract, which declined 17,248 contracts. We believe the market has turned and and that the bottom is in for soybeans.
The only fly in the ointment is a real possibility of a potential massive decline in the equities market. It is more than likely the S&P 500 E mini will generate a short-term sell signal on October 22. This adds to the concern that a swoon in the equties market is likely, which could temporarily undermine soybean prices. In the Weekend Wrap of October 21, we discussed our trepidations for the equities market in the coming months. As far as soybeans are concerned, it is apparent that the market is in the bottoming process, and the only way to truly determine its strength will be to see how it performs on another day when other markets are sharply lower. If soybeans continue to show independent strength like they did on Friday, this would be confirmation that additional setbacks are likely to be shallow. For further information on why we think soybeans are headed higher, please review the Weekend Wrap of October 21, in which we cite four catalysts for higher prices. Also, continue to watch the long November 2012, short January or March 2013 spread. We want to see the November contract show greater strength than the back months. Speculators should be looking to position themselves on the long side of soybeans.
December soybean meal advanced 50 cents on extremely light volume of 38,960 contracts. Open interest declined by 834 contracts, which in relation to volume is slightly below average. The decline of open interest was the result of a 1,202 contract decline in the December contract. Like soybeans, it is important to watch the long December 2012, short January or March 2013 spreads. The widening of those spreads is indicative of a stronger cash market. Speculators should be looking to position themselves on the long side of soybean meal, and we prefer being long meal, rather than long corn.
December corn gained 0.75 cents on volume of 221,227 contracts. Open interest increased by 4,369 contracts, which in relation to volume is approximately 10% less than average. Although corn has been putting in a steady performance, we see no compelling reason to be long at this juncture. We believe corn will move higher, but this may not occur until later in 2012, or early 2013. Stand aside.
December wheat lost 4.00 cents on volume of 74,937 contracts. Open interest increased by 872 contracts, which in relation to volume is approximately 50% less than average. We may begin to see some independent strength in wheat and the long December 2012 wheat, short December corn spread is trading at levels last seen in mid-September. The key area to watch is the 50 day moving average of $8.81 7/8. The real test of wheat’s strength is not a close over the 50 day moving average, but that the low of the day must be above the 50 day moving average. This would be the first sign that wheat is ready to break out of its 3 month trading range. Stand aside.
December crude oil lost $2.09 on volume of 627,850 contracts volume was the highest since October 11 when 652,165 contracts were traded and crude oil advanced by 82.00 cents while open interest increased by 11,883 contracts. On October 19, open interest declined by 7,840 contracts, which in relation to volume is approximately 50% less than average. The global economic situation continues to weaken and this does not bode well for crude oil. Additionally, there are rumors that the United States may start talking with Iran, and this is a potential bearish development for crude. On September 20, November crude oil generated a short-term sell signal and on October 8, it generated an intermediate term sell signal. We have been advising our clients to purchase long puts. As this report is being compiled on October 22 December crude oil is trading $1.65 lower. Maintain long puts.
December heating oil lost 4.93 cents on volume of 136,113 contracts. Open interest declined by 6,914 contracts, which in relation to volume is 100% above average, which means liquidation was very heavy. We like the fundamentals of heating oil, but the economic backdrop looks unfavorable for being long. Stand aside.
December gasoline lost 5.48 cents on very light volume of 105,439 contracts. Open interest increased by 2,025 contracts, which in relation to volume is approximately 15% less than average. As indicated in the Weekend Wrap of October 21, gasoline has considerably more liquidation to go through. As this report is being compiled on October 22, December gasoline is trading 3.88 cents lower. Stand aside.
December copper lost a whopping 10.55 cents on heavy volume of 70,245 contracts. Volume was the highest since September 7 when 82,396 contracts were traded and copper closed at 3.6450. On October 19, open interest declined by 3,975 contracts, which in relation to volume is 125% above average, meaning that liquidation was extremely heavy. As our readers know, we have been skeptical about the ability of copper to advance, and as a result have advocated a stand aside position. Based upon the latest COT report, large numbers of managed money speculators have been caught on the wrong side of the market. Stand aside.
December gold lost $20.70 on volume of 175,113 contracts. Open interest declined by 2,868 contracts, which in relation to volume is approximately 30% less than average meaning the liquidation was not heavy. The 50 day moving average for gold on the continuation chart is $1720 and gold should get some support there. Like all commodities, the risk to the precious metals is a correlated market swoon. Gold continues to be in a corrective phase and it is premature to consider new long positions.
Silver: On October 19, December silver generated a short term sell signal.
December silver lost 77.1 cents on volume of 52,199 contracts. Open interest increased by 508 contracts, which is bearish and in relation to volume is approximately 60% below average. Please review the October 21 Weekend Wrap regarding the large number of managed money longs that remain in silver. This is going to create additional pressure on silver going forward. Stand aside.
The December euro lost 40 points on volume of 217,378 contracts. Open interest increased by 932 contracts, which is minuscule and significantly below average. We think the euro will continue to move higher, which will put pressure on the dollar. This is bearish for commodities and equities.
S&P 500 E mini:
The December S&P 500 E mini lost 27.50 points on volume of 2,402,140 contracts. Volume was the highest since September 18 when 2,583,774 contracts were traded and the E mini closed at 1453.00. Open interest declined by a whopping 75,565 contracts, which in relation to volume is approximately 25% above average, which is a huge number for the E mini. The E mini is probably going to generate a short-term sell signal on October 22, which confirms the validity of maintaining long put protection.