Soybeans:
January soybeans lost 6.25 cents on volume of 213,327 contracts. Total open interest declined by 2,701 contracts, which in relation to volume is approximately 50% below average. The November contract lost 12,329 contracts of open interest, and the liquidation in this contract is keeping a lid on soybean prices. 1st notice day is October 31, which will relieve some of the pressure on soybeans.
For the last 4 days, lows in January soybeans have been successively higher. Beginning with October 22 through October 25: $15.29 1/2, 15.31 1/4, 15.51 3/4, 15.58 1/4. As this report is being composed on October 26 the low in January soybeans is 15.53 3/4. This was the result of sharply lower equities, petroleum and precious metal markets, which all took a dive after the dismal Apple 3rd quarter earnings report. We have warned clients that the soybean complex, along with other grains are vulnerable to unusual downside action because of the dismal performance of equities. Any client not long soybeans should use setbacks to put on new positions. New and current longs can use the daily lows listed in this commentary as a stop loss point. The stop should be based upon your risk tolerance. Clients may want to wait until early next week before implementing new long positions. Ideally we want to see a washout in equities, combined with the kind of soybean performance we witnessed on October 23.
Soybean meal:
December soybean meal lost 50 cents on volume of 56,325 contracts. Open interest increased by an unbelievable 5,328 contracts, which in relation to volume is 375% above average, meaning that aggressive buyers and sellers were moving into the market. The massive increase of open interest was not able to move soybean meal above the high made on October 24 of $484.60. We suspect there was aggressive trade selling at the upper end of the range. Since October 17 through October 25 soybean meal lows have been successively higher. Beginning with October 17-October 25, the lows are as follows: 450.20, 454.70, 460.80, 461.30, 465.90, 474.10, 477.70. The higher lows continue on October 26 with the December contract making its low of 479.00. This is extremely bullish considering that soybean meal has had to contend with sharply lower outside markets. For those that are currently long or want to add their position, sell stops can be placed at the lows listed in this commentary Stops should be based upon your risk tolerance. From October 17 through October 25, soybean meal has advanced $28.60 or +6.32% versus soybeans, which in advanced 70.25 cents, or +4.70%.
Corn:
December corn lost 12.50 cents on volume of 234,152 contracts. Surprisingly, volume declined approximately 38,000 contracts from October 24 when corn lost 1.50 cents and open interest increased by 4,757 contracts. Like October 24, there was liquidation in the December contract, which amounted to 16,077 contracts on October 25. For both days, there was sufficient increases of open interest in the forward months to offset the decline in the December contract. The December contract most likely holds the bulk of speculative positions, and they were liquidating. On October 25, the long December 2012, short March 2013 spread narrowed considerably with the March contract selling at a 2 cent premium to December. This is an unfavorable development for corn in the short term. As we have said before there is no reason to be involved with corn at this juncture.
Wheat:
December wheat lost 11.25 cents on volume of 94,061 contracts. Open interest increased on the decline by 1,452 contracts, which in relation to volume is approximately 30% below average. On October 24, December wheat advanced by 15.25 and open interest increased by 9,287 contracts on volume of 103,048 contracts. However, when the market reversed on October 25, total open interest didn’t go down as it should have had price and open interest behaved in a bullish fashion. The December contract lost 3,512, which likely holds the bulk of speculators. Anyone who has been long or short wheat or corn has been put through the ringer during the past couple of months. Continue to stand aside.
Crude oil:
December crude oil gained 32 cents on volume of 387,095 contracts. Volume was the lowest since October 2 when 366,655 contracts were traded and December crude oil closed at $92.27. On October 25 open interest increased by 5,715 contracts, which in relation to volume is approximately 35% less than average. We are recommending that speculators who have long put positions liquidate them. The reasons are as follows: The low on October 25 was $85.23, October 24 the low was 84.94, which has been the low for the move thus far. Going back to July 2012 there was good support between 85.07 (July 3) and 85.89 (July 11) after which crude oil started moving higher. The low for October 26 is 85.00, which means while the equities and precious metal markets were falling overnight, crude oil could not break below its October 24 low of 84.94. This is pretty good support considering that during the evening hours, trading is thin and it doesn’t take much volume to move crude. The market has been oversold for quite a while and is more than overdue for a good-sized bounce.
Heating oil:
December heating oil gained 1.88 cents on volume of 140,564 contracts. Open interest declined by 3,399 contracts on the advance, which in relation to volume is average. There is much support at the $3.00 level. For example, the previous recent lows were 3.020 on September 19 and 3.017 on September 20. Going back to August, heating oil found support at $2.995. Additionally, the 200 day moving average is at $3.020. Heating oil on the continuation chart has never traded below the August 8 low of 2.995. In the upcoming Weekend Wrap, we will discuss heating oil in greater detail.
Gasoline:
December gasoline closed 4.10 higher on volume of 162,257 contracts. Open interest declined on the advance by 1,448 contracts, which in relation to volume is 55% less than average. Stand aside.
Copper:
December copper lost 1.75 cents on volume of 54,020 contracts. Open interest increased on the decline by 2,575 contracts, which in relation to volume is 90% above average, which means that short sellers were in control and selling heavily. Since October 19 through October 25, each low has been successively lower than the previous day. On October 26, December copper made a new low for the move at $3.5230 which is below yesterday’s low. Stand aside.
Silver:
December silver gained 45.8 cents on volume of 42,383 contracts. Open interest declined by a hefty 1,246 contracts, which in relation to volume is approximately 15% above average. This is the 2nd day in a row that liquidation has been relatively heavy. As we indicated in the October 21 Weekend Wrap, speculators had a considerable amount of liquidation ahead due to long positions being in the red. Stand aside.
Gold:
December gold gained $11.40 on volume of 175,540 contracts. Volume was heavier than October 19, when gold lost $20.70 and open interest declined by 2,868 contracts. Although it is very positive to see more volume on the upside, than the downside, open interest declined by 1,130 contracts on October 25. Participants were liquidating on the rally. We think the market is getting near to a bottom and will alert clients when it is time to move into long positions.
Euro:
The December euro lost 25 points on volume of 226,723 contracts. Open interest increased by 1,567 contracts, which in relation to volume is 60% less than average. Stand aside.
S&P 500 E mini:
The S&P 500 E mini gained 3.00 points on volume of 1,809,920 contracts. Open interest increased by 11,302 contracts, which in relation to volume is approximately 70% less than average. Since trading sharply lower throughout the evening session on October 26, the S&P 500 E mini has recovered and is trading essentially unchanged. While we think it is likely the index will eventually trade lower, a rally looks overdue. Although we think it is wise to maintain put protection, periodic rallies will occur. A major danger sign for stock indices is that Apple Computer will likely generate an intermediate term sell signal on October 26.
