November soybeans closed 34 cents lower on volume of 226,200 contracts. Total open interest declined by 16,558 contracts, which in relation to volume is approximately 175% above average, meaning that liquidation was heavy. The massive decline of open interest was due to the 33,360 contract decline in the November contract.
As of the final report for October 29, total open interest in the November contract remains at 51,452 contracts. The decline of soybeans on October 29 allegedly was due to projected higher plantings in Brazil, and the possibility the USDA would raise its harvest number above the October report. Generally speaking, the financial press has an overwhelming tendency to to match market action with a particular narrative, regardless of its merit. It has been well-known for weeks that there was a distinct probability the USDA would raise the number fo the final crop in the November report. Second, the fact that Brazil would be planting a large crop has been well-known and is fully discounted by the market. Once the November contract is past 1st notice day, and especially after its last trading day, the market should begin to experience renewed strength. Clients should have stops in place based upon their risk tolerance.
December soybean meal lost $10.90 on volume of 43,623 contracts. Open interest declined by 2,205 contracts, which in relation to volume is 100% above average, meaning liquidation was heavy. Considering that open interest has increased by 12,895 contracts from October 23 through October 26, it is perfectly normal and healthy for the market to have a heavy decrease of open interest on a fairly large price decline. During the October 23-October 26 time frame soybean meal advanced $12.40. Taking into account the decline on October 29, soybean meal has gained $1.50 since October 23, and open interest still remains 10,690 contracts higher than it was on October 23. We continue to think soybean meal is going to move substantially higher. As mentioned yesterday, clients should have stops in place in accordance with their risk tolerance.
December corn lost 0.75 cents on volume of 140,501 contracts. Open interest declined by 1,375 contracts, which in relation to volume is 50% below average. Corn made a new low for the move at $7.32 1/2, which was the lowest price for corn since October 15, when the low reached 7.32 1/2. On October 10 corn made a low of 7.32 1/4. Although this level has provided support going back to early October, we think it is unwise to consider long positions at this juncture. U.S. corn is not priced competitively on the world market, and it may take a couple of months before it is more competitive.
December wheat lost 5.75 cents on volume of 63,662 contracts. Open interest declined by 3,455 contracts, which in relation to volume is approximately 110% above average, meaning that liquidation was twice as heavy as normal. During the past 2 days, December wheat has declined by 14.75 cents and open interest has declined by 5,282 contracts. We attribute the two-day liquidation to the dramatic increase in open interest that occurred on October 24 when December wheat advanced 15.25 and open interest increased by 9,287 contracts. That was the day when wheat reached a high of $8.95, which was the highest price for December wheat since October 1. As has been the case many times, the move was a total head fake. As a result, disappointed longs are leaving the market. As this report is being composed on October 30, wheat has made a new low for the move at 8.54 1/2, which is the lowest price since October 17 when December wheat made a low of 8.45 1/2. Wheat essentially has the same problem as corn, only wheat is in greater supply. Stand aside.
December crude oil lost 74 cents on light volume of 306,145 contracts. Open interest increased by 2,529 contracts, which in relation to volume is more than 50% below average. Since October 24 through October 29, open interest has increased by 11,662 contracts while December crude has lost $1.13. This is bearish congruent price and open interest action. Since advising our clients to liquidate their put positions, crude oil has not done very much. A great deal of this can be attributed to the storm problems on the eastern seaboard. But as the recent COT report indicated, managed money has gotten heavily short, and during the past 4 days, it is likely they’ve increased this position. Stand aside.
December heating oil gained 1.09 cents on volume of 149,480 contracts. Open interest declined on the advance by 3,951 contracts, which in relation to volume is average. During the past 4 trading days since October 24, heating oil has been acting in a bearish congruent fashion with respect to price and open interest. On October 24, heating oil declined by .0044, and open interest increased by 2,137. On October 25 heating oil gained 1.88, but open interest declined 3,399 contracts. On October 26 heating oil advanced 3.12, but open interest declined 5,744. This is bearish. Stand aside.
December gasoline closed unchanged on volume of 132,917 contracts. Open interest increased by 1,995 contracts, which in relation to volume is approximately 30% below average. Stand aside.
December copper lost 5.55 cents on volume of 38,612 contracts. Open interest increased on the decline by 2,164 contracts, which in relation to volume is 125% above average, meaning there were heavy commitments and the shorts were in control. The market continues to act poorly, and there is no reason to be involved in copper. Stand aside.
December gold lost $3.20 on extremely light volume of 60,477 contracts. Open interest declined by 1,248 contracts, which in relation to volume is slightly below average. Despite all of the uncertainty created by the storm on the eastern seaboard, gold has been steady, and looks poised to move higher. As suggested in the October 28 report, we think the best way to play gold is to write out of the money puts on December options.
December silver lost 29.1 cents on volume of 17,637 contracts. Open interest declined by 790 contracts, which in relation to volume is 80% above average, meaning that liquidation was heavy. Beginning on October 22 through October 29, open interest has declined by 4,216 contracts, while December silver has lost 35.2 cents. This is a considerable amount of liquidation considering the relatively minor collective loss over a 6 day period. As stated in the Weekend Wrap of October 21, there were a hefty number of managed money longs who had losses and would be forced to liquidate. The silver market has gotten much healthier during the past 2 weeks, and as indicated in the October 28 Weekend Wrap, clients could consider writing out of the money puts in December options. We are entering a strong seasonal period for the precious metals, and this gives speculators a relatively safer way of playing the market.
The December euro lost 29 points on volume of 121,774 contracts. Open interest declined by 651 contracts, which in relation to volume is approximately 70% below average. The euro has not yet generated a short-term sell signal, and remains on an intermediate term buy signal. Stand aside.
S&P 500 E mini:
The S&P 500 E mini lost 4.75 points on volume of 181,922 contracts. Open interest declined by 14,176 contracts, which in relation to volume is 200% above average, meaning that liquidation was extremely heavy. Undoubtedly, this was due in part to the problems on the eastern seaboard. Clients should maintain their long put positions.