On October 11, the USDA will release its supply demand report. This is an important report.
November soybeans gained 19.75 cents on volume of 238,217 contracts. Volume declined by approximately 28,000 contracts from October 3, when soybeans gained 1.25 and open interest increased by 2,156 contracts. The volume decline on a 20 cent advance shows that soybeans are not ready to move significantly higher just yet. Another negative factor, was that open interest declined by 1,299 contracts and the November contract lost 7,780 contracts of open interest. We think the next few months will be terrific for anyone long because of the severe global shrinkage of inventory and explosive demand, which will likely power soybeans above the old high of $17.89. Speculators should begin to position themselves on the long side of the market. Keep in mind, that the October 11 USDA report is going to affect the price of soybeans in a major way.
December soybean meal gained 4.50 on volume of 51,166 contracts. Volume shrank approximately 20,000 contracts from October 3, when soybean meal gained 1.50 and open interest declined by 1,405 contracts. On October 4, open interest declined for the 14th consecutive day by 2,761 contracts, which in relation to volume is 110% above average. The months of October, December, January, all lost open interest. From September 17 through October 4, soybean meal has lost a total of 39,205 contracts of open interest while December meal has declined by $56.50. In the same time frame, soybeans have lost 13,843 contracts while November soybeans have declined by $1.87 1/4. Speculators should begin to position themselves on the long side of soybean meal, but be mindful of the October 11 USDA report.
December corn gained 0.25 cents on light volume of 165,227 contracts. Volume shrank dramatically from October 3 by approximately 117,000 contracts when corn closed 1.50 lower and open interest increased by 4,268 contracts. On October 4, open interest declined by 3,320 contracts, which in relation to volume is approximately 15% below average. Interestingly, corn made a high of $7.671/2, which was 1.00 cent from a high of $7.68 1/2, which occurred in the early evening session of October 1. This was the follow-through move from September 28, when corn closed up the 40 cent limit. There must be huge numbers of disappointed longs who bought into the rally on September 28, and have seen the market essentially go nowhere. As this report is being compiled, corn is trading 8.75 lower, and has made a low of $7.46 1/4, which is just slightly above the low made on October 2 of $7.46. At this juncture, it appears the market is likely to break this low, and retest the lower end of the trading range. Conceivably, the October 11 report may be the catalyst to turn corn upward again. We have been surprised that corn has been unable to rally to its 50 day moving average of $7.86. Stand aside.
December wheat lost 3.75 cents on volume of 59,024 contracts. Open interest declined by 377 contracts. Wheat continues to follow corn lower, and speculators should stand aside.
November crude oil gained $3.57 on volume of 552,980 contracts. Volume declined by approximately 99,000 contracts from October 3, when crude oil declined by $3.75 and open interest increased by 14,826 contracts. On October 4, we saw the complete reverse of October 3, when open interest declined by 14,440 contracts, which in relation to volume is average. The market rallied on news of a potential military conflict between Turkey and Syria. Apparently holders of positions decided they would rather liquidate on the advance, which is why open interest went down. The market action of October 3 and October 4 confirms the bearish position of crude oil. On September 20, November, crude generated a short-term sell signal, but has not generated in intermediate term sell signal. Stand aside.
November heating oil gained 12.20 cents on volume of 204,216 contracts. Volume was approximately 6,000 contracts less than October 3, when heating oil declined by 5.91 cents and open interest declined by 3,754 contracts. The fact that volume was unable to surpass volume of the previous day on a major advance, indicates that market participants lacked enthusiasm, and the open interest action confirmed this as well. On October 4, open interest increased by only 4 contracts. Stand aside.
November gasoline gained 14.34 cents on extremely light volume of 149,783 contracts. Volume declined by approximately 18,000 contracts from October 3 when gasoline declined by 6.97 cents and open interest increased by 462 contracts. On October 4, open interest declined by 1,151 contracts, which is bearish and in relation to volume is approximately 65% less than average. The entire petroleum complex is acting negatively and the long side of these markets should be avoided.
December copper gained .0020 on light volume of 43,700 contracts. Open interest increased by 313 contracts. The market looks tired, and since making its high on September 14, and a subsequent high on September 19, it is not had the steam to forge higher. Stand aside.
December gold gained $16.70 on volume of 173,042 contracts. Volume increased approximately 41,000 contracts from October 3, when gold advanced $4.20 and open interest increased by 3,080 contracts. On October 4, open interest increased by 8,491 contracts, which in relation to volume is nearly 100% above average. Although new entrants into the market at the high end of the trading range is positive, the risk remains on the downside due to gold’s severely overbought condition. Wait for a correction to at least $1720.
December silver gained 41.1 cents on volume of 38,377 contracts. Open interest increased by 1,274 contracts, which in relation to volume is approximately 20% above average. Like gold, silver has become a crowded trade, and is vulnerable to a sharp downside correction. A correction of at least $2.00 would be healthy for the market, and would flush out the weak longs.
The December euro gained 1.19 cents on volume of 308,545 contracts. Volume exceeded the 306,044 contracts traded on September 28 when the euro declined by 65 points and open interest declined by 2,775 contracts. On October 4, open interest increased by 4,937 contracts, which in relation to volume is approximately 35% less than average. Price and open interest action continue to act positively, and as a consequence, we think the euro is headed higher.
S&P 500 E mini:
The S&P 500 E mini gained 11.00 points on light volume of 1,567,381 contracts. Open interest increased by a mere 465 contracts, which is a terrible showing for a market that was advancing near its high. To put yesterdays volume in context, the average daily volume year to date has been 1,906,912 contracts. The average daily volume for September was 2,036,067 contracts. In other words, as the market was moving into the top end of its trading range, volume was unable to equal the average daily volume on a year-to-date basis. Combine this with a minor increase of open interest and you get a picture of a market that is looking very tired. Long put protection should be in place. Investors that hold shares of Apple Computer should be especially wary as Apple approaches its 50 day moving average. Everyone is long Apple, which makes it a crowded trade, and this increases the likelihood of a correction.