On September 13 at 2:15 pm EDT, the Federal Reserve will release its decision about monetary stimulus. The markets have been expecting a positive announcement. However, if the Fed disappoints, commodities and equities could fall sharply. The grains close at 3:00 pm EDT.
Soybeans:
November soybeans lost 17.25 cents on volume of 161,182 contracts. Open interest declined by a meager 544 contracts. The low volume and small decline of open interest is positive. The USDA report showed that the estimated crop was somewhat lower than expected and more details will be provided in tomorrow’s report. The market has rallied on the news and as this report is being compiled on September 12, November soybeans are trading 41.50 cents higher. Although the market certainly could retest the November contract high of $17.89, which occurred on September 4, we doubt the market is poised to take another leg higher at this juncture. Soybeans are loaded with speculative longs, and therefore the real question is: how many more new longs will enter the market at the upper end of the range. We recommend a stand aside position for speculators who are not currently long at lower levels. We think the market will provide ample opportunities to get long during the next couple of weeks.
Soybean meal:
October soybean meal lost $3.10 on volume of 53,502 contracts. Open interest declined by 1,809 contracts, which in relation to volume is about 5% above average. During the past seven trading sessions, open interest has declined by a total of 20,921 contracts while soybean meal has declined by $20.50. If the COT report to be released this Friday shows that much of the open interest decline took place in the managed money category, this would be a positive development because it may decrease the amount of selling during the next couple of weeks. This would be a perfect set up to initiate long positions, provided the market trades lower from here.
Corn: On September 11, December corn generated a short-term sell signal.
December corn lost 5.25 cents on volume of 213,879 contracts. Volume declined by approximately 50,000 contracts from September 10 when corn declined by 16.25 and open interest increased by 687 contracts. On September 11, open interest declined by 8,877 contracts, which in relation to volume is approximately 40% above average. The open interest decline was the largest since August 31, when corn declined by 8.75 and open interest declined by 11,312 contracts. Although corn generated a short-term sell signal, this does not mean speculators should implement bearish positions. It does mean that speculators should not enter new long positions and should be taking defensive measures if long. Corn is loaded with speculative longs, and therefore the market is vulnerable to further liquidation. Once this is out of the way, corn may be a candidate for bullish positions.
Wheat:
December wheat lost 6.00 cents on volume of 67,723 contracts. Volume declined by approximately 4,000 contracts from September 10 when wheat declined 15.25 cents and open interest increased by 326 contracts. On September 11, open interest declined by 1,014 contracts, which in relation to volume is approximately 40% less than average. On September 12, the USDA released its supply demand report and the report did not reduce the size of wheat crop in Australia. This is significant because most observers believe Australian wheat could show declines of another 15%. As our readers know, we are friendly to wheat and trading on September 12 is positive with wheat advancing 7.00 cents while corn is down 9.25 cents. The low on September 12 is $8.68 3/4 which is exactly the 50 day moving average for wheat on the continuation chart. The 50 day moving average for the December contract is $8.86 5/8, therefore wheat is currently trading in a solid value zone. After the release of the Federal Reserve minutes on September 13, we will be looking for a spot to enter long positions.
Crude oil:
October crude oil gained 63.00 cents on volume of 537,652 contracts. Volume increased by approximately 40,000 contracts from September 10, when crude oil advanced 12.00 cents and open interest declined by 8,165 contracts. On September 11, open interest increased by 20,521 contracts, which in relation to volume is approximately 30% above average. From August 15 through September 11 open interest has increased by 115,898 contracts, while crude oil has advanced $2.55. As indicated in yesterday’s report, the bulls have the upper hand, but it seems tenuous considering the massive build of open interest and paltry gains of the past three weeks. Crude oil definitely appears to be at the upper end of its trading range. If the Federal Reserve disappoints the markets on Thursday, crude oil could take a spill.
Heating oil:
October heating oil advanced 1.89 cents on volume of 127,425 contracts. Open interest declined by 917 contracts. Heating oil made a new high for the move at $3.1900, however it is massively overbought relative to its 50 day moving average of $2.9600. It appears that the 200 day moving average of $3.000 will provide support. Within the next 7 to 10 trading sessions the 50 day moving average will cross above the 200 day moving average for the first time since early June. The fundamentals for heating oil are bullish, but for now, stand aside.
Gasoline:
October gasoline gained 1.95 cents on extremely light volume of 92,780 contracts. Volume declined by approximately 47,000 contracts from September 10 when gasoline advanced .0044 cents and open interest increased by 3,637 contracts. On September 11, open interest declined by 662 contracts. With gasoline at stratospheric prices and the end of the summer driving season, there is not a compelling reason to be long at current levels.
Natural gas:
If the low of $2.95 holds on September 12, October natural gas will generate a short-term buy signal. The market appears well supported at the 200 day moving average of $2.66.
Copper:
December copper gained .0085 on volume of 56,063 contracts. Volume declined approximately 10,000 contracts from September 10, when copper advanced 4.35 cents and open interest advanced by 1,172 contracts, which in relation to volume is somewhat below average. The market made a new high for the move at $3.7125 and copper remains massively overbought relative to its 50 day moving average. Do not enter new long positions at current levels. Also, if long at lower levels, be mindful of a sharp decline in the event the Federal Reserve announcement on September 13 disappoints.
Gold:
December gold advanced $5.70 on volume of 118,628 contracts. Open interest increased by 3,618 contracts, which in relation to volume is a bit above average. The market is overbought at current levels. Do not enter new positions until gold has had a healthy setback.
Silver:
December silver lost 6.7 cents on very light volume of 38,093 contracts. Volume declined approximately 11,500 contracts from September 10, when silver lost 5.7 cents and open interest increased by 349 contracts. On September 11, open interest increased by 430 contracts. The market is overbought at current levels. Do not enter new long positions.
Euro:
The September Euro gained 91 points on volume of 344,314 contracts. Volume declined by approximately 112,700 contracts from September 10 when the Euro declined 28 points and open interest increased by 6,867 contracts. On September 11, open interest increased by 7,099 contracts, which in relation to volume is somewhat below average. For the past seven days, open interest has increased by 21,049 contracts while the September Euro advanced 3.60 cents. We have been warning our readers for a number of weeks not to short the Euro and as this report is being compiled on September 12, the September Euro is trading 34 points higher and has made a new high at 1.2938. The troubling aspect of the advance is that open interest continues to build and shorts are losing money. In our view, this confirms the move higher will continue. Do not enter bearish positions.
S&P 500 E mini:
The September S&P 500 E mini gained 4.00 points on volume of 1,624,001 contracts. Volume advanced by 448,292 contracts from September 10 when the S&P 500 E mini lost 11.75 points and open interest increased by 46,585 contracts. On September 11, open interest increased by 12,145 contracts, which in relation to volume is 65% less than average. We continue to advise long put protection and encourage readers to review the September 9 Weekend Wrap about the E mini.
