Note: The quarterly grain stocks report will be released at 8:30 am EDT September 28.
Soybeans:
November soybeans declined by 38.50 cents on volume of 224,775 contracts. Volume increased approximately 73,000 contracts from September 25 when soybeans closed 1.50 higher and open interest declined by 401 contracts. On September 26, open interest increased 2,368 contracts, which in relation to volume is approximately 60% below average. It was surprising that open interest in the November contract declined by only 342 contracts. However, there was buying in the back months that offset the November decline. There are substantial numbers of speculators that are holding long positions with good size losses, but are refusing to liquidate. Any liquidation in the near future may occur when the market rallies, and speculators reduce their holdings as they attempt to liquidate at better prices. The export sales report released on September 27 was nothing short of terrific. In the most recent week, sales for the 2012-2013 season totaled 799,500 tons, which is up from last week’s reading of 712,000. Although we are not seeing the kind of liquidation that would provide a higher measure of safety for new long positions, we believe that we are only 5-7 trading days away from a meaningful bottom, if we are not there already.
Soybean meal:
December soybean meal lost $11.20 on heavy volume of 93,555 contracts. Volume increased approximately 38,000 contracts from September 25 when soybean meal gained $3.60 and open interest declined by 2,286 contracts. Additionally, volume was the highest since September 20 when 97,147 contracts were traded and soybean meal declined by $17.40 while open interest declined by 4,327 contracts. On September 26, open interest declined by 2,246 contracts, which in relation to volume is average. From September 17 to September 26 meal open interest has declined by a total of 23,873 contracts while meal has declined by $48.50 or -9.23%. During the same time frame, open interest in soybeans have declined by a total of 8,425 contracts while the soybean price has declined by $1.66 or -9.55%. In other words, both soybeans and soybean meal have declined by the same approximate percentage, yet open interest in soybean meal has declined by 280% more than soybeans. On a year-to-date basis, soybean meal has advanced 51.44% versus soybeans of 30.62%. Clearly, soybean meal is by far the better buy based upon its performance and the large number of positions that have been liquidated during the decline. The USDA released its export sales for the most recent week and total sales amounted to 436,400 tons, and 2012-2013 sales amounted to 424,700, which is a huge number and is up substantially from the previous week’s 234,300 tons. Speculators should be looking to position themselves to entering long positions during the next 5 -7 trading days. We believe a bottom is near.
Corn:
December corn lost 19.00 cents on volume of 253,511 contracts. Open interest declined by 4,497 contracts, which in relation to volume is approximately 25% below average. Corn has been looking weak for quite some time and as this report is being compiled on September 27 corn is trading 10.25 cents lower. For the most recent week, export sales were horrific with only 400 tons sold versus the expected sale of 125,000-300,000 tons. Additionally, this week’s sale was down dramatically from last week’s terrible number of 69,000 tons. Corn has made a new low at $7.11 3/4. Stand aside.
Wheat:
December wheat declined by 17.25 cents on light volume of 65,530 contracts. Open interest increased by 1,077 contracts, which in relation to volume is approximately 65% less than average. The market is looking increasingly negative, and as this report is being written on September 27, December wheat is trading 16.25 lower and has made a new low for the move at $8.49 1/4, which has broken support going back to late July. The next area of support should be at the $8.22 level. The export sales report showed sales for the 2012-2013 season were 426,000 tons versus last week’s sale of 489,000 tons. Wheat is likely to generate a short-term sell signal on September 27. Stand aside.
Crude oil:
November crude oil declined by $1.37 on volume of 548,727 contracts. Open interest increased for the first time since September 14 when crude oil made its high for the move at $100.42 and open interest increased by 26,640 contracts. Sometimes after a market has had a major slide and open interest has declined, and then it suddenly increases at the low end of its recent trading range, a temporary bottom may be signaled. In other words, late-to-the-party bears got short at the bottom of the range. Currently, November crude oil is trading $1.86 higher. Stand aside.
Heating oil:
November heating oil lost .0044 on heavy volume of 193,085 contracts. Volume was the highest since August 27 when 214,920 contracts were traded and heating oil closed at $3.1118. Open interest increased by 4,260 contracts, which in relation to volume is average. As we’ve indicated before, the price and open interest action neither confirms long nor short positions. Stand aside
Gasoline:
November gasoline gained 5.14 cents on extremely heavy volume of 236,370 contracts. Volume was the highest since September 13 when 255,490 contracts were traded and gasoline closed at $2.9622. On September 26, open interest declined for the second day in a row by 5,204 contracts, which in relation to volume is average. During the past two days, open interest has declined by 9,754 contracts while gasoline prices have increased by 8.61 cents. Although in yesterday’s report, we thought yesterday’s decline could be attributed to profit taking, we do not think this is the case on the 26th. As we are compiling the report on September 27, gasoline is trading 2.38 higher. Stand aside.
Copper:
December copper declined by 4.85 cents on volume of 51,156 contracts. Open interest declined by 2,115 contracts, which in relation to volume is 60% above average. As indicated before, price and open interest is acting in a congruent fashion, which is positive, but as mentioned many times before, our problem is with the Chinese economy and its ability to continue on a path of sustainably higher growth. As this report is being compiled on September 27, copper is trading 3.40 higher. Stand aside.
Gold:
December gold lost $13.20 on volume of 219,437 contracts. Open interest declined by 8,946 contracts, which in relation to volume is 60% above average. Although gold is trading 25.80 higher on September 27, we do not believe it is wise to chase the market at current levels. Wait for a correction to the $1720.00 level.
Silver:
December silver closed unchanged on volume of 52,361 contracts. Open interest increased by 1,260 contracts, which in relation to volume is average. From September 18, through September 26, open interest has increased by 10,753 contracts, while silver has declined by 29.86 cents. As we pointed out in the report of September 24, it appears that the shorts are in control. However, on September 27, silver is trading 72.00 cents higher. We like silver, but the market continues to be overbought, and the large number of new longs entering the market are not able to push the market higher. Stand aside and wait for a correction of possibly $2.00. Conceivably, the market could trade in a range of $1.50 for an extended period, which over time would relieve some of the overbought condition.
Euro:
The December euro lost 67 points on volume of 242,800 contracts. Open interest declined by 2,163 contracts, which in relation to volume is 65% less than average. The price and open interest action continues to act in a congruent fashion, which is positive for the continued move higher. At the very least, we believe the euro will retest the high made on September 17 of 1.3184. Although it may be tempting, we advise against shorting the market.
S&P 500 E mini:
The S&P 500 E mini lost 10.25 points on volume of 1,794,377 contracts. Open interest increased by 69,190 contracts, which in relation to volume is approximately 40% above average. As we indicated in yesterday’s report, we believe the market will attempt to retest the high of 1468.00 made on September 14, but we advise readers to maintain their long put protection.
