Corn:
For the week, March corn closed 12 3/4 cents lower. Thursday’s USDA supply demand report was certainly disappointing for the bulls in that there were no surprises that would have powered corn to the upside. The reduction in stocks was pretty much baked into the price. On Thursday, the market made a new high for the move at 6.52 in the early going and then reversed to close 5 1/2 cents on the day. On Friday, corn made a new low for the move at 6.28 1/4 and closed 5 1/4 cents lower. As I said in earlier posts, the build up in open interest was suspect because price was not moving up along with it. The commitment of traders report released Friday and tabulated as of Tuesday, showed that in the managed money category, they added 16,846 contracts to their long positions and liquidated 2102 of their short positions. Commercial interests added 9,314 to their long positions and also added 16,145 to their short positions. I performed an open interest analysis from January 3 when corn reached a high of 6.64, through February 9. On January 3, total open interest in corn was 1,176,009 when it reached the 6.64 high. On February 9, total open interest in corn was 1,281,159, or an increase of 105,150 contracts. Despite that huge increase in open interest, the corn price has only been able to attain a high of 6.52. As I pointed out in numerous prior posts, the inability of open interest increases to send the market sharply higher was indicative of an internal weakness in corn. I further analyzed where the bulk of the open interest was accumulated and 66,698 contracts were added between January 25 and February 9. Corn’s price in that time frame ranged from a low of 6.25 1/2 to Thursday’s high of 6.52. This means that a hefty portion of current longs are showing losses on their positions and that a certain number have a 6 cent profit at most. Since the 21 day average true range is 13 1/4 cents, a 6 cent profit can be wiped out quickly. The build up in open interest at higher price levels, becomes fuel to send the market lower if price continues to make new lows for the move. For a number of weeks now, my opinion has been to stand aside and I continue to hold this view. Longer-term, I am friendly to the market and therefore I am ruling out short positions even though I think the market is going lower. On Friday, corn violated one of my key pivot points at 6.30, but did not close below it. The next key pivot point to watch for is 6.22 3/8. The market will need to close below that point and the high of the day cannot be above 6.22 3/8 before I become bearish on the market.
Soybeans:
For the week, March soybeans closed 3 1/2 cents lower and made a fractionally higher move above the January 3 high of 12.44 3/4. Friday’s action was very positive, especially since the dollar was sharply higher the equity markets were lower along with gold and silver. In the latest commitment of traders report, in the managed money category, they added 11,529 contracts to their long positions and liquidated 7,130 contracts of their short positions. Commercial interests liquidated 2,882 contracts of their long positions, and added 18,344 to their short positions. On Friday, soybeans reached a low of 12.15 and rallied to close 1 1/2 cents higher at 12.29. That low was one cent above the previous low of 12.14 made on February 3. This would be a safe place to put a sell stop. Open interest for the week (through Thursday) was very positive and increased by 17,355 contracts. Do not trade soybeans from the short side.
Sugar #11:
For the week, March sugar closed 73 points higher and open interest through Thursday increased 5,607 contracts. In the latest commitment of traders report in the managed money category, they liquidated 8,326 contracts of their long positions and added 4,216 to their short positions. Commercial interests added 21,434 contracts to their long positions and added 16, 821 contracts to their short positions. The market reached a near-term low of 23.41 (50 day moving average is 23.80) on February 2 and rallied to the high made on Thursday of 24.89. This is the highest price for sugar since January 27 when the high was 24.83. The key pivot point to watch is 24.91 and the market’s low has to be above 24.91 to get me partially into the bull camp. The market has two other obstacles to overcome, which is the 200 day moving average of 25.28 and the 150 day moving average of 25.77. At this juncture, I like sugar longer-term, but my enthusiasm is curbed by the aforementioned hurdles and that sugar is in a period of seasonal weakness. Stand aside.
Crude oil:
For the week, March crude oil closed $.83 higher and the deferred months of August 2012 through February 2013 closed $1.53 to $1.70 higher. For the week ending Thursday February 9, open interest increased by 23,488 contracts. The movement of the spreads is a bearish indicator, but at this juncture, I think crude oil is holding up fairly well. For example, on Friday, when most commodities were lower to significantly lower crude was down just $1.17 to close at 98.67. The close was $1.51 lower from the high of the week of 100.18 and was $2.83 above the weeks low of 95.84. Incidentally, 95.84 is the 200 day moving average for March crude oil. This is the lowest price since February 2 when crude hit 95.44, which was the lowest price for March crude oil since the December 20 low of 94.53. The commitment of traders report issued on Friday, but tabulated as of Tuesday shows that in the managed money category, they liquidated 968 of their long positions and liquidated 1516 of their short positions. Commercial interests added 54,337 to their long positions and added 47, 582 to their short positions. Key pivot points on the downside are 96.84, 95.63, and 94.27. A close below any of these three could be indicative that the market wants to go lower. However, with geopolitical tensions potentially explosive, I’m not very bearish on crude at these levels. As a result, my opinion is to stand aside until we get a clearer signal to get long.
Gasoline:
For the week, March gasoline closed 6.05 cents higher. Through Thursday February 9, open interest increased by 6,323 contracts. The commitment of traders report released Friday showed that in the money managed category, they increased their long positions by 2,965 contracts and liquidated 598 contracts of their short positions. Commercial interests increased their long positions by 1,822 contracts and also increased their short positions by 4,377 contracts. I have observed that there are numerous changes occurring in the gasoline market that seem to be unrelated to gasoline consumption, or to the price of crude oil. I calculated the price of gasoline from January 1 (January 3 is the first trading day of 2012) through February 9, 2012 and compared that to identical periods going back to 1985. I discovered that in the 27 year period that covers the January 1 through February 9, time frame, there have been only three other times that gasoline appreciated in price more than it did in the January 1 through February 9, 2012 (13.41%). Gasoline increased 13.61% in 2001, 17.79% in 2000, 24.14% in 2003. What made those increases tolerable was that the price for gasoline on February 9, 2000 was 79.66 cents, February 9, 2001 was 90.11 cents, February 9, 2003 was $1.0670. The rarity of double-digit gasoline price increases in the early January through early February time frame is readily apparent, but much more is going on in gasoline than meets the eye. It is obvious that the price of gasoline has become less correlated to the price of crude oil and domestic demand.
Gasoline $Per Gallon Crude Oil $Per Barrel
Year February 9 Price February 9 Price
2008 2.354…………………………………………….. 91.77
2009 1.2471……………………………………………..39.56
2010 1.9290…………………………………………….73.75
2011 2.5260…………………………………………….86.71
2012 3.0128……………………………………………99.84
On February 9 of 2008, March gasoline closed at 2.3540 and March crude on that date closed at 91.77. When you compare those prices to February 9 2012, crude oil prices increased by approximately $8.00 or 8.5% and the price of gasoline increased by approximately $.66 or 28%. Another example of the disconnect between crude oil prices and gasoline prices is to compare the price of gasoline and crude as of February 9, 2010 and compare those to February 9 of 2012. During this period, crude oil advanced approximately $16.00 or 35%. However, gasoline prices increased by approximately by $1.09 or 57%. The amazing aspect of gasoline price increases relative to the price of crude oil is that gasoline consumption is falling. Charles Hugh Smith wrote an excellent piece on February 10, 2012 titled “Why Is Gasoline Consumption Tanking.” You can read the article on his website: oftwominds.com. The implications of significantly higher gasoline prices in the months ahead will present a major headwind for the economy and could have a major impact on the November presidential election.
Gold:
For the week, April gold closed $14.60 lower. Through Thursday, February 9, open interest decreased 6,075 contracts. The open interest action could be viewed as constructive, except that price action was disappointing. For example, on February 8 April gold made a high of 1754.80, but closed at 1731.30. On February 9 gold made a fractional new high at 1755.50 and closed at 1741.20. The high of February 9 was the high for the week, but below the high of the previous week when gold reached 1765.90 on February 3. The 1765.90 high could not surpass the high made on December 2, 2011 at 1769.70. The December 2 high represented the high point for April gold and it subsequently dived to 1526.20 on December 29, 2011. As I had pointed out in previous posts, a decline in the euro would significantly impact precious metals in particular, and commodities in general. The course of the euro and its impact upon the dollar index will likely be a significant factor affecting the price of gold. Stand aside.
Euro:
For the week, the euro close 18 points higher. Open interest as of Thursday was down 10,370 contracts. The open interest decline was reflected in the commitment of traders report that showed leveraged funds closed out 10,770 their long positions and closed out 15,962 of their short positions. The euro is going to bounce around based upon the contemporaneous financial story in Euroland and especially the peripheral countries. Stand aside.
S&P 500 E mini:
For the week, the March S&P 500 E mini closed 1.50 higher to settle at 1340.60. Also, it made a new high for the move at 1352.75. Through Thursday, open interest increased by 22,059 contracts. The commitment of traders report shows that leveraged funds liquidated 25,698 contracts of their long positions and added 87 contracts to their short positions. The month of January witnessed the S&P 500 E mini close higher by 4.42%, which was was a terrific performance. From 1985 to the present, there have been only six other times in January that nearly equaled, or outperformed January 2012. Below, I am listing the years of excellent January performance and the subsequent performance in February.
Date % Jan Increase % Feb Increase (Full Month)
1985 + 5.85 +0.64
1987 +13.11 +3.34
1988 + 4.07 +2.35
1989 + 6.44 -3.13
1991 +4.16 +6.37
1997 +5.74 +0.34
2012 +4.42 +2.47 ( Feb 1-Feb 10)
Undoubtedly, all of you have heard about the dismal volume accompanying this rally. To bring the lack of volume into focus, I examined the volume stats for the cash S&P 500 for 2012, 2011, and 2010 for the entire month of January.
Date 20 Day Moving Average Volume % Increase in Index
January 2012 3.01 Billion +4.42
January 2011 3.68 Billion +2.26
January 2010 4.30 Billion – 3.70
It is remarkable and a bit troubling that during one of the best performing January’s of the last 25+ years, volume is declining precipitously from recent years when there was inferior performance.
The American Association of Individual Investors sentiment rankings are as follows:
Bullish 51.6% +7.8% from previous week.
Bearish 20.2% -4.9% from previous week
Neutral 28.2% -2.9% from previous week
The bullish reading is one of the highest that I’ve seen in quite a while and the bearish reading is one of the lowest. The bullish numbers have been in the high 40s for many many weeks and therefore it is safe to say that the investing public is in the market with significant long positions at current levels.
