Crude Oil: has been testing the $103.00 area and open interest has been rising steadily for the past 12 days. As I pointed out in an earlier post, the 104.00 price level has been an area of resistance going back to May of 2011. One possible danger sign is that crude oil spreads have gone from inversion or backwardation to contango. For example, the spread between February crude and July crude has gone from a premium of $.36 February over July on December 1 to a discount of $.94 February under July on January 6. Another example, is the February October spread. On December 1, February crude sold at a $1.23 premium over October. On January 6 February crude sold at a .$31 discount to October. When spreads change, they should be respected and and this may signify that the market is turning lower in the near. Obviously, any geopolitical scare can turn this market on a dime.
Corn: The corn continuation chart there is resistance at the $6.64 to the 665 level that goes back to late September of 2011. Additionally, there is resistance on the corn continuous chart at the 150 day moving average of 6.65 1/2 and at the 200 day moving average of 6.82. On the March corn chart the 150 day moving average is 6.68 and the 200 day moving average is 6.67. For the week just ended the backwardation or inversion expanded with the front months in being down far less than the back months. This is constructive market action. Although I have indicated that there is a seasonal tendency for grain prices to decline into February, there is a major grain report to be released by the USDA on January 12. This has the ability to send prices in either direction and caution is in order. If March corn can close above $6.65 and the other key moving averages, it would likely signal that a move higher is imminent. Since December 30, open interest has increased every day through Thursday, January 5 for a total of 50,052 contracts. This is a very healthy number and it indicates that a major battle is underway between the longs and shorts. The most recent commitment of traders report indicates that producers and merchants added 26,328 contracts to their short position. Managed money added 14,581 longs and managed money short positions declined by 22, 796 contracts. Also of note, corn went from a discount to wheat on December 31 to a premium on January 3. The January 6 close shows that corn is selling at a premium of 18 3/4 cents to wheat. This is the highest premium going back to March of 2011. From January 4 through January 6 the dollar had had a rally of 1.65 or 2.06% while corn declined only $.15 or 2.28%. This is constructive considering that the dollar rally is in new high ground of the move and the impact on corn prices was minimal. The volume for corn during the period of January 3 through January 6 has averaged 286, 067 contracts. This is the highest average volume that we’ve seen since November when the corn market was moving lower.
Stock Indices: This week the 50 day moving average crossed above the 200 day moving average for the Dow Jones Industrial Average. For the week the industrial average lagged the rest of the indices. The Dow was up 1.17% the NASDAQ 100 was up 3.44% and the Standard & Poor’s 500 was up 1.61%. Neither the Russell 2000 nor the Standard & Poor’s 500 have had major moving average cross overs yet. The NASDAQ 150 day moving average crossed above the 200 day moving average in the December. The Santa Claus rally that began on December 20 and has continued through January 6 and the S&P 500 is up 6.25% in this period. Although this is a very healthy rally, in the same period of 2008 and 2009, the S&P 500 increased by 5.55%. However, during January 7 through January 31, 2009, the S&P 500 fell 11.63%. Caution on the long side of the indices is warranted at the current price level.
Interest Rates: 10 year interest rate yields have been rising slowly from the bottom made on December 19 at 1.8%. The rise in yields coincided with the rally in the market. If the 10 yield closes above 2.07% and the low for the day is no less than 2.07%, this could be a major signal that interest rates are starting to rise again. On the 10 year note, a close under 129-00 would be a confirmation of a bearish note environment as long as 129-00 or less is the high of the day. Also, looking at the 30 year T-bond yield, a close above 3.09% with a low for the day no less than 3.09% will also signify rising interest rates. The number to watch on the 30 year T-bond is 140.22. A close below 140.22 and that the high of the day is 140.22 or less is bearish for bonds.
The American Association of Individual Investors (AAII) sentiment index for the last four weeks shows the enormous amount of volatility in the three categories they list: bullish, bearish and neutral. The volatility in the market is clearly reflected in the sentiment numbers by the AAII. During the four-week period shown below, bullish sentiment has gone from a low of 33.7% to the high for the most recent week of 48.9%. Bearish sentiment went from a high of 33.6% four weeks ago to a low of 17.2% in the most recent week. Neutral sentiment went from a high of 38.0% three weeks ago to a low of 28.6% two weeks ago and then moved up to 34.0% for the most recent week. These numbers show how skittish investors are and how they can go from bullish to bearish at the drop of a hat.
Most Recent Week: Previous Week: Three Weeks Ago Four Weeks Ago
Bullish 48.9% Bullish 40.6% Bullish 33.7% Bullish 40.2%
Bearish 17.2% Bearish 30.8% Bearish 28.2% Bearish 33.6%
Neutral 34.0% Neutral 28.6% Neutral 38.0% Neutral 26.2%