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On August 11, most of the markets that were advancing strongly yesterday have reversed and are trading sharply lower. This includes grains, petroleum, metals and equities.

Tomorrow, the USDA will release its monthly WASDE report. We recommend that clients do not enter new positions prior to the report. Unless positions are substantially profitable, we recommend moving to the sidelines. For open positions going into the report, appropriate stock protection should be in place.

Soybeans:

September soybeans advanced 32.75 cents on unimpressive volume of 215,231 contracts. Volume was the highest since July 27 when soybeans lost 30.00 cents on volume of 253,520 contracts and total open interest declined by 6,842. On August 10, total open interest increased by only 821 contracts, which relative to volume is approximately 85% below average. The August contract lost 1,128 of open interest, September -1,588, and the November contract, which holds the majority of total open interest had an open interest increase of just 86 contracts.

Volume and open interest stats on yesterday’s strong advance was abysmal and when stats pertaining to the advance of the past two days is factored, September soybeans have gained 52.25 cents while total open interest DECLINED 1,111 contracts. This is horrible. As this report is being compiled on August 11, September soybeans are trading 21.00 cents lower and have made a low of 9.85 3/4.

The high on August 11 is 10.05, and the September contract was unable to trade above yesterday’s high of 10.09 1/2, which underscores the market’s internal weakness. In yesterday’s report, we said that in order for soybeans to generate a short-term buy signal, the low of the day had to be above OIA’s key pivot point of 9.90, and low on august 11 is substantially below the pivot point. September soybeans remain on a short and intermediate term sell signal.

Soybean meal:

September soybean meal advanced $9.30 on unimpressive volume of 99,996 contracts.Volume was the strongest since July 30 when soybean meal gained $4.60 on volume of 110,689 contracts and total open interest declined by 4,090. On August 10, total open interest increased by 4,075 contracts, which relative to volume is approximately 30% above average. The August contract lost 415 of open interest and the July 2016 through September 2016 contracts lost a total of 682.

Although the open interest increase was respectable, compared to August 7, it falls short. For example on August 7, September meal gained $5.10 on volume of 81,763 contracts, but total open interest increased by 4,638. In summary, the advance on August 10 was considerably greater than August 7, yet the open interest increase was 13% below August 7.

As this report is being compiled on August 11, the September contract is trading sharply lower, down $7.40. At this juncture it is difficult to say whether soybean meal has the momentum to continue its upward trajectory primarily because of the horrible performance of soybeans. However, September soybean meal remains on a short and intermediate term buy signal.

Corn:

September corn advanced 17.50 cents on heavy volume of 564,021 contracts. Volume was the strongest since July 27 when the September contract lost 19.50 cents on volume of 520,649 contracts and total open interest declined by 3,841. On August 10, total open interest increased by 10,216 contracts, which relative to volume is approximately 25% below average. The September contract lost 19,583 of open interest, May 2016-54, December 2016 -1365, which means there were sufficient open interest increases in the forward months to offset the decline in the three delivery months and increase total open interest.

While the total open interest increase on August 10 was respectable, compared to recent total open interest increases on price gains, it falls short. For example, on August 7 September corn advanced 3.00 cents on volume of 355,537 contracts and total open interest increased by 8,013. On August 5 when the September contract gained 4.00 cents on volume of 349,954 contracts, total open interest increased by 9,813.

In summary, corn had one of the largest advances in months, yet the total open interest increase was only slightly above days when corn advanced by a fraction of yesterday’s move on much less volume. As this report is being compiled on August 11, September corn is trading 10.50 lower and has made a daily high of 3.88 1/2, below yesterday’s print of 3.91 1/2, which means there was absolutely no follow through on yesterday’s strong advance.As we said in yesterday’s report, in order for corn to generate a short-term buy signal, the low of the day had to be above OIA’s key pivot point of 3.99 and the market didn’t come close to this.

Chicago wheat:

September Chicago wheat gained 15.00 cents on heavy volume of 173,507 contracts. Volume was the highest since August 6 when the September contract gained 5.00 cents on volume of 184,709 contracts and total open interest declined by 1,099. On August 10, total open interest increased 2,625 contracts, which relative to volume is approximately 40% below average. The September contract lost 8,396 of open interest. As this report is being compiled on August 11, the September contract is trading 17.75 cents lower and has made a daily high of 5.24 1/4, which is substantially below yesterday’s print of 5.30. September Chicago wheat remains on a short and intermediate term sell signal.

Coffee: September and December coffee will generate short and intermediate term buy signals on August 11.

September coffee advanced 5.70 cents on huge volume of 80,051 contracts. Volume traded on August 10 with the highest of 2015. On August 10 total open interest DECLINED by 415 contracts, which relative to volume is approximately 75% below average. The September contract lost 7,615 of open interest and there were not enough open interest increases in the forward months to offset the decline in September. Although price action was impressive, the open interest action shows that short sellers were powering the market higher. According to the latest COT report, managed money is short coffee by ratio of 1.59:1.

As this report is being compiled on August 11, the September contract is trading 3.35 cents higher on heavy volume and has made a daily low of 1.3340, which is above OIA’s key pivot point for short and intermediate term buy signals for the September and December contracts. The market is substantially overbought, and should have a pullback lasting from 1-3 days before resuming the uptrend now that coffee is on short and intermediate term buy signals. Coffee is a difficult market to trade, and compounding this is the volatility. The very weak Brazilian real against the dollar has artificially suppressed coffee prices because it encouraged large sales by Brazilian coffee producers. Do not chase the rally. Wait for the pullback if you are inclined to trade the market.

Dollar index:

The September dollar index lost 41.7 points on volume of 36,059 contracts. Total open interest declined by 954 contracts, which relative to volume is average. As this report is being compiled on August 11, the dollar index is trading fractionally higher, up 7.8 ticks and has made a daily low of 96.905, which is the lowest print since 96.375 made on July 31.

The September dollar index will generate a short-term sell signal if the high of the day is below OIA key pivot point for August 11 of 96.953. The September dollar index will resume its uptrend if it makes a daily low above OIA’s key pivot point for August 11 of 97.745.

Euro:

The September euro advanced 48 pips on low volume of 167,247 contracts. Total open interest declined by 4,453 contracts, which relative to volume is average, and August 10 was the second day in a row in which the euro advanced and total open interest declined. On August 7 the September contract gained 50 pips on volume of 265,107 contracts and total open interest declined by 2,841.

In summary, short covering is powering the market higher, not new buying. The September contract is made daily high of 1.1093, which is slightly below the 50 day moving average.We tend to think that the current rally is on its last legs, although we cannot dismiss the possibility of one more thrust higher. In order for a short-term buy signal to be generated, the low of the day must be above OIA’s key pivot point for August 11 of 1.1034, and the low thus far has been 1.0965.

From the August 6 report:

“Conceivably, we could see the euro rally up to its 50 day moving average of 1.1099 before rolling over.  This means that additional losses should be expected in the dollar index.”

Silver: September and December silver will generate short-term buy signals on August 11, but remain on intermediate-term sell signals.

September silver advanced a strong 47.1 cents on heavy volume of 66,157 contracts.Volume was the strongest since August 7 when silver traded 75,267 contracts and the September contract advanced by 14.4 cents. On August 10, total open interest increased by 1,247 contracts, which relative to volume is approximately 25% below average, but an open interest increase on yesterday’s price advance is a positive. Managed money is short silver, and new buying was powering the market higher in yesterday’s trade.

Although September silver has generated a short-term buy signal on August 11, we are skeptical because gold remains on a short-term sell signal. Until gold generates a short-term sell signal, we advise a stand aside posture.

S&P 500 E mini:

The S&P 500 E mini gained 26.25 points on surprisingly light volume of 1,202,065 contracts. Volume shrank from August 7 when the September contract lost 6.00 points on volume of 1,604,635 contracts and total open interest increased by 47,254. On August 10, total open interest declined by 9,610 contracts, which continues the very bearish pattern of open interest declines on price advances and open interest increases on price declines.

As this report is being compiled on August 11, the September E mini is trading 27.50 points lower and has made a daily low of 2070.75, which is below yesterday’s print of 2071.75. The September S&P 500 E mini remains on a short-term sell signal, but an intermediate-term buy signal. We continue to advocate the initiation of long option straddles or strangles in the December S&P 500 E mini contract.