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Soybeans:

September soybeans lost 11.00 cents on very light volume of 125,103 contracts.Volume was the lowest since May 11 when 99,284 contracts were traded and the September contract closed at 9.54 1/4. On August 14, total open interest increased by a substantial 4,014 contracts, which relative to volume is approximately 10% above average meaning that aggressive new short-sellers were entering the market and driving prices lower (9.21 3/4). The August contract lost 206 of open interest and July 2016 -38.

The low-volume and total open interest increase indicates a great deal of complacency on the part of distressed longs who are holding positions with large losses. Their refusal to liquidate confirms that prices are headed substantially lower. As this report is being compiled on August 17, the September contract is 2.25 cents lower. September soybeans remain on short and intermediate term sell signals.

Soybean meal:

September soybean meal lost $5.70 on light volume 62,334 contracts.Volume was the weakest since May 11 when 56,668 contracts were traded and the September contract closed at $305.50. On August 14, total open interest declined only 486 contracts, which relative to volume is approximately 60% below average. The September contract lost 581 of open interest, new crop December -1,280.

Like soybeans, the very low volume and minor decline of open interest indicates great deal of complacency on the part of soybean meal longs. As we wrote in the weekend report, the percentage of managed money longs represents approximately 14.4% of total outstanding open interest, and this large long position will exert a substantial amount of pressure on soybean meal in the weeks ahead. As this report is being compiled on August 17, the September contract is trading unchanged on the day. On August 13, September soybean meal generated a short-term sell signal, but remains on intermediate term buy signal.

Corn:

September corn gained 0.25 cents on volume of 363,541 contracts. Volume was the weakest since August 7 when the September contract advanced 3.00 cents on volume of 355,537 contracts and total open interest increased by 8,013.On August 14, total open interest declined by a hefty 11,838 contracts, which relative to volume is approximately 25% above average meaning liquidation was substantial on the nearly unchanged close. The September contract lost 23,344 of open interest and the March 2016 contract lost 1,763.

The total open interest decline on Friday was the first since August 11 when the September contract lost 13.75 cents and total open interest declined by 9,642 on volume of 423,516 contracts. On August 11, the September contract lost 29,268 of open interest versus August 14 when it lost 23,344, yet total open interest declined by a substantially greater amount on August 14 than August 11. It would appear the liquidation that we have spoken about has begun. September corn remains on short and intermediate term sell signals.

Cotton: On August 14, December cotton generated a short-term buy signal, and if the August 17 low of 65.67 holds, an intermediate term buy signal will be generated on August 17. 

December cotton gained 16 points on relatively low volume of 21,282 contracts.Volume was the lowest since August 11 when 16,440 contracts were traded and the December contract closed at 61.82. On August 12 (the day of the USDA report), December cotton advanced 2.87 cents on volume of 62,768 and total open interest increased by 405. On August 13, December cotton gained 1.10 cents on volume of 53,902 and total open interest increased by 765.

On August 14, total open interest increased by 861 contracts, which relative to volume is approximately 30% above average, meaning that aggressive new buyers were entering the market in large numbers and driving prices to a new high for the move (66.51). As this report is being compiled on August 17, the December contract is trading 93 points higher and has made a daily high of 66.89, which is the highest print since 67.23 made on July 10.

The market is massively overstretched and is overdue for a pullback. Usually, after the generation of buy signals, markets have a tendency to pullback from 1-3 days, and this is the opportunity to initiate bullish positions if you are so inclined. We advise strongly against chasing this move and though the market is advancing on August 17, it is doing so on less volume than Friday.

Another important point: the collective total open interest increase of 2,031 contracts during the past three days indicates a lack of enthusiasm on the part of new participants to make strong commitments at ever higher prices. Additionally, the world economy is slowing down and China has massive surpluses of cotton. Though US fundamentals are terrific, this is not the case on a global basis.

Coffee:

September coffee gained 45 points on volume of 58,348 contracts. Total open interest declined by a massive 5,996 contracts, which relative to volume is approximately 305% above average meaning liquidation was off the charts heavy. The September contract lost 8,708 of open interest.

For the past five sessions beginning on August 10 through August 14, September coffee has advanced 9.70 cents, yet total open interest has declined each day for a cumulative total of 17,218 contracts.This is extremely negative and in order for coffee to advance, new buyers must be willing to pay ever increasing prices. 

At this juncture, the coffee market needs fresh bullish news to encourage new buyers to make commitments at relatively high prices.  The collapse of the Brazilian real has encouraged massive exports and unless there is a major change in crop fundamentals, we see the market drifting lower. As this report is being compiled on August 17, the September contract is trading 2.40 cents lower after making a daily high of 1.3735, which is nearly 2.00 cents below Friday’s print of 1.3900 and below the August 13 print of 1.3800.

On August 11, September and December coffee generated short and intermediate term buy signals, but we have recommended a stand aside posture due to the abysmal open interest action during the past five day advance.

Dollar index:

The September dollar index gained 7.2 points on volume of 44,888 contracts. Total open interest increased by 1,156, which relative to volume is average. As this report is being compiled on August 17, the September contract is trading 26.7 points higher on low volume. On August 13, the September and December dollar index generated short-term sell signals, and is usually the case after the generation of sell signals, markets tend to have a counter trend rally, which lasts from 1-3 days. August 17 is the second day of the counter trend rally, and unless there is a signal reversal, the dollar index is now trading near the temporary top of its trading range.

Euro:

The September euro lost 22 pips on volume of 171,467 contracts. Total open interest declined by 2,985 contracts, which relative to volume is approximately 25% less than average. As this report is being compiled on August 17, the September contract is trading 40 pips lower and this is the second day of the pullback after the September and December euro generated short term buy signals on August 13. This should be the extent of the correction for the most part and unless there is a signal reversal, the September contract should attempt to test the August 12 high of 1.1220.

S&P 500 E mini:

The S&P 500 E mini advanced 9.00 points on volume of 1,073,593 contracts. Total open interest increased just 237 contracts. As this report is being compiled on August 17, the September contract is trading 7.25 points higher and has made a daily high of 2097.75, which is the highest print since 2101.75 made on August 11.

The September E mini is at a major inflection point, which is OIA’s pivot point for the generation of a buy signal. On July 27, the September contract generated a short-term sell signal, and for this to reverse, the low of the day must be above OIA’s key pivot point for August 17, 2097.95.

Unless there is some major negative economic developments, we think the path of least resistance is higher temporarily, although it will be a labored affair. For the rally to pick up steam, the September contract must generate a short-term buy signal. We continue to recommend long option straddles or strangles, and clients should consider writing out of the money calls in the September contract.