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Soybeans:

September soybeans advanced 1.75 cents on very light volume of 126,954 contracts. Volume was slightly above that of August 14 when the September contract lost 11.00 cents on volume of 125,103 contracts and total open interest declined increased by 4,014. On August 17, total open interest declined by 1,493 contracts, which relative to volume is approximately 45% below average. The September contract lost 1,920 of open interest, new crop November -389.

As this report is being compiled on August 18, the September contract is trading 12.50 cents lower and has made a daily low of 9.13, which is the lowest print since 9.11, the day of the USDA report on August 12.We see the soybean market headed to the contract low of 8.98 1/2 made on June 1, with a high likelihood this will be broken.On July 28, September soybeans generated a short-term sell signal and an intermediate term sell signal on August 3.

Soybean meal:

September soybean meal gained 20 cents on volume of 69,840 contracts. Surprisingly, volume increased from August 14 when the September contract lost $5.70 on volume of 62,334 contracts and total open interest declined by 486. On August 17, total open interest declined by 809 contracts, which relative to volume is approximately 45% below average. The September contract lost 1,181 of open interest, new crop December -815.

As this report is being compiled on August 18, the September contract is trading $1.80 lower and has made a daily low of 322.00, which is above the low for the move of 320.70 made on August 12, the day of the USDA report. On August 13, September soybean meal generated a short-term sell signal, but remains on intermediate-term buy signal. With the very large long position held by managed money, we see substantially lower prices ahead. An intermediate term sell signal will be generated if the high of the day is below OIA’s key pivot point for August 18 of 319.40.

Corn:

September corn lost 0.75 cents on volume of 290,739 contracts. Volume was the lowest since August 4 when the September contract gained 2.25 cents on volume of 253,920 contracts and total open interest declined by 1,687. On August 17, total open interest declined by a massive 12,870 contracts, which relative to volume is approximately 75% above average meaning liquidation was extremely heavy on the minor decline. The September contract lost 19,671 of open interest and May 2016-100.

August 17 was the second day in a row in which total open interest has declined by an unusually large amount. On August 14, the September contract gained 0.25 cents on volume of 363,541 contracts and total open interest declined by 11,838. It is somewhat positive that the sizable open interest declines have not negatively impacted the price of corn.

However, we do not take comfort in this as the fundamentals for the market indicate large surpluses and the economic situation in China continues to deteriorate, which translates into much lower pork and chicken consumption. On July 27, September corn generated a short-term sell signal and an intermediate term sell signal on August 13.

Cotton: On August 17, December cotton generated an intermediate term buy signal after generating a short-term buy signal on August 14.

December cotton advanced 57 points on light volume of 20,792 contracts. Volume was below that of August 14 when the December contract gained 16 points on volume of 21,282 contracts and total open interest increased by 861. Additionally, volume was the lowest since August 11 when 16,440 contracts were traded and the December contract closed at 61.82.

On August 17, total open interest increased by a massive 1,523 contracts, which relative to volume is approximately 185% above average meaning aggressive new buyers were entering the market in heavy numbers and driving prices to a new high of 66.89, which took out the August 14 high of 66.51.

In summary, the massive increase of open interest was only able to move the market 38 points above the previous day’s high. In our view, this indicates heavy trade selling at the upper end of the trading range keeping a lid on prices. Also, for the past two days, December cotton has advanced only 73 points or slightly less than 3/4 of one cent, yet total open interest has increased by 2,384 in this two day time frame. In contrast, during August 12 and 13, December cotton gained 3.97 cents and total open interest increased by 1,170 contracts, less than half of the total open interest gain in the most recent 2 day period.

In short, we think that speculators are piling into the cotton market at the upper end of the recent trading range, but they are unable to move prices substantially higher. The market is massively overbought, and as this report is being compiled on August 18, the December contract is trading 23 points higher and has made a daily high of 66.85, which is 4 points below yesterday’s print. Additionally, volume traded on August 18 is substantially lower than yesterday’s activity.Do not chase this market, stand aside.

Coffee:

September coffee lost 2.75 cents on volume of 44,477 contracts. Total open interest declined by a massive 4,984, which relative to volume is approximately 330% above average meaning that liquidation was off the charts heavy.The September contract lost 6,741 of open interest.

For the past six sessions beginning on August 10 through August 17, September coffee has advanced 6.95 cents, yet total open interest has declined each day for a cumulative total of  22,202 contracts.This is negative in the extreme. 

As we have been saying for the past couple of days, the coffee market needs fresh bullish news to bring new buyers on board. The collapse of the Brazilian real, which is the worst performing currency against the dollar of all currencies traded has encouraged massive exports.It appears that the coffee market is headed for a reversal of the short and intermediate term buy signals unless there is a dramatic turnaround in coffee fundamentals. 

As this report is being compiled on August 18, the September contract is trading 40 points lower and has made a daily high of 1.3635, which is considerably below the high prints of the past several days. 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 six day advance.

Dollar index:

The September dollar index gained 28.2 points on volume 32,303 contracts. Total open interest increased by a massive 2,330 contracts, which relative to volume is approximately 160% above average meaning aggressive new buyers were entering the market in large numbers and driving prices to a new high for the move (96.960). As this report is being compiled on August 18, the September contract is trading and has made a daily high of 97.100.

On August 13 the September and December contracts generated short-term buy signals, and the market has had three days of counter trend rallies as of August 18. However, it appears to us that the short-term sell signal could reverse within the next couple of days. The dollar index tends to rally on a seasonal basis during the month of August and the market is anticipating a rate hike in September by the Federal Reserve, which is bullish for the dollar. 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 18 of 97.610, which is approximately 61 points above the current price.

Euro:

The September euro lost 39 pips on volume of 168,583 contracts. Total open interest declined by 1,233 contracts, which relative to volume is approximately 60% below average. As this report is being compiled on August 18, the euro is trading 53 pips lower and has made a daily low of 1.1021, which is the lowest print since 1.1028 made on August 12.

On August 13, the September and December contracts generated short-term buy signals, and as of August 18, the euro has pulled back for three days. As we pointed out in the dollar index report, it appears the dollar/euro dynamic is about to change and that the euro will likely generate a short-term sell signal during the next couple of days.

For this to occur, the high of the day must be below OIA’s key pivot point for August 18 of 1.0945. Additionally, the GBP/EUR cross is likely to reverse and generate a short-term buy signal during the next couple of days. This cross generated a short-term sell signal on August 13. This indicated that the pound was weakening against the euro, but this appears to be in the process of reversing.

S&P 500 E mini:

The S&P 500 E mini gained 9.75 points on volume of 1,299,117 contracts. Total open interest increased by 13,159 contracts, which relative to volume is approximately 50% below average. This is one of the rare positive days where open interest increased along with price.

As this report is being compiled on August 18, the September contract has made a daily high of 2103.75, which is slightly above yesterday’s high print of 2100.50, but the market has reversed and is now trading 6.75 points lower on the day. As we said yesterday, we think the path of least resistance is higher in the short term, but the market is being influenced by a variety of negative factors, notably the constant stream of bad news coming out of China, and the realization that interest rates may rise in the September Federal Reserve meeting.

We continue to advocate long options straddles or strangles in the December S&P 500 E mini contract. Also, writing out of the money calls in the September contract makes sense when a market is trading in his sideways pattern. The September contract remains on a short term sell signal and an intermediate term buy signal.