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Soybeans:

September soybeans lost 13.75 cents on volume of 169,820 contracts. Volume was the strongest since August 13 when the September contract gained 17.75 cents on volume of 225,559 contracts and total open interest declined by 2,471. On August 18, total open interest declined by 1,115 contracts, which relative to volume is approximately 65% below average. The September contract lost 798 of open interest and new crop November experienced a decline of 4,399 contracts.

As this report is being compiled on August 19, the September contract is trading 9.75 cents lower and has made a daily low of 8.99 3/4, which is 1.25 cents above the contract low of 8.98 1/2. Although soybeans are due for a bounce, the crop is in excellent shape and the Chinese economy is falling apart, which is going to dampen enthusiasm for the long side. At this juncture, there is no reason to be involved in the market, and we recommend a stand aside posture. September soybeans remain on a short and intermediate term sell signal.

Soybean meal:

September soybean meal lost 80 cents on volume of 83,227 contracts. Volume was the strongest since August 13 when the September contract gained $7.20 on volume of 112,690 contracts and total open interest declined by 2,277. On August 18, total open interest increased by 1,546 contracts, which relative to volume is approximately 25% below average. The September contract lost 1,996 of open interest and new crop December -380, which means there were sufficient open interest increases in the forward months to offset the decline in the two delivery months and increase total open interest.

It appears there was a battle between buyers and sellers in yesterday’s trading, but looking forward, we think short-sellers will win out and move prices lower. We have pointed out in past reports that there is a large contingent of managed money longs who refuse to liquidate and will be forced out of positions as prices move lower.

As this report is being compiled on August 19, the September contract is trading at $1.10 lower and has made a daily low of 322.20, which is slightly above yesterday’s print of 322.00. September soybean meal remains on a short-term sell signal, but an intermediate-term buy signal.

Corn:

September corn advanced 3.00 cents on volume of 279,601 contracts. Volume fell below that of August 17 when the September contract lost 0.75 cents on volume of 290,739 contracts and total open interest declined by 12,870. Additionally, volume was the weakest 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 18, total open interest declined again, this time by a massive 13,796 contracts, which relative to volume is approximately 100% above average meaning liquidation was extremely heavy on the advance. For the past three days beginning on August 14, total open interest declined by a very large 38,504 contracts while September corn has advanced 2.00  cents in this time frame. This is bearish open interest action relative to the fractional advance.

We have postulated in past reports that market participants would take advantage of rallies to liquidate positions and this has been the dominant activity during the past three days.The economic situation in China is getting increasingly bearish, and there is a very bearish mindset gripping commodities in general. Although, there will be periodic rallies, we see corn trading lower and managed money will eventually become net short again. Corn may experience a turnaround sometime in the fourth quarter, but in order for the rally to have legs, managed money needs to be substantially net short.

Cotton:

December, advanced 11 points on light volume of 19,174 contracts. Volume was below that of August 17 when the December contract gained 57 points on volume of 20,790 contracts and total open interest increased by 1,523. Additionally, volume was the weakest since August 11 when 16,440 contracts were traded and the December contract closed at 61.82.

On August 18, total open interest increased by an astounding 2,925 contracts, which relative to volume is approximately 420% above average meaning that aggressive buyers and sellers were entering the market in large numbers, but buyers were able to move the market only 11 points higher by the close. The action in yesterday’s trading is an example of computerized trading whereby the computer tells speculators the trend is higher and therefore they should be buyers.

Remarkably, from August 17 through August 18, total open interest increased by 4,448 contracts, yet December cotton prices have advanced only 68 points. Consider that from August 12 through August 14, December cotton gained 4.13 cents and total open interest increased by 2,031 contracts. Yet on August 18, December cotton gained 11 points and total open interest increased by 2,925.

We think speculators are on the long side and commercial interests are on the short side, and the massive increase of open interest will set up the correction, which we think is coming any day now. Speculators have been piling into the cotton market at the upper end of the recent trading range, but they are not able to move prices substantially higher.

As this report is being compiled on August 19, the December contract is trading 23 points lower and has made a daily high of 66.80, which is 5 points below yesterday’s print. December, remains on a short and intermediate term buy signal. Stand aside.

From the August 17 report:

“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.”

Coffee:

September coffee gained 55 points on volume 36,748 contract. Total open interest declined again, this time by 1,474 contracts, which relative to volume is approximately 30% above average meaning liquidation was substantial on the modest advance. For the past seven sessions beginning on August 10 through August 18, September coffee has advanced 7.50 cents, yet total open interest has declined each day for a cumulative total of  23,676 contracts. This is extremely bearish. 

The collapse of the Brazilian real, and the political/economic turmoil in the country is severely impacting the coffee market along with the bearish zeitgeist for commodities in general. As this report is being compiled on August 19, September coffee is trading 4.20 cents lower and has made a daily low of 1.3090, which takes out the previous low print of 1.3140 made on August 12.As we pointed out yesterday’s report, we think the coffee market is headed for a reversal of the short and intermediate term buy signals.

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

Dollar index:

The September dollar index gained 25.5 points on volume of 25,774 contracts. Total open interest declined by 696 contracts, which relative to volume is average. As this report is being compiled on August 19, the September contract is trading at 64.0 points lower on the day, which is due primarily to the advance in the Euro,  British pound, Japanese yen and the Swiss franc, which are components of the dollar index.The September dollar index remains on a short-term sell signal, but an intermediate term buy signal.

Euro:

The September euro lost 62 pips on volume of 158,184 contracts. Total open interest declined by 1,341 contracts, which relative to volume is approximately 55% below average. As this report is being compiled on August 19, the September contract is trading 99 pips above yesterday’s close and has made a daily high of 1.1132, which takes out yesterday’s high print of 1.1098.The September euro remains on a short term buy signal, but an intermediate term sell signal.

British Pound: If today’s low of 1.5633 holds, the September British pound will generate a short-term buy signal, and the December contract will generate a short-term buy signal as well. Both contracts remain on intermediate term buy signals.

The September British pound advanced 79 pips on volume of 102,728 contracts.Total open interest increased by a massive 6,961 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 (1.5714), which is the highest print since 1.5730 made on July 1.As this report is being compiled on August 19, the September contract is trading 28 pips above yesterday’s close, but has not taken out yesterday’s high print.

S&P 500 E mini:

The September S&P 500 E mini lost 5.25 points on volume of 1,140,206 contracts. Total open interest increased by 5,271 contracts. As this report is being compiled on August 19, the September contract is trading 6.25 points lower and has made a daily low of 2066.50, which is the lowest print since 2046.50 made on August 12. On July 27, the September contract generated a short-term sell signal, and this has not been reversed despite numerous rallies.We continue to advocate the initiation of long option straddles or strangles in the December S&P 500 E mini contract.