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Soybeans:

September soybeans lost 9.75 cents on volume of 205,860 contracts. Volume exceeded that of August 18 when the September contract lost 13.75 cents on volume of 169,820 contracts and total open interest declined by 1,115. Additionally, volume was the highest 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 19, total open interest increased by a sizable 6,198 contracts, which relative to volume is approximately 10% above average meaning that aggressive new short-sellers were entering the market and driving prices to a new low for the move (8.99 3/4). There were open interest increases across the board: from September 2015 through November 2016. The total open interest increase on August 19 exceeded that of August 14 when the September contract lost 11.00 cents and total open interest increased by 4,014 contracts on volume of 125,103. It was less than the total open interest increase of 10,716 contracts when the September contract lost 62.50 cents on August 12, the day of the USDA report.

As this report is being compiled on August 20, the September contract is trading 10.75 cents about yesterday’s close and has made a new contract low of 8.98 1/4, which is 1/4 cent below the previous contract low. We see a pattern of intermittent rallies punctuated by new contract lows. September soybeans remain on a short and intermediate term sell signal.

Soybean meal:

September soybean meal lost 60 cents on volume of 113,954 contracts. Volume exceeded that of August 13 when the September contract gained $$7.20 on volume of 112,690 contracts and total open interest declined by 2,277. Additionally, volume was the strongest since August 12 when the September contract lost $18.00 on volume of 201,029 contracts and total open interest declined by 3,053.

On August 19, total open interest increased by a hefty 4,394 contracts, which relative to volume is approximately 25% above average. August 19 was the second day in a row in which September soybean meal closed fractionally lower and total open interest increased. During the past two days, total open interest has increased 5,940 contracts and yet September soybean meal declined only $1.40. It appears that soybean meal is not ready to break down to a lower price level, and as a result the market may experience a temporary rally. September soybean meal remains on a short-term sell signal, but an intermediate-term buy signal.

Corn:

September corn gained 1.00 cent on volume of 321,329 contracts.Volume was the strongest since August 14 when the September contract gained 0.25 cents on volume of 363,541 contracts and total open interest declined by 11,838. On August 19, total open interest declined by a massive 14,263 contracts, which relative to volume is approximately 75% above average meaning liquidation was extremely heavy on the modest advance. The September contract lost 15,899 of open interest and new crop December lost 2,296.

For the past four days beginning on August 14, through August 19, total open interest declined each day and the cumulative total is 52,767 contracts while September corn has advanced 3.00  cents in this time frame. This is bearish open interest action relative to the minor advance. However, it is positive that the massive decline of open interest has not sent corn prices sharply lower.

As this report is being compiled on August 20, the September contract is trading 2.50 higher on the day. This week we will see the new setup of managed money in the COT report, and it is likely that the outsize net long position has been reduced. As we have said before, managed money is headed for a new net short position, and eventually this will set the stage for a rally in the fourth quarter.September corn remains on a short and intermediate term sell signal.

Cotton:

December, lost 10 points on volume of 23,349 contracts. Total open interest increased by a massive 2,024 contracts, which relative to volume is approximately 250% above average meaning aggressive buyers and sellers entered the market in large numbers and sellers were able to move the market fractionally lower.For the past two days, total open interest has increased massively on each day, yet cotton prices are barely moving.

On August 18, total open interest increased by an astounding 2,925 contracts, which relative to volume was approximately 420% above average, but buyers were able to move the market only 11 points higher by the close. For the past two days, total open interest increased by 4,949 contracts, but cotton prices have moved just 1 point higher.This tells us there is aggressive selling, which as we have said before is likely to be coming from commercial sources. On the buy side, we think computer based trading programs are telling fund managers they must be long cotton.

The sweet spot of the move occurred from August 12 through August 14, when December cotton gained 4.13 cents and total open interest increased by 2,031 contracts.

As this report is being compiled on August 20, the December contract is trading 34 points higher and has made a daily high at 66.91, which is a new high for the move by only 2 points with the previous high of 66.89 having been made on August 17. We continue to advocate a stand aside posture.

Coffee:

September coffee lost 4.25 cents on volume of 57,108 contracts. Total open interest declined again, this time by 4,469 contracts, which relative to volume is approximately 210% above average meaning liquidation was extremely heavy on the decline. The September contract lost 9,918 of open interest.

For the past eight sessions beginning on August 10 through August 19, September coffee has advanced 3.25 cents, yet total open interest has declined each day for a cumulative total of 28,145 contracts. This is extremely bearish. 

As this report is being compiled on August 20, December coffee is trading 1.85 cents lower and has made a daily low of 1.3205. 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. A short-term sell signal will be generated if the daily high in the December contract is below OIA’s key pivot point for August 20 of 1.3045.

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 eight day advance.

Dollar index:

The September dollar index lost 70.2 points on volume of 46,414 contracts. Total open interest increased by 688 contracts, which relative to volume is approximately 40% below average, but an open interest increase on yesterday’s price decline is bearish. As this report is being compiled on August 20, the September contract is trading lower by 35.3 points. On August 13, the September and December dollar indices generated short-term sell signals, but remain on intermediate-term buy signals. Conceivably, the cash dollar index may generate an intermediate term sell signal as early as tomorrow.

Euro:

The September euro advanced 1.11 cents on volume of 252,033 contracts. Volume was the strongest since August 12 when the September contract gained 1.39 cents on volume of 314,778 contracts and total open interest increased by 3,206. On August 19, total open interest increased by 3,331 contracts, which relative to volume is approximately 45% below average, however, the total open interest increase on August 19 is bullish for prices going forward.

On August 12, the euro made its high for the move of 1.1220, and as this report is being compiled on August 20, the September contract has penetrated the August 12 high with a new print of 1.1225. On August 13, the September euro generated a short-term buy signal, and for an intermediate term buy signal to be generated, the low of the day must be above OIA’s key pivot point for August 20 of 1.1169.

The subsequent activity of the euro after our report of August 13 shows that the euro conformed to OIA’s protocol of pulling back from 1-3 days before resuming the uptrend. We have been surprised by the strength in the euro during the past 30 days and it is the strongest currency against the US dollar and the British pound, which had been very strong until recently.

From the August 13 report:

“Now that the euro is on a short term buy signal, the market should pull back for 1-3 days before resuming the uptrend. It appears the pullback has begun on August 14. We discourage new bullish positions because we think the longer-term trend of the euro is down.”

British Pound: On August 19, the September and December British pound generated short-term buy signals and remain on intermediate term buy signals.

The September British pound advanced 27 pips on volume of 72,453 contract. Total open interest declined by a massive 3,733 contracts, which relative to volume is approximately 110% above average meaning liquidation was extremely heavy on the modest advance.As this report is being compiled on August 20, the September pound is pulling back by 13 pips, which is to be expected after the generation of a buy signal.

Usually, after the generation of buy signals, markets have a tendency to pull back from 1-3 days and this is the opportunity to initiate bullish positions if you are so inclined. We have no strong feeling on the pound except the say the British government does not want a strong currency because this will severely affect the British export picture, especially in the environment of currency devaluation gripping most of the world’s economies.

Gold: On August 20, December gold will generate a short-term buy signal, but remains on an intermediate term sell signal. 

December gold advanced $11.00 on volume of 171,503 contracts. Total open interest increased by 4,890 contracts, which relative to volume is average. As this report is being compiled on August 20, the December contract is trading $25.60 higher and trading at the high of the day of 1153.70, which is the highest print since 1157.90 made on July 15.In order for December gold to generate an intermediate-term buy signal, the low of the day must be above OIA’s key pivot point for August 20 of $1160.10.

Beginning tomorrow, the gold market is likely to begin to pull back now that it is on a short term buy signal.  The pullback should last from 1-3 days and this is the opportunity to initiate bullish positions if you are so inclined. At this juncture, it is difficult to determine whether this is the beginning of a sustained move higher or whether we are seeing a rally in a bear market.

Silver:

September silver advanced 38.9 cents on volume of 78,611 contracts. Total open interest declined by a hefty 3,895 contracts, which relative to volume is approximately 100% above average. This is bearish open interest action relative to the price advance. However, on August 20, as this report is being compiled, the September contract is trading 34.1 cents higher on the day. On August 11, September and December silver generated short-term buy signals, but remain on intermediate-term sell signals. For an intermediate-term buy signal to be generated, the low of the day must be above OIA’s key pivot point for August 20 of $15.829.

S&P 500 E mini: The September and December S&P 500 E mini contracts will generate intermediate term sell signals on August 20 after generating short-term sell signals on July 27.

The September S&P 500 E mini declined by 21.25 points on volume of 2,297,073 contracts. Total open interest increased by 19,644 contracts, which relative to volume is approximately 55% below average, however, an open interest increase on yesterday’s decline continues the bearish pattern of open interest increases and declines relative to price declines and advances.

As this report is being compiled on August 20, the September E mini is trading 22.75 points lower and has made a new low for the move of 2042.75, which takes out the previous low print of 2046.50 made on August 12. We continue to advocate the initiation of long option straddles or strangles in the December S&P 500 E mini.