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Soybeans:

September soybeans advanced 18.00 cents on volume of 223,805 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 20, total open interest increased by only 347 contracts, a major disappointment for anyone long soybeans. The September contract lost 1,763 of open interest and new crop November -2,139.

As this report is being compiled on August 21, the September contract is trading 13.25 cents lower and has made a daily high at 9.21, which is below yesterday’s print of 9.23. The dollar index is trading sharply lower on August 21 and this is not giving soybeans or the grain complex a lift. We see lower prices ahead. September soybeans remain on a short and intermediate term sell signal.

Soybean meal:

September soybean meal advanced $6.90 on volume of 119,179 contracts. Volume exceeded that of August 19 when the September contract lost 60 cents on volume of 113,954 contracts and total open interest increased by 4,394. On August 20, total open interest increased by 2,028 contracts, which relative to volume is approximately 25% less than average. The September contract lost 3,830 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in September. Despite being on a short-term sell signal, the meal has held up well. However we expect this to change in the coming weeks. As this report is being compiled on August 21, the September contract is trading $2.20 lower.

Corn

September corn advanced 3.75 cents on volume of 307,924 contracts. Volume fell from August 19 when the September contract gained 1.00 cent on volume of 321,329 contracts and total open interest declined by 14,263. On August 20, total open interest declined again, this time by 5,655 contracts, which relative to volume is approximately 20% below average, but the open interest decline on yesterday’s price advance is bearish. The September contract lost 13,595 open interest and the March and December 2017 contracts lost a total of 388.

For the past five days beginning on August 14, through August 20, total open interest declined each day and the cumulative total is 58,422 contracts while September corn has advanced 6.75 cents in this time frame. This is bearish open interest action relative to the minor advance. As we have said in previous reports, it is positive that the massive decline of open interest has not caused prices to move lower, however, as this report is being compiled on August 21, the September contract is trading 6.00 cents below yesterday’s close and has made a daily low 3.64, which is the lowest print since 3.61  3/4 made on August 18.

We think corn will soon be testing contract lows, and there really is no impetus for substantial new buying, especially with the economic situation deteriorating in China along with the rest of the world’s economies. September corn remains on a short and intermediate term sell signal.

Cotton: This will be our last regular report on cotton until we announce a signal change, see a trading opportunity or have new developments to report.

December cotton gained 40 points on the very low volume of 17,309 contracts. Volume was the lowest of any day since the rally began on August 12, and this reflects a lack of participation.However, on August 20, open interest increased again, this time by a massive 3,601 contracts, which relative to volume is 640% above average meaning huge numbers of new longs and shorts were making commitments and the new buyers were able to move the market slightly higher.

On August 18, total open interest increased by 2,925 contracts, and on August 19 total open interest increased by 2,024. When this is added to yesterday’s total open interest increase of 3,601, total open interest during the past three days has increased by 8,550 contracts, but in this time frame, December cotton prices have advanced only 41 points.

Aggressive selling is keeping a lid on advances, and as we have said before, we think the selling is coming from commercial sources. On the other hand, we think the buying is coming from computerized programs used by professional money managers. The COT report will be released this afternoon and we will have a better idea of the setup going into next week. We advise clients to continue to stand aside in the cotton market.

Coffee:

December coffee lost 2.35 cents on volume of 52,855 contracts. Total open interest declined again, this time by 1,235 contracts, which relative to volume is approximately 10% below average. The September contract lost 8,577 of open interest. As this report is being compiled on August 21, the December contract is trading 5.65 lower, and will likely generate short and intermediate term sell signals on Monday.

We’ve been warning clients to stand aside coffee because of the terrible open interest action relative to the price advance after coffee generated short and intermediate term buy signals on August 11.

Dollar index:. The September and December dollar indices will generate an intermediate term sell signal on August 21 after generating short-term sell signals on August 13.

The September dollar index lost 36.6 points on volume of 49,703 contracts. Total open interest declined by 669 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on August 21, the September dollar index is trading sharply lower, down 1.057 on heavy volume. 

Swiss franc: On August 21, the September and December Swiss franc will generate short term buy signals.

Yen: The September and December Yen will likely generate short and intermediate term buy signals on Monday.

Euro: The September and December Euro contracts will generate intermediate term buy signals on August 21 after generating short-term buy signals on August 13.

The September euro advanced 68 pips on volume of 249,935 contracts. Total open interest increased by 7,568 contracts, which relative to volume is approximately 10% above average meaning that aggressive new buyers were entering the market and driving prices to a new high for the move (1.1249). This was the second day in a row in which the September contract has advanced along with open interest.

The reason this is important: managed money is massively short the euro and the two day total open interest increases indicate they are not covering positions. This will add massive fuel for the rally, which continues on August 21. As this report is being compiled on August 21, the September contract is trading 1.65 cents higher on the day and has made a new high for the move of 1.1381, which is the highest print since 1.1424 made on June 22.

Additionally, as we have pointed out in prior reports, the euro was being used as a carry trade currency, and now these positions are being unwound with short-sellers who were hedging euro currency exposure covering these positions and sending the euro higher. There is a substantial amount of resistance at the 1.1450 -1.1500 going back six months, but under the present circumstances, this could be penetrated, especially if equity markets continue their downward slide.

Longer-term, we see the euro drifting lower after the massive short covering rally dissipates, and it is important to keep in mind that a strong euro is negative for the European economies, the last thing Europe needs. Additionally, the quantitative easing dynamic of the ECB will reassert itself and serve to further weaken the euro.

Gold: On August 20, December New York gold generated a short-term buy signal, but remains on intermediate term sell signal.

December gold advanced $25.30 on volume of 206,851 contracts. Surprisingly, total open interest increased only 5,723 contracts, which relative to volume is average. 

As this report is being compiled on August 21, the December contract is trading 6.50 higher and has made a daily high of $1167.90, which is the highest print since 1169.00 made on July 9. Now that December gold is on a short term buy signal, the market should pull back from 1-3 days and this is the opportunity to initiate bullish positions if you are so inclined. We advise against chasing the rally and suggest waiting for the pullback.

Our enthusiasm is somewhat tempered by the average increase of total open interest on August 20 when gold advanced by the largest amount in many months. On August 19, the December contract gained 11.00 on volume of 171,503 and total open interest increased by 4,890. In other words, prices advanced more than twice on August 20 than August 19, yet total open interest did not increase appreciably over August 19.

S&P 500 E mini: On August 20, the September and December S&P 500 E mini contracts generated intermediate term sell signals after generating short-term sell signals on July 27.

The September S&P 500 E mini lost 47.25 points on heavy volume of 2,594,532 contracts. Volume traded on August 20 was the highest of 2015. On August 20, total open interest increased by a strong 73,590 contracts, which relative to volume is average. As this report is being compiled on August 21, the September S&P 500 E mini is trading 32.50 points lower and has made a new low for the move of 1986.25, which is the lowest print since 1973.75 made on February 2, 2015.

For those clients who followed our recommendation and initiated long option straddles or strangles in the December S&P 500 E mini, these positions are showing considerable profits. The market is overdue for a good sized rally, but we think this will be temporary and that prices are headed lower, perhaps substantially.