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Coffee: September and December coffee will generate short and intermediate term sell signals on August 24.

December coffee lost 6.00 cents on volume of 39,073 contracts. Total open interest increased by 515 contracts, which relative to volume is approximately 45% below average, but an open interest increase on Friday’s decline is bearish. The September contract lost 1,736 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in September and increase total open interest. As this report is being compiled on August 24, December coffee is trading 4.55 cents lower and has made a new contract low of 1.2100.

We have been warning clients away from the long side of coffee, despite it generating short and intermediate term buy signals on August 11.

From the August 13 report:

“For the past four sessions beginning on August 10 through August 13, September coffee has advanced 9.25 cents, yet total open interest has declined by 11,222 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, this does not seem likely.”

“On August 11, September and December coffee generated short and intermediate term buy signals, but we recommend a stand aside posture due to the abysmal open interest action relative to the four day price advance.”

From the August 17 report:

“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: On August 21, the September and December dollar indices generated intermediate term sell signals after generating short-term sell signals on August 13.

The September dollar index lost 99.7 points on heavy volume of 64,048 contracts. Volume was the strongest since August 12 when the September contract lost 1.040 on volume of 76,353 contracts and total open interest declined by 4,511.On August 21, total open interest declined by 4,595 contracts, which relative to volume is approximately 185% above average meaning there was massive liquidation on the substantial decline.Accounting for the substantial loss of open interest was the September contract, which lost 5,051 of open interest.

As this report is being compiled on August 24, the September contract is trading 1.365 points lower after making a new low for the move of 92.520, which is the lowest print since 92.67 made on January 22, 2015. The prevailing opinion of the financial community is that the dollar index is in a bull market, but since topping at 100.715 on March 16, 2015 (basis September), the dollar index has been making a series of lower highs/lows.

In a strong bull market in the early stage, though the market may pull back substantially, there is a test of the highs and in a true bull market a breakthrough of the initial high print. On April 14, the September contract attempted to test the March 16 high and printed 99.985, almost a full point beneath 100.715, the March 16 high. There was an attempt to test the April 14 high on April 21 and 23 of 98.695 and 98.645 respectively. Subsequently, the September contract made a high of 98.425 on August 7, which was below the April 21 and 23 prints.

If the dollar index is in a major bull market, it is not acting like one. Additionally, the longer-term moving averages are in a bearish set up with the 50 day moving average of 96.516 below the 100 day moving average of 96.576. At this juncture, we see no reason why the 50 day moving average cannot cross the need the 200 day moving average of 95.324, which in our view would confirm the alleged bull market is on hiatus.

Euro: On August 21, the September and December Euro contracts generated intermediate term buy signals after generating short-term buy signals on August 13.

The September euro advanced 1.56 cents on volume of 312,652 contracts. Volume increased from August 20 when the September contract gained 68 pips on volume of 249,935 contracts and total open interest increased by 7,568.On August 21, total open interest increased by 4,071 contracts, which relative to volume is approximately 45% below average, but the total open interest increase on August 21 is the third in a row on a price advance. From August 19 through August 21, the September euro has advanced 3.35 cents while total open interest has increased by 14,970 contracts. This is bullish open interest action relative to the three day advance. This indicates that short sellers have not covered their positions, which is undoubtedly causing them severe distress on August 24.

As this report is being compiled on August 24, the September euro is trading 2.07 cents above Friday’s close and has made a new high for the move of 1.1718, which is the highest print since 1.1797 made on January 15, 2015.Volume is off the charts on August 24 and the September contract has already traded 515,380 contracts.

Swiss franc: On August 21, the September and December Swiss franc generated short-term buy signals, but remain on intermediate term sell signals

The September Swiss franc advanced 1.48 cents on volume of 26,533 contracts. Total open interest declined by a massive 1,148, which relative to volume is approximately 70% above average meaning liquidation was extremely heavy on the very strong advance. This has been a pattern with the Swiss franc of late, which is a major contrast to the open interest action in the euro. As this report is being compiled on August 24, the September Swiss franc is trading 1.34 cents above Friday’s close has made a new high for the move of 1.0809, which is the highest print since 1.0845 made on June 30.

For an intermediate term buy signal to occur in the September franc, the low of the day must be above OIA’s key pivot point for August 24 of 1.0652.

Yen: The September and December Yen contracts will generate short and intermediate term buy signals on August 24.

The September yen advanced 89 pips on heavy volume of 262,261 contracts.Volume was the strongest since June 11 when 317,141 contracts were traded and the September contract closed at .8104. On August 21, total open interest increased by 7,510, which relative to volume is average. This indicates that short sellers were not liquidating on the advance and according to the latest COT report, leverage funds are massively short the yen. As this report is being compiled on August 24, the September contract is trading 219 pips above Friday’s close and has made a new high for the move of .8591, which is the highest print since .8637 made on January 16, 2015.

On Friday, the September contract made a low of .8099, which was below OIA’s key pivot point of .8107 for the generation of a short term buy signal and .8144 for the intermediate term buy signal. In order for buy signals to occur, the low the day must be above the pivot points.

Gold:

December gold advanced $6.40 on heavier than normal volume of 206,476 contracts. Volume was slightly below that of August 20 when the December contract advanced $25.30 on volume of 206,851 contracts and total open interest increased by 5,723. On August 21, total open interest declined by 4,556 contracts, which relative to volume is approximately 10% below average, but an open interest decline on Friday’s advance is negative. As this report is being compiled on August 24, the December contract is trading 4.60 lower on the day. Though December gold is on a short-term buy signal, we see little enthusiasm for the yellow metal, and recommend a stand aside posture.

Silver:

December silver lost 21.6 cents on volume of 78,427 contracts. Total open interest increased by 1,456 contracts, which relative to volume is approximately 25% below average, but an open interest increase on Friday’s decline is negative. This follows the 458 contract open interest decline on August 20 when silver advanced 33.8 cents.As this report is being compiled on August 24, silver is trading 25.6 cents lower on the day on heavy volume. December silver remains on a short-term buy signal, but an intermediate-term sell signal.

From the August 23 Weekend Wrap:

“We have been unimpressed with the rally in gold and silver, and tend to think the move will reverse. The open interest action in gold has been positive, but based upon the increase, it is not indicative of a massive move to the precious metals. September and December silver generated short-term buy signals on August 11 and through August 21, the December contract has lost 18.00 cents. Additionally, the open interest action for silver has been negative and as the stats in the most recent COT report indicate, managed money remains net short. The move up from early August lows is not supported by fund managers.”

S&P 500 E mini:

The September S&P 500 E mini lost 54.00 points on huge volume of 4,189,457 contracts. Volume traded on August 21 was the highest of 2015. On August 21, total open interest increased by 68,103 contracts, which relative to volume is approximately 35% below average, but an open interest increase on Friday’s major decline is bearish, and follows a pattern of open interest increases on price declines and open interest declines on price advances.

As this report is being compiled on August 24, the September contract is trading 59.25 points lower and has made a new low for the move of 1831.00, which is the lowest print since 1813.00 made the week of October 13, 2014. Ever since the September E mini generated a short-term sell signal on July 27, we have advocated the initiation of long option straddles and strangles in the December E mini contract.

For clients who took our advice, the past couple of days have been very pleasant. However, we recommend taking profits on the straddle or strangle and moving to the sidelines. The market is well overdue for a rally. The September S&P 500 E mini generated an intermediate term sell signal on August 20 after generating a short-term sell signal on July 27.

 From the July 27 report:

“As this report is being compiled on July 28, the September contract is advancing 19.25 points and has made a daily high of 2085.25. Recently, the buy/sell signals for the E mini have had quick reversals and we do not discount the possibility this pattern may continue.”

“For the short term sell signal to reverse, the low of the day must be above OIA’s key pivot point for July 28 of 2097.70. Thus far in trading on July 28, the low has been 2061.50. We continue to advocate long option straddles and strangles in the December E mini contract. For subscribers to OIA direct, please call with any question.”