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Cotton:

December cotton lost 2.86 cents on volume of 45,592 contracts. Total open interest declined by a massive 9,254 contracts, which relative to volume is approximately 640% above average meaning that liquidation was off the charts heavy on the large decline as markets around the world fell sharply. The December contract lost 9,257 of open interest.

On August 14, December cotton generated a short-term buy signal and an intermediate term buy signal on August 17. As the extracts from the reports on cotton of August 17 and 19 indicate, we were warning clients to remain on the sidelines because massive open interest increases were moving prices only fractionally higher, which indicated that heavy trade selling was occurring at the top of the range. The most recent COT report tabulated on August 18 confirmed this (see weekend report for August 23).

As this report is being compiled on August 25, the December contract is trading 93 points lower and has made a new low for the move of 63.00, which is only 1.80 cents from the contract low of 61.20 made on August 12. For December, to generate short-term and intermediate term sell signals, the high of the day must be below OIA’s key pivot points for August 25 of 64.26 and 64.50 respectively. Stand aside.

From the August 19 report on cotton:

“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.”

“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.”

From the August 17 report on cotton:

“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:  On August 24, September and December New York coffee generated short and intermediate term sell signals.

This will be our last report on coffee until we announce a signal change or see a trading opportunity.

December coffee lost 4.75 cents on volume of 40,268 contracts. Total open interest increased by a substantial 2,526 contracts, which relative to volume is approximately 145% above average meaning that aggressive new short-sellers were entering the market in large numbers and driving prices to 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 19 report on coffee:

“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.”

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.”

Dollar index: Note to clients: The dollar index has been correlated recently to the movement of US stock indices

The September dollar index lost 1.649 points on huge volume of 150,118 contracts.Volume was the strongest since March 12 when 192,589 contracts were traded and the September contract closed at 100.541. On August 24, total open interest increased by 2,632 contracts, which relative to volume is approximately 25% below average, but an open interest increase on yesterday’s strong price decline is bearish.

As this report is being compiled on August 25, the September contract is trading 1.289 points above yesterday’s close. On August 13, the September and December dollar indices generated short-term sell signals and intermediate-term sell signals on August 21. Usually after the generation of sell signals, markets tend to have counter trend rallies lasting 1-3 days before resuming the downtrend. We have no position to recommend.

Euro: Note to clients: The euro has recently been inversely correlated to the movement of the major US stock indices.

The September euro advanced 2.45 cents on huge volume of 578,709 contracts. Volume was the strongest since June 10 when 582,800 contracts were traded and the September contract closed at 1.1330. On August 24, total open interest increased again, this time by 9,324 contracts, which relative to volume is approximately 35% below average, but the open interest increase on August 24 was the fourth one in a row on a price advance.

From August 19 through August 24, the September euro has advanced 5.80 cents while total open interest has increased by 24,294 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 problems and will serve to support prices.

Yesterday, the September contract made a high of 1.1718, which is the highest print since 1.777 made on January 15, 2015. The market got massively overstretched in yesterday’s trading and as this report is being compiled on August 25, the September contract is pulling back sharply, down 1.84 cents, or -1.59%.

On August 13, the September and December euro generated short term buy signals and intermediate-term buy signals on August 21. Typically, after the generation of buy signals, markets tend to pull back from 1-3 days, before resuming the uptrend. At this juncture, we have no recommendation.

Yen: On August 24, the September and December yen generated short and intermediate term buy signals.

The September yen advanced 254 pips on heavy volume of 438,824 contracts.Volume was the strongest since June 10 when 429,723 contracts were traded and the September contract closed at .8160. On August 24, total open interest declined by 3,603 contracts, which relative to volume is approximately 60% below average.

Though the total open interest decline is negative, it was surprisingly light, especially considering the massive move yesterday. This tells us there are large numbers of speculative short-sellers who have yet to cover positions. Now that the yen is on short and intermediate term buy signals, the market should experience a pullback from 1-3 days, before resuming the uptrend and we are seeing the first day of the pullback on August 25. We have no recommendation at this juncture.

Silver: September and December silver will generate short-term sell signals on August 25. They remain on intermediate term sell signals.

December silver lost 53.9 cents on total volume of 141,942 contracts. Volume traded on August 24 was the highest of 2015. On August 24, total open interest declined by 1,537 contracts, which relative to volume is approximately 50% below average. The September contract lost 12,282 of open interest and there were sufficient open interest increases in the forward months to reduce total open interest to a negligible number. Though the total open interest decline was minor, we consider the action to be bearish due to offsetting open interest increases in the forward months. As this report has been compiled on August 25, December silver is trading 11.7 cents below yesterday’s close. We have no recommendation.

Gold:

December gold lost $6.00 on heavy volume of 284,498 contracts.Volume was the strongest since July 29 when 290,789 contracts were traded and the December contract closed at $1093.30. On August 24, total open interest increased by 855 contracts, which relative to volume is approximately 85% below average, but an open interest increase on yesterday’s decline is bearish.

Yesterday’s negative open interest action follows the previous day when the December contract gained $6.40 on volume of 206,476 contracts and total open interest declined by 4,556. As this report is being compiled on August 25, the December contract is trading 14.40 lower and has made a daily low of 1134.00, which is the lowest print since 1132.10 made on August 20. We have been unenthusiastic regarding the performance of gold and the precious metals as a group, and stated this in our previous reports.

From the August 23 Weekend Wrap on gold and silver:

“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 S&P 500 E mini lost 100.25 points on huge volume of 5,309,704 contracts. Volume traded on August 24 was the highest of 2015. On August 24, total open interest increased by a massive 144,789 contracts, which relative to volume is average, but is a very large number nonetheless. Rarely, does total open interest increase or decrease by an average amount.

As this report is being compiled on August 25, the September E mini is trading 43.75 points above yesterday’s close and has made a daily high of 1948.50, which is below yesterday’s high print of 1964.75. Though the market is experiencing a bounce on August 25, we are surprised by the lack of follow-through and the market’s inability to take out yesterday’s high. Additionally, the September contract has been unable to take out 1950.75, the high made between 10:00 am – 2:00 pm on August 24. Obviously, the market is massively oversold, but this does not preclude the September contract testing yesterday’s low of 1831.00.

Yesterday, we recommended the long option straddle or strangle originally recommended on July 27 be liquidated, and clients should now be on the sidelines. This was a very profitable trade, and was recommended at the top-end the trading range of the past couple of months. On July 27, the September and December contracts generated short-term sell signals and intermediate term sell signals on August 20