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Soybean meal: On August 31, October and December soybean meal generated an intermediate term sell signal after the September, October and December contracts generated a short-term sell signal on August 13.

October soybean meal lost $1.80 on volume of 83,218 contracts. Total open interest declined by 1,791 contracts, which relative to volume is approximately 20% below average. The September contract lost 1,852 of open interest. As this report is being compiled on September 1, the October contract is trading $3.80 below yesterday’s close and has made a new low for the move of 308.40, which is the lowest print since $307.50 made on June 22. We have no recommendation.

Dollar index:

The September dollar index lost 28.1 points on volume 39,578 contracts. Total open interest increased by a sizable 1,449 contracts, which relative to volume is approximately 25% above average.The September contract gained 1,168 of open interest, which is a distinct change from the previous few days when open interest in the September contract declined while the September dollar index advanced.

For example, on August 28 the September contract lost 418 of open interest while September futures advanced 48.3 points; on August 27, when the September contract added 52.1 points the September contract lost 781 of open interest. On August 25 and 26, the September contract lost 3,555 and 2,413 of open interest respectively while the September contract gained 1.188 and 58.7 points respectively.

This is consistent bearish behavior and as this report is being compiled on September 1, the September contract is trading 30.9 points lower and has made a daily low of 95.210, which is the lowest print since 95.015 made on August 27. On August 13, OIA announced that the September and December dollar indices generated short term sell signals and intermediate term sell signals on August 21. For the September dollar index to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for September 1 of 96.742.We have no recommendation.

Euro:

The September euro advanced 54 pips on low volume of 182,504 contracts. Total open interest declined by 1,465 contracts, which relative to volume is approximately 60% below average, but a total open interest decline on yesterday’s price advance is negative. As this report is being compiled on September 1, the September euro is trading 38 pips above yesterday’s close and has made a daily high of 1.1335, which takes out the August 28 high of 1.1312, and is the highest print since 1.1367 made on August 27.

The weakness of equities is providing a bid to the euro on September 1, but it has most definitely weakened during the past couple of days. On August 13, OIA announced that the September and December euro generated short-term buy signals and intermediate term buy signals on August 21.

For a short-term sell signal to be generated, the high of the day must be below OIA’s key pivot point for September 1 of 1.1098. The September euro has been unable to make a daily low at the pivot point, let alone make a daily high below it. It has remained remarkably firm.

For the euro to resume its advance in earnest, it must make a daily low above OIA’s pivot point for September 1 of 1.1240, and the low in today’s trading has been 1.1210.We have no recommendation.

British Pound:

The September British pound lost 42 pips on light volume of 65,013 contracts. Total open interest declined by 1,525 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on September 1, the September contract is trading 29 pips lower and has made a daily low of 1.5298,which takes out the July 8 print of 1.5323 and is the lowest price for the September contract since June 9 (1.5247).

On August 27, OIA announced that the September and December British pound generated short and intermediate term sell signals, and the market has been extremely weak without being able to generate a rally. We continue to recommend against initiating bearish positions at current levels and strongly advise waiting for the rally, which we think could occur after the release of the US employment report at the end of this week.

If the report shows a strong employment number, the likelihood of a US rate hike would increase substantially, and we think this mindset would carry over to the pound. It is no secret that Britain’s central bank has wanted to raise interest rates and an imminent hike in US rates should give the British cover about the possibility of a rate increase. Stand aside- wait for the rally.

Yen:

The September yen advanced 17 pips on light volume of 118,508 contract. Total open interest increased by 1,381 contracts, which relative to volume is approximately 45% below average. As this report is being compiled on September 1, the September contract is trading 98 pips higher on the day, which is 1.25% above yesterday’s close.

For the past three sessions beginning on August 27, the September contract has lost 116 pips and total open interest increased by 5,470 contracts, which indicates that short sellers have been in control, but are likely being chased out in today’s strong advance. On August 24, OIA announced that the September and December yen generated short and intermediate term buy signals, and the market hasn’t come close to reversing them.

For a short term sell signal to occur, the high of the day must be below OIA’s key pivot point for September 1 of .8128, and the yen has not been able to make a daily low at the pivot point, let alone make a daily high below it. We have no recommendation.

WTI crude oil: The October WTI contract will generate a short term buy signal if the daily low on September 1 is above OIA’s key pivot point for September 1 of $45.02. 

October WTI crude oil advanced $3.98 on huge volume of 1,385,866 contracts.Volume exceeded the previous record for 2015 of 1,367,476 contracts traded on April 15 when the September contract closed at 60.09. Volume traded on August 31 is the highest of 2015.

On August 31, total open interest increased by a sizable 36,644 contracts, which relative to volume is average, but is a large number nonetheless. The total open interest increase on August 31 was the third in a row on the recent price advance, which began on August 27.There were open interest increases in the October 2015 through March 2016 contracts, indicating there was aggressive buying across the board in the near months.

Interestingly, the talk in the financial press was that the advance was due to short covering, when this was clearly not the case. Remarkably, the advance was powered by new buying, not short-sellers covering positions and the open interest stats confirm this.

As this report is being compiled on September 1, the October contract is trading $3.57 lower on heavy volume and has made a daily low of 45.22, which is 20 cents above OIA’s key pivot point for September 1. It is likely that market participants who has been buying during the past couple of days are liquidating in today’s trade.If this is the case, total open interest should decline and we will report on this tomorrow. We have no recommendation at this juncture.

Brent crude oil: October Brent crude oil will not generate a short-term buy signal on September 1 because the daily low of 49.72 is below OIA’s key pivot point for September 1 of $50.24. Additionally, it is below the pivot point of August 28 of 49.93.

October Brent crude oil advanced $4.10 on volume of 842,463 contracts. Volume declined from August 28 when the October contract gained $2.49 on volume of 988,433 contracts and total open interest declined by 7,733.  On August 31, total open interest increased by 11,287 contracts, which relative to volume is approximately 40% below average. The October contract lost 10,722 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in October and increase total open interest.

The open interest action in Brent has been a shadow compared to WTI: From August 27 through August 31, the October contract has advanced $11.01 while total open interest has advanced only 3,722 contracts in this time frame. This contrasts with WTI which experienced a three-day open interest increase of 63,511 contracts in the identical period. Also, volume dropped off dramatically in Brent on August 31 despite the October contract gaining 4.10 versus 2.49 on August 28 when 988,433 contracts were traded. We have no recommendation.

Heating oil: October heating oil will generate a short-term buy signal if the low of the day is above OIA’s key pivot point for September 1 of 1.5801.

October heating oil advanced 11.01 cents on volume of 182,244 contracts. Total open interest declined by 909 contracts, which relative to volume is approximately 75% below average, but an open interest decline on a very large price advance of the magnitude seen on August 31 is negative. The September contract lost 3,389 of open interest.

According to the most recent COT report, managed money is short heating oil by nearly a 2:1 ratio, therefore the fact that heating oil was powered higher by short covering is no surprise. As this report is being compiled on September 1, the October contract is trading 9.40 cents lower on the day.We have no recommendation.

Gasoline: October gasoline will not generate a short term buy signal on September 1 because the low of the day (1.3892) is dramatically below OIA’s key pivot point for September 1 of 1.4852. 

October gasoline advanced 10.20 cents on volume of 140,523 contracts. Total open interest declined by 3,032 contracts, which relative to volume is approximately 15% below average.The September contract lost 3,329 of open interest.The open interest action on yesterday’s strong advance was negative, and as this report is being compiled on September 1, the October contract is trading 7.98 cents lower on the day. We have no recommendation.

S&P 500 E mini:

The S&P 500 E mini lost 20.50 points on volume of 1,897,833 contracts. Total open interest increased by 38,468 contracts, which relative to volume is approximately 20% below average, but an open interest increase on yesterday’s price decline is bearish. This follows the pattern of open interest declines when the September contract advances and open interest increases when the September contract declines.

As this report is being compiled on September 1, the September E mini is trading 51.00 points lower and has made a daily low of 1914.00, which takes out below of 1934.50 made on August 27 and is the lowest since August 26 (1850.00). As we said in yesterday’s report, we thought the market should rally, but were not convinced that it could not roll over again in the near term. Well, we got our answer on September 1: the path of least resistance continues to be lower.

A test of the August 24 low of 1831.00 appears to be inevitable, but clients should keep in mind that the previous major low occurred during the week of October 13, 2014 when the December 2014 S&P 500 E mini made a low of 1813.00. A break below this could cause another sharp move to the downside with the next target 1803.25 made the week of April 14, 2014. A break below this targets the low of 1732.00 made the week of February 3, 2014 by the March 2014 contract.

On July 27, OIA announced that the September S&P 500 E mini generated a short-term sell signal and an intermediate term sell signal on August 20. We have no recommendation.

From the August 28 report on the S&P 500 E mini:

“We are entering the pre-Labor Day week, and it won’t take much to move the market one way or the other. At this juncture, we think the market should rally, but are not convinced that it cannot roll over again in the near-term.”