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Soybeans:

September soybeans advanced 14.00 cents on light volume of 149,582 contracts. Volume increased from August 4 when the September contract gained 3.75 cents on volume of 142,539 contracts and total open interest increased by 769. Additionally, volume was the highest since July 31 when the September contract lost 11.25  cents on volume of 150,577 contracts and total open interest declined by 609.

On August 5, total open interest increased by 2,894 contracts, which relative to volume is approximately 20% below average, however, an open interest increase on yesterday’s price advance is positive. The August contract lost 433 of open interest, September -627 and the January 2016 contract lost 87.

For the past two days, total open interest has increased along with prices, and this is positive, however the September soybean contract remains on a short and intermediate term sell signal. As this report is being compiled on August 6, the September contract is trading 5.75 cents lower and has made a daily high of 9.65 1/2, which is above yesterday’s print of 9.64 1/4. As we said in the August 4 report, we expect soybeans to trade in a sideways pattern until the USDA report,

From the August 4 report:

“On August 3, September soybeans generated an intermediate-term sell signal, and is usually the case after the generation of the sell signal, the market has a tendency to rally from 1-3 days, and this is the second day of the rally.”

“Although, we may see an extension of the current rally, as we pointed out in prior reports, there remains an overhang of speculative longs who will likely be looking to liquidate as prices move higher. Unless, there is a major weather event, we expect soybeans to trade in a sideways pattern until next week’s USDA report.”

Soybean meal:

September soybean meal advanced $6.30 on volume of 95,632 contracts. Volume was the strongest since July 30 when soybean meal gained $4.60 on volume of 110,689 contracts and total open interest declined by 4,090. On August 5, total open interest increased by a sizable 3,366 contracts, which relative to volume is approximately 20% above average. The August contract lost 1024 of open interest, new crop December -403, January 2016 -40.

The total open interest increase in yesterday’s trading was the first since July 22 when soybean meal advanced $3.60 on volume of 110,590 contracts and total open interest increased by 945. On August 6, as this report is being compiled, the September contract has reversed course and is trading $4.70 lower and has made a daily high a 344.30, which is below yesterday’s print of 345.90.

It now appears that yesterday’s rally was a one-day affair, with no follow-through on yesterday’s strong gain. As we pointed out in the August 4 report, in order for September soybean meal to resume its rally, it had to make a low above OIA’s key pivot point of 340.80, and thus far in trading on August 6 the daily low is below the pivot point (338.20). It may take the USDA report to shake loose more speculative longs and increase new short selling to generate a sell signal. September soybean meal remains on a short and intermediate term buy signal.

From the August 4 report:

“For September soybean meal to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for August 5 of $332.80. The rally will resume if the September contract makes a daily low above OIA’s key pivot point for August 4 of 340.80.”

Corn:

September corn advanced 4.00 cents on heavier volume of 349,954 contracts. Volume was the strongest since July 30 when the September contract gained 5.50 on volume of 354,009 contracts and total open interest increased by 7,988 contracts. On August 5, total open interest increased by 9,013 contracts, which relative to volume is average. The September contract lost 3,735 open interest, March 2016 -264.

The problem with yesterday’s rally is it reaffirms that speculators are not being smart and liquidating on advances. As we have said numerous times, the overhang of the huge speculative long position will continue to weigh on the market until the large majority have been blown out of them. This means it is going to take substantially lower prices to shake this crowd loose.

As this report is being compiled on August 6, the September contract is trading 0.50 cents lower and has made a daily high of 3.75, which takes out yesterday’s print of 3.73  3/4, and is the highest price since 3.77 1/2 made on July 31. Although, Chicago wheat is trading 9.50 cents higher, this is not boosting corn prices, and we saw this in yesterday’s trading as well. September corn remains on a short-term sell signal, but an intermediate term buy signal.

For an intermediate term sell signal to be generated, the high of the day must be below OIA’s key pivot point for August 6 of 3.69 1/8. We think an intermediate term sell signal is inevitable, and it may take the USDA report to trigger it.

Chicago wheat: OIA will report on Chicago wheat occasionally due to the rally of the last two days. September Chicago wheat remains on a short and intermediate term sell signal.

September Chicago wheat advanced 8.50 cents on volume of 137,650 contracts. Volume was the strongest since July 31 when the September contract gained 2.75 cents on volume of 139,864 contracts and total open interest increased by 7,221. On August 5, total open interest increased by a substantial 5,260 contracts, which relative to volume is approximately 30% above average meaning that aggressive new buyers were entering the market and driving prices to a high of 5.04 1/2, which was below the print of August 4 (5.06 3/4).

As this report is being compiled on August 6, September Chicago wheat is trading 9.50 higher and has made a daily high a 5.14, which is the highest print since 5.23 3/4 made on July 24. Not only is September Chicago wheat on a short and intermediate term sell signal, it is approximately 36 cents away from generating a short-term buy signal.

Dollar index:

The September dollar index gained 11 ticks on volume of 48,035 contracts. Volume was the strongest since July 31 when the September contract lost 25.5 points on volume of 62,088 contracts and total open interest declined by 462. On August 5, total open interest increased by a strong 2,273 contracts, which relative to volume is approximately 35% above average, meaning that large numbers of new buyers and sellers engaged in a battle for dominance and the market closed essentially unchanged.

As this report is being compiled on August 6, the September contract is trading 8 ticks lower. We expected the market to rally today in anticipation of a bullish employment report, which will be released by the US Department of Labor tomorrow morning. We strongly advise against entering new bullish positions prior to tomorrow’s report. If long from lower levels, make sure appropriate sell stops are in place. If profits are minor, we recommend liquidating today and wait until after the report is released.The September dollar index remains on a short and intermediate term buy signal.

S&P 500 E mini:

The S&P 500 E mini advanced 10.75 points on volume of 1,388,965 contracts. Total open interest declined by 17,038 contracts, which relative to volume is approximately 45% below average. The open interest decline on yesterday’s advance is bearish, and continues a well worn pattern of bearish open interest action relative to price advances and declines.

As this report is being compiled on August 6, the S&P 500 E mini is trading 16.50 points lower and has made a daily low of 2070.00, which is the lowest print since 2061.50 made on July 28. As readers of our reports know, we have unimpressed by recent rallies, and as testament to the market’s weakness, it has been unable to reverse the short term sell signal generated on July 27.

We think the market is very nervous about an interest rate increase, and as we said in yesterday’s report, the moving averages for the Dow Jones Industrial Average and the New York Composite Index are in bearish territory. We continue to recommend the initiation of long option straddles or strangles in the December S&P 500 E mini.