For Bloomberg access:{OIAR<GO>}

Soybeans:

September soybeans lost 6.75 cents on volume of 158,687 contracts. Remarkably, volume increased from August 5 when the September contract gained 14.00 cents on volume of 149,582 contracts and total open interest increased by 2,894. On August 6, total open interest increased by 4,722 contracts, which relative to volume is approximately 5% above average meaning that new short-sellers were in control and entered the market at a slightly above average rate and were driving prices lower. The August contract lost 243 of open interest and there were open interest increases in the September 2015 through July 2016 contracts.

It should be noted that volume increased (158,687) on the price decline of 6.75 cents, yet volume was lower on August 5 when the September contract advanced by approximately twice that amount (+14.00 cents) on volume of 149,582. It is important to keep in mind that volume expands in the direction of the underlying trend. As this report is being compiled on August 7, the September contract is trading 15.00 cents above yesterday’s close, and has made a daily high at 9.72 3/4, which is the highest print since 9.70 1/2 made on July 30.

The September contract made its low for the move of 9.37 1/2 on July 28, and there was an attempt to test it on August 3 of 9.39 1/2, and since August 4, the market has been trading higher. For now, it looks like soybeans want to move higher in advance of the August 12 WASDE report, but we question the strength of the move based upon the large overhang of managed money longs. The COT report will be released this afternoon and as usual we will provide a rundown in the weekend report. This will give us a much better idea of the setup going into next week’s USDA report. September soybeans remain on a short and intermediate term sell signal.

In order for the short-term sell signal to be reversed, and a new short-term buy signal generated, the low of the day must be above OIA’s key pivot point for August 7 of 9.89 5/8. Unless there is a major surprise in the August 12 report, we consider this to be highly unlikely.

Soybean meal:

September soybean meal lost $4.60 on volume of 74,043 contracts. Volume fell substantially from August 5 when the September contract gained $6.30 on volume of 95,632 contracts and total open interest increased by 3,366. Please note that volume on August 6 declined from August 5 when prices declined on August 6. On August 5 volume was higher than August 6 when prices increased. This is the exact opposite of what occurred in soybeans in that two day time frame.

On August 6, total open interest declined by 2,817 contracts, which relative to volume is approximately 25% above average meaning liquidation was greater than average, but is healthy on a price decline, especially for a market that is on a short and intermediate term buy signal.As this report is being compiled on August 7, the September contract is trading $3.30 higher, or +0.97% versus soybeans trading + 1.64%.

Despite the advance on August 7, the September contract has made a daily low with 338.60, which is below OIA’s key pivot point for August 7 of 341.20 for the resumption of the uptrend. Unless the September contract makes a daily low above the pivot point, September soybean meal will trade sideways to lower. 

Corn:

September corn lost 3.00 cents on volume of 307,656 contracts. Volume was below that of August 5 when the September contract gained 4.00 cents on volume of 349,954 contracts and total open interest increased by 9,813. On August 6, total open interest increased again, this time by 4,282 contracts, which relative to volume is approximately 45% below average, but an open interest increase on yesterday’s price decline confirms that shorts were in control. The September contract lost 12,232 of open interest, which makes the total open interest increase more impressive (bearish).

As this report is being compiled on August 7, the September contract is trading 4.50 cents higher and has made a daily high of 3.75, which matches yesterday’s high and is the highest print since 3.77 1/2 made on July 31.From July 29 through August 6 (seven days), total open interest has increased on price advances and declines with the exception of one day (August 4) when September corn gained 2.25 cents and total open interest declined by 1.687. From July 29 through August 6 September corn lost 5.25 cents while total open interest increased by 31,340 contracts.

We hate to sound like a broken record, but short sellers remain in control of the corn market, and we know that managed money is heavily long. OIA has no idea what the catalyst will be for a severe break, but we think one this coming and conceivably occur after next week’s USDA report. On a seasonal basis, corn tends to get a little bit of a rally in August, but by August 12, the bounce may have already taken place. Another one of our concerns: even though the soybean complex has been rallying of late along with wheat, there has been absolutely no spill over effect on corn.

Based upon total open interest action, liquidation is not occurring on rallies even though managed money as a group is showing losses, some undoubtedly quite large. In this week’s COT report, we will have a much better idea for the set up going into next week. September corn remains on a short-term sell signal, but an intermediate-term buy signal.

Chicago wheat:

September Chicago wheat gained 5.00 cents on very heavy volume of 184,709 contracts. Volume was the strongest since July 1 when 217,128 contracts were traded and the September contract closed at 5.88 1/2. On August 6, total open interest declined by 1,099 contracts, which relative to volume is approximately 70% below average, but yesterday’s total open interest decline indicates that holders of long and short positions were liquidating on the rally, but short-sellers were powering the market higher. The September contract lost 7,586 of open interest and there were sufficient open interest increases in the forward months to substantially reduce the loss of open interest in the September contract.

As this report is being compiled on August 7, September wheat is trading 5.75 cents higher, or +1.13% versus September corn trading +1.15%. September Chicago wheat remains on a short and intermediate term sell signal.

Dollar index:

The September dollar index lost 12.9 points on volume 27,352 contracts. Total open interest declined by 683 contracts, which relative to volume is average. As this report is being compiled on August 7 after the release of the employment report by the US Department of Labor, the September contract is trading 24.1 points lower after making a new high for the move of 98.425, which takes out the previous high for the move of 98.335 made on August 5.

Although, the employment report was positive, and this gave a temporary lift to the dollar index, it has been unable to sustain its gains. We think the dollar index will eventually move higher, but the euro needs to weaken, and this currency comprises approximately 58% of the movement of the dollar index. Conceivably, we could see the euro rally up to its 50 day moving average of 1.1099 before rolling over.  This means that additional losses should be expected in the dollar index.

S&P 500 E mini:

The S&P 500 E mini lost 14.25 points on heavier than normal volume of 1,611,600. Volume was the strongest since July 31 when the September contract lost 5.25 points on volume of 1,606,897 contracts and total open interest increased by 16,184. On August 6, total open interest declined by 16,955 contracts, which relative to volume is approximately 50% below average, but this is a continuation of the very bearish open interest action relative to price advances and declines. We consistently see open interest increases on price declines and open interest declines on price advances.

As this report is being compiled on August 7, the September contract is trading 14.50 points lower and has made a daily low of 2062.00, which is the lowest print since 2061.50 made on July 31. On July 27, the September S&P 500 E mini generated a short-term sell signal, and will generate an intermediate term sell signal if the daily high is below OIA’s key pivot point for August 7 of 2077.45. The high on August 7 has been 2082.75, therefore, an intermediate term sell signal could be generated as early as Monday. We have long advocated long option straddles or strangles in the December S&P 500 E mini contract and continue to think this position makes sense.