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Soybeans:

August soybeans lost 10.75 cents on heavy volume of 236,719 contracts. Volume was the strongest since July 10 when the August contract gained 5.75 cents on volume of 268,598 contracts and total open interest increased by 2,420.It should be noted that volume increased dramatically from July 21 when the August contract gained 11.00 cents on volume of 140,026 contracts and total open interest increased by 6,574. In summary, volume increased substantially on yesterday’s decline and volume tends to expand in the direction of the underlying trend.

On July 23, total open interest declined by a massive 11,044 contracts, which relative to volume is approximately 75% above average meaning liquidation was extremely heavy on yesterday’s decline. The August contract lost 9,955 open interest, and new crop November -6,241, May 2016-232.

As this report is being compiled on July 24, the August contract is trading sharply lower, down 14.50 cents and has made a new low for the move of 9.88 3/4, which is the lowest print since 9.87 1/4 made on July 8. We have been telling clients for the past couple of weeks that soybeans have likely topped and would move lower. The fact that managed money became net long during the rally will only add selling pressure on the way down. The August contract is getting close to generating a short-term sell signal and will do so if the daily high is below OIA’s key pivot point for July 24 of 9.88 1/8.

Soybean oil:

August soybean oil lost 16 points on volume of 91,300 contracts. Total open interest declined by just 133 contracts. The August contract lost 1,051 of open interest, new crop December -1,039, which means there were sufficient open interest increases in the forward months to reduce total open interest to a negligible number. We consider this to be bearish open interest action. As this report is being compiled on July 24, the August contract is trading down 50 points and has made a new low for the move of 30.48, which is the lowest print since 30.35 made on March 31, 2015.

On June 18, August soybean oil generated a short-term sell signal and an intermediate term sell signal on July 8. On June 23, OIA recommended the initiation of bearish positions, and this trade is solidly profitable. Maintain bearish positions, but we recommend lowering stops to protect profits.

From the June 23 report:

“On June 18, August soybean oil generated a short-term sell signal, and as is typical after a sell signal, a counter trend rally ensues, which lasts from 1-3 days. Today, is the third day of the counter trend rally and this should be the extent of it. We recommended the initiation of bearish positions on rallies and would take advantage of today’s move to initiate a light bearish position. This should be exited upon the penetration of the June 11 high of 34.07.”

Soybean meal:

August soybean meal lost $5.10 on heavy volume of 137,053 contracts. Volume was the strongest since June 30 (the day of the USDA report) when the August contract advanced $17.90 on volume of 192,303 contracts and total open interest increased by 594.

On July 23, total open interest declined by a hefty 5,398 contracts, which relative to volume is approximately 30% above average meaning liquidation was heavy on the decline. The August contract lost 2,750 of open interest, October 2015 -724, December 2015 -2,672 January 2016 -120.

In short, there was liquidation across-the-board and as this report is being compiled on July 24, the August contract is trading lower again, down 4.30 and has made a daily low of 351.90, which is the lowest print since 351.70 made on July 13. The August contract remains on a short and intermediate term buy signal, but we think a short-term sell signal is inevitable.

Corn:

September corn gained 0.50 cents on light volume of 253,608 contracts. Volume was the weakest since June 4 when 250,969 contracts were traded and the September contract closed at 3.70 1/4. For the past three trading sessions beginning on July 21, total volume each day has been below 300,000 contracts. During this time September corn declined 1.75 cents.

On July 23, total open interest declined by 7,194 contracts, which relative to volume is average, but this is the largest total open interest decline since September corn topped at 4.43 1/4 on July 14. The September contract lost 6,999 of open interest, new crop December -5,657.

As this report is being compiled on July 24, the September contract is trading sharply lower, down 9.00 cents or -2.22%. The extracts from previous reports (see below) highlight our concern about low volume and the substantial net long position held by managed money. We think this is a potent force on the downside and though managed money is not panicking yet, we think it is only a matter of time before liquidation increases substantially.

The September contract will generate a short-term sell signal if the daily high is below OIA’s key pivot point for July 24 of 3.96 5/8. The rally would resume if the September contract makes a daily low of OIA’s key pivot point for July 24 of 4.07 5/8. The corn market is oversold and overdue for a short-term rally.

From the July 20 report:

“As mentioned in the July 17 report, we are concerned about the low volume and the substantial long position held by managed money is relatively intact. The action yesterday confirms this and liquidation has been rather minor since the September contract topped on July 14 at 4.43 1/4. In summary, there is plenty of fuel to fund a continued downside move. As this report is being compiled on July 21, the September contract is getting a bounce with the dollar index trading sharply lower.We see lower prices ahead.”

From the July 17 report:

“We are concerned that volume was extremely low relative to the price decline and that total open interest decreased by a minor amount. This tells us that the substantial long position held by managed money is not yet panicking. This concerns us, because we think that corn prices have likely topped for the time being and that lower prices are in store.”

Chicago wheat:

September Chicago wheat advanced 4.75 cents on light volume of 87,719 contracts. Volume was the weakest since May 11 when 83,793 contracts were traded and the September contract closed at 4.88. On July 23, total open interest increased by 1,029 contracts, which relative to volume is approximately 45% below average. The September contract lost 2,208 of open interest.

As this report is being compiled on July 24, the September contract is trading sharply lower, down 7.75 cents or -1.49% and has made a daily low of 5.09 1/2, which is the lowest print since 5.06 1/2 made on June 23. On July 21, September Chicago wheat generated a short-term sell signal, but remains on intermediate term buy signal. The generation of an intermediate term sell signal is inevitable and will occur when the daily high is below OIA’s key pivot point for July 24 of 5.18 3/4.

Unfortunately, the wheat market has been extremely weak and has been unable to generate a counter trend rally, which would allow clients to initiate bearish positions. This happens occasionally and we advise against chasing the market. Stand aside.

From the July 21 report:

“As we said in yesterday’s report, now that Chicago wheat is on a short-term sell signal, the market should have a counter trend rally lasting 1-3 days and this is the opportunity to initiate bearish positions. Do not chase this market lower. Wait for the rally.”

S&P 500 E mini:

The September S&P 500 E mini lost 9.50 points on volume of 1,439,021 contracts. Total open interest increased by 13,840 contracts, which relative to volume is approximately 50% below average, but an open interest increase on yesterday’s price decline is bearish. Ever since the September E mini generated an intermediate term buy signal on July 15 and a short-term buy signal on July 16, total open interest has been acting in a very bearish fashion: It declines on price advances and increases on price declines. 

As this report is being compiled on July 24, the September E mini is trading 20.25 points lower and trading on the lows the day. When the September contract generated the buy signals two weeks ago, we told clients we were suspicious of the rally and advised initiating long option straddles or strangles in the December E mini. Thus far, the trade is working well, and it now appears the September contract may generate a short and intermediate term sell signal any day now. For a short-term sell signal to be generated, the high of the day must be below OIA’s key pivot point for July 24 of 2082.45.

From the July 16 report:

“Although, the market can continue to advance, we remain suspicious of the rally and recommend the initiation of long option straddles or strangles in the December S&P 500 E mini contract. For subscribers of OIA Direct, please call with any question.”