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On July 27, we are seeing heavy price declines in the grains, and the large long positions held by managed money will continue to pressure the market until this class of speculator is blown out of the market. In essence what we have seen for the past couple of weeks is a classic whipsaw whereby managed money was massively short at the bottom and massively long at the top and the market is punishing them for being wrong on both occasions. There is a large contingent of professional speculators with positions showing substantial losses, and as a result, rallies will be minor as they attempt to trim their losses.

Soybeans:

August soybeans lost 18.75 cents on surprisingly light volume of 196,429 contracts. Volume was substantially below that of July 23 when the August contract lost 10.75  cents on volume of 236,719 contracts and total open interest declined by 11,044. Additionally, volume was only slightly above that of July 22 when the August contract gained 2.00 cents on volume of 191,160 contracts and total open interest declined by 857.

On July 24, total open interest declined by a massive 18,293 contracts, which relative to volume is approximately 250% above average meaning that liquidation was extremely heavy on Friday’s decline. The August contract lost 18,287 of open interest, new crop November -3,650.

As this report is being compiled on July 27, the August contract is trading sharply lower, down 24.75 cents and has made daily low of 9.65 1/2, which is the lowest print since 9.65 made on June 25. For the past couple of weeks, we have been telling clients that soybeans have likely topped and that the path of least resistance was lower. Additionally, we have reiterated the large increase of long positions held by managed money would add selling pressure as prices moved lower, and this has come to pass.

Thus far on July 27, the high in the August contract has been 9.88 1/4, which is above OIA’s key pivot point for July 27 of 9.87 1/2 for the generation of a short term sell signal. The sell signal will likely be generated in tomorrow’s trading.

From the July 19 Weekend Wrap:

“We think that August soybean prices topped at 10.54 3/4 on July 1, and with managed money holding a net long position of over 73,000 contracts, selling pressure will again reassert itself as managed money liquidates this long positions as prices move lower and new short-sellers enter the market further depressing prices while the dollar index continues its ascent.”

Soybean oil:

August soybean oil lost 71 points on volume of 111,568 contracts.Total open interest declined by 3,251 contracts, which relative to volume is approximately 5% above average. The August contract lost 7,113 of open interest. As this report is being compiled on July 27, the August contract is trading 46 points lower and has made a daily low of 29.89, which is the lowest print since 29.89 made on January 29, 2015.

On June 23, OIA recommended the initiation of bearish positions and these should continue to be held, but lower stops to protect profits. On June 18, August soybean oil  generated a short-term sell signal and an intermediate term sell signal on July 8. 

Soybean meal:

August soybean meal lost $4.20 on volume of 112,969 contracts. Total open interest declined by 5,966, which relative to volume is approximately 110% above average meaning that liquidation was extremely heavy on the decline. The August contract lost 9,758 of open interest, October 2015 -1,584.

As this report is being compiled on July 27,  the August contract is trading sharply lower, down 9.60 and has made a daily low of 344.70, which is the lowest print since 343.30 made on July 9. The August contract will generate a short-term sell signal if the daily high is below OIA’s key pivot point for July 27 of 338.00.

Corn: On July 27, September corn will generate a short term sell signal.

September corn lost 10.75 cents on surprisingly light volume of 274,709 contracts. Volume was below that of July 22 when the September contract lost 3.75 cents on volume of 276,918 contracts and total open interest increased by 1,770. On July 24, total open interest declined by a strong 9,946 contracts, which relative to volume is approximately 20% above average. The September contract lost 13,612 open interest, new crop December -116.

As this report is being compiled on July 27, the September contract is trading sharp lower, down 18.50 cents or -4.71% and is leading the grain complex lower. We have been warning clients about the large open interest increases over the past week as prices declined. This indicated that shorts were in control of the market and that managed money had substantially increased their long positions.  Now this is adding selling pressure to the market as we said it would.

From the July 19 Weekend Wrap:

“Although the net long position held by managed money is reasonable based upon its past history relative to price levels, the fact is the bulky net long position will exert selling pressure if prices are unable to rally substantially.This will be exacerbated if prices accelerate on the downside and there is a dearth of short covering to lift prices as they decline.”

Chicago wheat: On July 27, September Chicago wheat will generate an intermediate term sell signal after generating a short-term sell signal on July 21.

September Chicago wheat lost 9.75 cents on light volume of 87,061 contracts. Volume was slightly below that of July 23 when the September contract gained 4.75 cents on volume of 87,719 contracts and total open interest increased by 1,029. On July 24, total open interest declined by 4,080 contracts, which relative to volume is approximately 75% above average meaning liquidation was extremely heavy on the decline. The September contract lost 5,363 of open interest. As this report is being compiled on July 27, the September contract is trading 8.00 cents lower and has made a daily low 5.02 1/2, which takes out the June 23 low of 5.06 1/2.

Cotton: It is likely that December cotton will generate short and intermediate term sell signals on July 27.

S&P 500 E mini: If today’s high of 2080.75 holds, a short term sell signal in the September E mini will be generated.

The September S&P 500 E mini lost 21.00 points on volume of 1,672,343 contracts. Total open interest increased by 34,418 contracts, which relative to volume is approximately 20% below average, but an open interest increase on Friday’s decline is bearish.

On July 23 the September contract lost 9.50 points on volume of 1,439,021 contracts and total open interest increased by 13,840. On July 22, the September contract lost 6.50 points on volume of 1,226,642 and total open interest increased by 7,786. In summary, we are seeing a pattern of open interest increases on price declines and when the market staged rallies, total open interest declined.

From the July 16 report after buy signals were generated:

“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.”