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Soybeans:

September soybeans advanced 7.50 cents on volume of 187,715 contracts. Volume fell slightly from July 29 when the September contract gained 3.00 cents on volume of 188,119 contracts and total open interest increased by 3,465. On July 30, total open interest increased again, this time by 4,719 contracts, which relative to volume is average. The August contract lost 7,356 of open interest, January 2016 -686, which means there were sufficient open interest increases in the forward months to offset the decline in these two months and increase total open interest.

On July 28, August and September soybeans generated a short-term sell signal, and as is usually the case after the generation of a sell signal, the market tends to have a counter trend rally, which lasts from 1-3 days, and depending on how it is counted, July 30 was either the second or third day of the counter trend rally. The reason is the sell signal was generated on July 28 and soybeans rallied on the 28th as well.

As this report is being compiled on July 31, the September contract is trading 9.50 lower after making a daily high of 9.66 1/2, which is below yesterday’s high of 9.70 1/2. Although two consecutive days of open interest increases on price advances is positive, it also indicates that liquidation was minor and we know that managed money holds a substantial net long position. Unless there is a major weather event, we think that soybeans will trade in a sideways to lower pattern. We continued to advise clients to stand aside in this market due to the possibility of a short-term weather scare, which could cause a short covering rally.

Soybean meal:

September soybean meal gained $4.60 on total volume of 110,689 contracts. Total open interest declined by a hefty 4,090 contracts, which relative to volume is approximately 20% above average meaning liquidation was heavier than normal on yesterday’s advance. The August contract lost 4,862 of open interest, new crop December -1691.

Yesterday, was the second day in a row in which soybean meal prices advanced and total open interest declined. This was the exact opposite of the action in soybeans when open interest increased during the past two days. Also, the total open interest declines in meal on both days was substantial whereas the open interest increases in soybeans were unimpressive.

Substantial total open interest declines on price advances two days in a row in meal signify that market participants leaving the market in large numbers, regardless of whether they are long or short. This is troublesome because soybean meal has been the leader of the  soybean complex for quite some time.

As this report is being compiled on July 31, the September contract is trading $4.20 lower and has made a daily low of 337.80, which takes out yesterday’s print of 338.00. For September meal to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for July 31 of $332.30. We think a sell signal is inevitable.

Corn:

September corn advanced 5.50 cents on heavier than normal volume of 354,009 contracts. Volume exceeded that of July 29 when the September contract lost 7.25 cents on volume of 293,857 contracts and total open interest increased by 2,015. Additionally, volume exceeded that of July 28 when the September contract gained 2.00 cents on volume of 315,375 contracts and total open interest declined by 16,006 contracts.

On July 30, total open interest increased by 7,988 contracts, which relative to volume is approximately 10% above average, but an open interest increase on yesterday’s price advances is positive. The September contract lost 13,891 of open interest and there were open interest increases in the December 2015 through December 2016 contracts. Although, the total open interest increase in yesterday’s trading was positive, there is also a negative side to it, just like soybeans. It indicates that speculators who are showing losses on positions were not taking advantage of yesterday’s rally to liquidate positions.

The COT report will be released this afternoon and we will have a much better idea of the current position of managed money and though we expect to see a reduction in net long position, it is likely the net long position of managed money will be relatively high.

As this report is being compiled on July 31, September corn is trading 3.00 cents lower and has made a daily high of 3.77 1/2, which takes out yesterday’s print of 3.74 1/2, and is the highest price for the September contract since July 29 (3.77 3/4). We continue to think prices are headed lower and that the contract low of $3.52 will be penetrated.

Dollar index:

The September dollar index advanced 61.7 points on volume of 35,603 contracts. Total open interest increased by massive 3.048 contracts, which relative to volume is approximately 220% above average meaning that huge numbers of new buyers were entering the market and driving prices higher (97.890). As this report is being compiled on July 31, the September contract is trading 52.4 points lower on heavy volume of 55,166 contracts. Although the market is pulling back today, we expect the rally to resume, and this will continue to depress grain prices and commodities in general.

S&P 500 E mini:

The September S&P 500 E mini gained 2.25 points on volume of 1,290,774 contracts. Total open interest declined just 1,866 contracts. Since the rally began on July 28, the September contract has advanced each day and total open interest has declined each day. For example, on July 28 the September contract gained 22.75 points and total open interest declined by 26,746. On July 29 the September contract advanced 14.25 points and total open interest declined by 13,598. In summary, the E mini is displaying very bearish price and open interest stats.

On July 27, the September E mini generated a short term sell signal, and as is typical after the generation of a sell signal, the market tends to have a counter trend rally, which last from 1-3 days and yesterday was the third day of the rally. As this report is being compiled on July 31, the September E mini is trading 2.00 points lower and has made a daily low of 2097.75, which is below OIA’s key pivot point for July 31 of 2098.75. In order for the short-term sell signal to reverse, the low of the day must be above 2098.75.

In our view, the market looks tired, and thus far in trading has only been able to make a daily high of 2109.25, which is above yesterday’s print of 2104.25, but considerably below the recent high of 2126.00. It does not appear the market has the strength to test the all-time high.We continue to recommend the initiation of long option straddles or strangles in the December S&P 500 E mini contract. For subscribers to OIA Direct, please call with any question.