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Soybeans:

September soybeans lost 11.25 cents on light total volume of 150,577 contracts. Volume was the weakest since July 21 when soybeans advanced 11.00 cents on volume of 140,026 contracts and total open interest increased by 6,574. On July 31, total open interest declined by 609 contracts, which relative to volume is approximately 80% below average. The August contract lost 3,747 of open interest, September -51, March 2016 -276.

As this report is being compiled on August 3, the September contract is trading lower again, this time by 7.25 cents and has made a daily high 9.53 1/2, which is below OIA’s key pivot point of 9.62 3/8 for the generation of an intermediate term sell signal. On July 28, August and September soybeans generated a short-term sell signal.

We have pointed out in numerous reports the problem with soybeans and other members of the grain complex is the massive supply of speculative longs who have yet to liquidate. Friday’s action along with the recent COT report confirms this thesis. The market had an above average decline on Friday, yet total open interest declined substantially below average. We continue to see further declines fueled by distressed speculative sellers.

Soybean meal:

September soybean meal lost $4.00 on light volume of 70,660 contracts. Volume contracted substantially from July 30 when the September contract gained 4.60 on volume of 110,689 contracts and total open interest declined by 4,090. On July 31, total open interest declined by a massive 4,660 contracts, which relative to volume is approximately 160% above average meaning that massive liquidation occurred on Friday’s decline. Open interest liquidation was cause the board with the August contract losing 3,657, September -1,085, October -28, December 2015 -789.

As this report is being compiled on August 3, September soybean meal is trading $1.10 lower and has made a daily low of 334.80, which is the lowest print since 333.10 made on July 28. Market participants have been bailing out of soybean meal in droves. For example, from July 23 through July 31 total open interest declined each day (7 days) for a total of 31,418 contracts, while the September contrac lost only $14.50 in this time frame.

This is a huge decline of total open interest considering the rather modest decline in the September contract. This tells us that market participants: both long and shorts are taking every opportunity to liquidate.This is highly negative for the complex because soybean meal is the leader.

Remarkably, September soybean meal remains on a short and intermediate term buy signal, but we expect a short term sell signal to be generated shortly.

Corn:

September corn lost 2.25 cents on volume of 314,045 contracts. Volume was the weakest since July 29 when the September contract lost 7.25 cents on volume of 293,857 contracts. On July 31, total open interest increased by 3,314 contracts, which relative to volume is approximately 50% below average. The September contract lost 12,532 of open interest and there were open interest increases in the December 2015 through December 2016 contracts. 

The COT report was compiled on July 28 and from July 29 through July 31, total open interest increased by each day bringing the increase for the three-day period of 13,317 contracts while the September contract lost 4.00 cents. In summary, massive open interest increases are fueling price declines, and at the same time confirming that speculators are not liquidating.

In the August 2 Weekend Wrap we wrote about the massive speculative long position held by managed money and that probably most of this collective long position is underwater.The next phase of the decline will be the massive liquidation cycle of speculative longs. This promises to be ugly, and as pointed out in the weekend report, we think it will take corn prices down to the late September 2014 continuation contract low of 3.18 1/4 made by the December 2014 contract the week of September 29, 2014. 

As this report is being compiled on August 3, the September contract is trading 3.25 cents lower and has made a new low for the move of 3.65, which takes out the previous low for the move of 3.65 3/4 made on July 30. The contract low for the September contract is 3.52, and we expect this to be taken out shortly. At that point, the September contract would only be approximately 34 cents from the late September 2014 contract low.

Dollar index:

The September dollar index lost 25.5 points on heavy volume of 62,088 contracts.Volume was the strongest since June 29 when 73,717 contracts were traded and the September contract closed at 94.950. On July 31, total open interest declined by 462 contracts, which relative to volume is approximately 60% below average. As this report is being compiled on August 3, the September contract is trading 11.1 points higher and has made a daily high 97.695, which is slightly below the Friday print of 97.725. The September dollar index remains on a short and intermediate term buy signal, and we see higher prices ahead. This is very negative for the commodity complex.

10 Year Treasury Note:

The September 10 year treasury note gained 19 points on volume of 1,425,247 contracts. Total open interest increased by 15,632 contracts, which relative to volume is approximately 50% below average. Friday’s open interest increase is bullish for the note and as this report is being compiled on August 3, the September contract is trading 13.5 points higher and has made a new high for the move at 127-290, which is the highest print since 127-230 made on May 29.

On July 6, the September note generated a short-term buy signal, and will generate an intermediate term buy signal on August 3 as long as the daily low remains above OIA’s key pivot point for August 3 of 127-0 54. Leveraged funds are massively short the 10 year note and this will provide additional fuel for the upside move.

S&P 500 E mini:

The S&P 500 E mini lost 5.25 points on volume of 1,606,897 contracts. Total open interest increased by 16,184 contracts, which relative to volume is approximately 50% below average. We have noted in previous reports, there is a distinct pattern in the E mini whereby open interest increases on price declines and on price advances, open interest declines. This is bearish.

As this report is being compiled on August 3, the September contract is trading 15.50 points lower and has made a daily low of 2080.00, which is the lowest print since July 28 (2061.50). On July 27, the September S&P 500 E mini generated a short-term sell signal, but remains on intermediate-term buy signal. The extract from July 27 notes that in order for the sell signal to reverse, the low of the day had to be above our pivot point of 2097.70. This never occurred.

From the July 27 report:

“Recently, the buy/sell signals for the E mini have had quick reversals and we do not discount the possibility this pattern may continue.”

“For the short term sell signal to reverse, the low of the day must be above OIA’s key pivot point for July 28 of 2097.70. We continue to advocate long option straddles and strangles in the December E mini contract.”