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On July 7, the commodity markets are trading sharply lower in the early going with gold down 1.40%, silver -4.97%, copper -4.49%, and crude oil making new lows for the move as well as the agricultural sector which is trading lower. Equities also are trading sharp we lower. We think this is a combination of the collapse in equity prices in China and extreme nervousness over the ramifications of the Greek elections held last Sunday.

The September dollar index will generate a short-term buy signal on July 7, and this means that a test of the highs made a couple of months ago is likely. This is another negative force for commodities in general and the agricultural sector in particular. 

Soybeans:

August soybeans lost 16.00 cents on volume of 186,563 contracts.Remarkably, volume with the lowest since 185,106 contracts were traded on May 26 when the August contract closed at 9.13 1/4. The low-volume on yesterday’s decline is positive. However, the open interest action was not so positive and total open interest increased by 1,942 contracts, which relative to volume is 50% below average, however, an open interest increase on yesterday’s decline is distinctly negative. The July contract lost 812 open interest, August -2391, which means there were sufficient open interest increases in the forward months to offset the declines in July and August.

We are concerned that yesterday’s open interest increase was the third one in a row accompanying a price decline: on July 1, the August contract lost 8.75 cents and total open interest increased by 2,307; July 2, the August contract lost 2.50 cents and total open interest increased by 2,144. In short, during the past three trading sessions, the August contract has lost 27.25 cents and total open interest increased by 6,393 contracts. This tells us that short sellers have been control of the action for the past three trading days. If soybeans attempt to test the July 1 high of 10.54 3/4, this may be the extent of the move higher. In other words, we think we are much closer to the end of the rally.

As this report is being compiled on July 7, the August contract is trading 22.50 cents lower and has made a daily low of 9.89 1/4, which is the lowest print since 9.85 1/2 made on June 30. The COT report showed that managed money moved to a strong net long position, so some of the short covering potential has been reduced, but the market accomplished what it is supposed to: show that the majority of speculators were on the wrong side of the market. Now that the majority is on the long side, we think the market will again show speculators they are on the wrong side.

Soybean oil:

August soybean oil lost 76 points on volume of 110,775 contracts. Total open interest declined by 6,452 contracts, which relative to volume is approximately 140% above average meaning that liquidation was extremely heavy on yesterday’s decline. There were open interest declines from July 2015 through January 2015.

On June 23, OIA recommended the initiation of light bearish positions and the trade is proving to be lucrative. As this report is being compiled on July 7, the August contract is trading lower again, by 98 points and has made a daily low with 31.49, which is the lowest print since 31.30 made on April 29. We recommend lowering stops for exiting the position to a level based upon  sound money management principles.

The COT report revealed that managed money was substantially net long and this will continue to add selling pressure as prices move to multi-month lows. On June 18, the August contract generated a short-term sell signal and will likely generate an intermediate term sell signal tomorrow. For this to occur, the high of the day must be below OIA’s key pivot point for July 7 of 32.43.

Soybean meal:

August soybean meal lost $3.80 on volume of 79,633 contracts. Total open interest increased by 2,033 contracts, which relative to volume is average. The July contract lost 1,044 of open interest, September 2015 -235. This is the second day in a row in which meal prices have declined and open interest has increased. On July 2, the August contract lost 2.10 and total open interest increased by 1,094.

With managed money substantially long soybean meal, there should be total open interest declines when prices move lower. The open interest action soybean meal in addition to the weakness in soybean oil is confirming our thesis that the bull move in the soybean complex is on its last legs. As this report is being compiled on July 7, the August contract is trading 2.60 lower and has made a daily low of 340.30, which is the lowest print since 331.90 made on June 30.

Corn:

September corn lost 2.00 cents on volume of 367,892 contracts. Total open interest declined by 4,881 contracts, which relative to volume is approximately 45% below average. There were open interest declines in the front months: July -2,634, September -3,162, December -4,073. It is positive that total open interest declined on yesterday’s minor loss.

Yesterday, the September contract made a daily low of 4.17 and this has been taken out by a fraction with a new low on July 7 of 4.15 and the September contract is trading 4.25  cents below yesterday’s close, but is the best performer in the grain complex on July 7. The COT report revealed that despite managed money moving to a net long position there are huge numbers of speculative short-sellers that remain in the market. This group can potentially add a significant amount of buying power if the market attempts to test the July 2 high of 4.30 3/4. We caution clients that corn prices tend to top out in July unless there is a weather scare.

Chicago wheat:

September Chicago wheat gained 5.00 cents on volume of 157,758 contracts. Total open interest increased by 1,273 contracts, which relative to volume is approximately 55% below average. However, an open interest increase on yesterday’s advance is positive. The July contract lost 720 of open interest, December -814, March 2016 -1,697 and May and July 2016 -300,which makes the total open interest increase very impressive (bullish).

The COT report revealed that managed money still holds a very large short position in Chicago wheat and this should give prices an additional source of buying power if the September contract begins to test the high of 6.17 1/2 made on June 30.Total open interest action in Chicago wheat has been very positive for the past three sessions:

On July 2, the September contract gained 2.00 cents and total open interest increased by 5,094 contracts. On July 1 the September contract lost 27.25 cents and total open interest declined by 4,686 contracts. In short, total open interest has been acting in a bullish congruent fashion with respect to price increases/decreases. This increases the likelihood of a test of the June 30 high.

Live cattle:

August live cattle lost 72.5 points on volume of 43,145 contracts. Total open interest declined by a massive 2,944 contracts, which relative to volume is approximately 165% above average meaning liquidation was extremely heavy on the decline. The August contract lost 2,904 of open interest, December -435, February 2016 -54.

As this report is being compiled on July 7, the August contract is trading unchanged on the day, but has made a daily low of 1.49875, which is the lowest print since 1.48100 made on July 1. The COT report revealed liquidation by commercial interests and managed money. We think there is a lack of interest in the market by speculators and this sets up a sideways to lower trend.

On June 26, the August contract generated a short-term sell signal, but remains on an intermediate term buy signal. For those clients who initiated bearish positions per our recommendation of July 2, maintain these and use the penetration of the July 2 high of 1.51975 as an exit point.

WTI crude oil:

August WTI crude oil lost $2.99 on heavy volume of 998,494 contracts. Volume was the strongest since June 17 when WTI lost 5 cents on volume of 983,983 contracts and total open interest declined by 17,002.On July 6, total open interest increased by only 5,991 contracts, which is a huge surprise to us. We thought there would be either substantial liquidation or a large increase of open interest and neither occurred.

Considering the magnitude of yesterday’s move, the open interest action is puzzling. At the very least, it reveals that many potential market participants were unwilling to initiate new bearish positions on the decline. The August contract lost 4,296 of open interest. As this report is being compiled on July 7, the August contract is trading 64 cents lower, but has been nearly $2.00 down from yesterday’s close. If total open interest increases dramatically in today’s trading, the August contract may have reached a temporary bottom. On May 20, WTI crude oil generated a short-term sell signal and an intermediate term sell signal on July 3.

Gasoline: August gasoline will generate a short-term sell signal on July 7.

Dollar index: The September dollar index will generate a short-term buy signal on July 7.

The September dollar index gained 18.7 points on volume of 38,686 contracts. Total open interest declined by 601 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on July 7, the September dollar index is trading 74.3 points higher on the day.

Euro: On July 6, the September euro generated a short-term sell signal, but remains on intermediate term buy signal.

The September euro lost 22 pips on volume of 260,513 contracts. Total open interest declined by 1,206 contracts, which relative to volume is approximately 75% below average. As this report is being compiled on July 7, the September contract is trading 86 pips lower and has made a daily low of 1.0927, which is the lowest print since 1.0904 made on June 1. The September contract will generate an intermediate term sell signal if the daily high is below OIA’s key pivot point for July 6 of 1.0973.

Yen: On July 6, the September yen generated a short term buy signal, but remains on an intermediate term sell signal.

The September yen gained 43 pips on volume of 154,401 contracts. Total open interest increased by 1,253 contracts, which relative to volume is 55% below average, however an open interest increase on yesterday’s advance is positive.Making the open interest increase potentially explosive is the fact that managed money is massively short the yen. In summary, managed money has not been liquidating even though the yen took out the June 30 high by a fraction and reached the highest level since May 26.

10 Year Treasury Note: On July 6, the September note generated a short-term buy signal, but remains on intermediate term sell signal.

The September 10 year treasury note advanced 14.5 points on volume of 1,386,807 contracts.Total open interest increased by 26,454 contracts, which relative to volume is approximately 20% below average, but an open interest increase on yesterday’s advance is positive.This is especially the case because managed money is massively short the 10 year note, and this class of speculator will add fuel to the upside move now that the September contract has generated a short term buy signal. As this report is being compiled on July 7, the September contract is trading 13.5 points higher on the day and has made a new high for the move of 127-180, which is the highest print since 127-215 made on June 1.