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Soybeans:

August soybeans advanced 55.00 cents on huge volume of 503,063 contracts. Volume exceeded that of June 26 when the August contract gained 10.75 cents on volume of 466,105 contracts and total open interest declined by 38,658. On June 30, total open interest increased by 6,379 contracts, which relative to volume is approximately 45% below average. The July contract lost 5,489 of open interest. As this report is being compiled on July 1, the August contract is trading 14.75 cents lower and has made a daily high of 10.54 3/4, which is just 3.00 cents above yesterday’s high of 10.51 1/4.

We have a number of issues with yesterday’s action and today’s subsequent market behavior: First, the open interest increase in yesterday’s trading was substantially below average even though soybeans experienced one of the biggest rallies of 2015. To place yesterday’s trading in context, consider that on June 25 soybeans advanced 18.50 cents on volume of 336,254 contracts and total open interest increased by 9,216.On that day soybeans made a high of 10.02 1/2.

In other words, volume was approximately 50% higher on June 30 compared to June 25, but open interest increased by approximately 30% less than the open interest increase of June 25. However, prices increased by 55.00 cents on June 30 compared to the June 25 advance of 18.50. In summary, on June 30, volume was dramatically higher than June 25, prices increased substantially more than June 25, but the open interest increase was substantially less than June 25.

Second, the open interest increase is coming at the very high end of the range, which indicates that the Johnny-come-lately’s are getting long at the highest price since 10.66 1/4 made on January 12, 2015. These “Wrong Way Corrigans” are rarely right on the trend.

The follow-through from yesterday’s rally is abysmal with today’s high having been made between the hours of 4:00-5:00 a.m. CDT when there is little activity and the market has been declining ever since. At this juncture, August soybeans have rallied 13.69% from its contract low of 9.09 1/4 and is 11.80% below the 52 week high of 11.72 made on July 3, 2014. In summary, the market is trading in a mid range between its 52-week low and the 52-week high. Additionally, the rally has accomplished its task in this bear market, which is to clear out all the spec shorts.

In the upcoming COT report, we will see the extent to which managed money shorts have been blown and managed money longs have increased their positions. We think the rally is on borrowed time, and as we have mentioned in previous reports, soybeans tend to top in the June and July time frame. We have pointed out in numerous previous reports that if soybeans are to continue their rally, there must be new buyers willing to pay ever higher prices. Unless there is a weather scare, we do not see this as a realistic scenario. This is not to say the market cannot rally somewhat more from here, only that we think it will struggle to move higher. August soybeans remain on a short and intermediate term buy signal.

Soybean oil:

August soybean oil advanced 54 points on heavy volume of 175,369 contracts.Volume exceeded that of June 26 when the August contract lost 14 points on volume of 163,604 contracts and total open interest declined by 6,553. On June 30, total open interest increased by 1,128 contracts, which relative to volume is approximately 65% below average. The July contract lost 4,413 of open interest.

As this report is being compiled on July 1 the August contract is trading 46 points lower on the day and has made a daily high of 33.71, which is below OIA’s recommended exit point for light bearish positions originally recommended on June 23. Maintain these positions and exit point. August soybean oil remains on a short-term sell signal, but an intermediate-term buy signal.

Soybean meal:

August soybean meal advanced $17.90 on heavy volume of 192,303 contracts. Volume traded on June 30 was the highest of 2015. On June 30, total open interest increased by 594 contracts, which relative to volume is approximately 85% below average. The July contract lost 3,932 of open interest, which means there was little in the way of new buying in yesterday’s trade, a major disappointment since soybean meal has been the leader of the complex.

In yesterday’s trade, August soybean meal reached the highest level since 353.10 made on December 29, 2014. As this report is being compiled on July 1, the August contract is trading 3.80 lower after making a new high for the move of 356.20, which is the highest print since 356.40 made on November 14, 2014. The trade on June 30 in soybean meal may be the canary in the coal mine indicating that prices are near a top.

If one looks objectively at the open interest action in soybeans, soybean meal and soybean oil on June 30, it leaves much to be desired and does not bolster confidence for a continued move higher.

Corn:

September corn advanced the 30.00 cent daily limit on huge volume of 845,770 contracts.Volume was the strongest of 2015 in the highest since June 26 when the September contract gained 9.75 cents on volume of 796,786 contracts and total open interest declined by 56,927. On June 30, total open interest increased by 17,204 contracts, which relative to volume is approximately 20% below average, but is one of the best total open interest increases on a price advance in many months. The July contract lost 6,438 of open interest. Yesterday, the September contract made a high of 4.22, which is the highest print since 4.25 made on January 13, 2015.

In principle, we have the same problem with corn’s open interest increase in yesterday’s trade that we have with soybeans. Namely, the total open interest increase indicates the late to the party crowd is finally getting on board the rally, but are doing so at the highest price in several months. From June 16 when the September contract made a low of 3.52 through yesterday’s high of 4.22, corn has rallied 70 cents.

The rally was powered by huge numbers of short-sellers who were being forced to liquidate as prices moved higher. As we have pointed out in previous reports, often times an open interest increase on heavy volume at the top of the trading range can signify a top or temporary top. Unless there is a weather scare, we think it will be difficult to find aggressive new buyers of corn above the 4.25 cent level. We will not know the extent to which short-sellers have been blown out and new buyers have entered the market until we see the upcoming COT report.

Chicago wheat:

September Chicago wheat gained 32.25 cents on surprisingly light volume of 230,154 contracts. Volume was the lightest since June 25 when Chicago wheat advanced 14.75 cents on volume of 144,508 contracts and total open interest declined by 7,037. On June 30, total open interest increased by 6,172 contracts, which relative to volume is average.The July contract lost 3,215 of open interest. As this report is being compiled on July 1 the September contract is trading 37.75 cents lower after making a daily high 6.15, which is below yesterday’s print of 6.17 1/2.

The surprisingly low volume on yesterday’s advance is perhaps the best clue that the market has reached a meaningful top. For example, on June 29 September wheat gained 18.25 cents on volume of 274,573 contracts and total open interest declined by 9527. Also, on June 26, the September contract advanced 30.00 cents on volume of 351,063 contracts and total open interest declined by 26,206.

In short, substantially reduced volume as the market moved into new high ground is a major negative.The total open interest increase by is another sign the Johnny-come-lately crowd decided to get bullish as the September contract moved to the highest level since December 31, 2014 (6.14 3/4).

Live cattle:

August live cattle lost 1.80 cents on volume of 46,175 contracts. Total open interest declined by a massive 3,337 contracts, which relative to volume is approximately 185% above average meaning liquidation was extremely heavy. The June contract lost 400 of open interest, August 2015 -3,426.As this report is being compiled on July 1 the August contract is trading up the 3.00 cent limit, and we suspect this is due to packers aggressively bidding for product due to the upcoming Fourth of July holiday.

We have advised a stand aside posture because of our concern about a potential counter trend rally and will be looking for a spot to recommend bearish positions once we take a look at the open interest stats for today’s trading. For the short term sell signal to reverse, which was generated on June 26, the low of the day must be above OIA’s key pivot point for July 1 of 1.51890.Frankly, we do not expect this, but will reserve judgment for now. As we pointed out yesterday’s report, cattle had not had a second rally day and as a consequence we recommended a stand aside posture. 

From the June 29 report:

“On June 26, the August contract generated a short-term sell signal, and as we said in yesterday’s report, we expected the market to have a counter trend rally that lasted from 1-3 days and this would be the opportunity to initiate bearish positions. Unfortunately, the market has been unable to rally for a second day and currently is trading 60 points lower after making a daily high of 1.50500, which is fractionally above yesterday’s high of 1.50450.”

“We recommend that clients maintain a stand aside posture and wait for a rally near to the highs of yesterday and today before initiating bearish positions. However, the market is weak and a decent size rally may not materialize.”

WTI crude oil:

August WTI crude oil advanced $1.14 on volume of 552,638 contract. Total open interest increased by 2,733 contracts, which relative to volume is approximately 75% below average. The August contract lost 12,592 of open interest. The total open interest increase was weak and as we pointed out in yesterday’s report, total open interest had been increasing for the previous three days on price declines, which is negative. The lack of a sizable open interest increase in yesterday’s trading indicates a lack of enthusiasm on the part of new buyers. As this report is being compiled on July 1, the August contract is making new lows for the move, and is trading $2.30 lower on the day. On May 20, WTI crude oil generated a short-term sell signal, and it appears to be headed toward an intermediate term sell signal. For this to occur, the high of the day must be below OIA’s key pivot point for July 1 of $57.41.

Dollar index:

The September dollar index gained 71.1 points on volume of 40,972 contracts. Total open interest declined by 1,819 contracts, which relative to volume is approximately 75% above average meaning liquidation was extremely heavy on yesterday’s sizable advance.As this report is being compiled on July 1, the September contract is trading 75.4 points higher on the day. The September contract is likely to generate a short term buy signal during the next day or two if the September contract makes a daily low above OIA’s key pivot point for July 1 of 96.300.

Euro:

The September euro lost 1.09 cents on volume of 253,656 contracts. Total open interest declined by 6,207 contracts, which relative to volume is approximately 5% below average. As this report is being compiled on July 1, the September contract is trading  79 pips lower on the day. The September contract will generate a short-term sell signal is the daily high is below OIA’s key pivot point for July 1 of 1.1127.

Canadian dollar: On June 30, the September Canadian dollar generated short and intermediate term sell signals.

The September Canadian dollar lost 77 pips on volume of 97,191 contracts. Total open interest increased by massive 5,862 contracts, which relative to volume is approximately 140% above average meaning large numbers of aggressive new short-sellers were entering the market and driving prices lower (79.91). As this report is being compiled on July 1, the September contract is trading 61 pips lower.

S&P 500 E mini: On June 30, the September S&P 500 E mini generated an intermediate term sell signal after generating a short-term sell signal on June 29.

The S&P 500 E mini advanced 4.00 points on heavy volume of 2,383,902 contracts.Volume exceeded that of June 29 when the September contract lost 45.25 points on volume of 2,295,930 contracts and total open interest increased by a massive 88,489. On June 30, total open interest increased by just 1,508 contracts.

As this report is being compiled on July 1, the September contract is trading 8.75 points higher after making a daily high of 2077.50, which is the highest print since 2083.25 made on June 29. Surprisingly, rallies have been muted even after sell signals have been generated, which indicates the market is far weaker than we thought. Even with the possibility of deal coming together with regard to the Greece crisis, the market is trading just fractionally higher on the day. We see lower prices ahead.