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Tomorrow, OIA will provide the highlights of today’s USDA report

Soybeans:

November soybeans lost 11.50 cents on volume of 149,699 contracts. Volume was the strongest since August 6 when November soybeans advanced 14.25 cents on volume of 156,187 contracts and total open interest declined by 3,600 contracts. On August 11, total open interest increased by a massive 8,878 contracts, which relative to volume is approximately 140% above average meaning that aggressive new short sellers were heavily entering the market and driving prices lower. The August contract lost 1,130 of open interest in September -1,487, which makes the total open interest increased more impressive (bearish).

As this report is being compiled after the release of the USDA report, November soybeans are trading sharply lower, down 19.25 cents and has made a new contract low of 10.43.

Corn:

September corn advanced 5.00 cents on extremely heavy volume of 426,833 contracts.Volume was the strongest since June 30 when 475,189 contracts were traded and September corn closed at a $4.18 3/4. On August 11, total open interest declined by 16,220 contracts, which relative to volume is approximately 50% above average meaning that liquidation by market participants was extremely heavy on the advance. The September contract accounted for loss of 41,218 of open interest and there was insufficient open interest increases in the forward months to offset the decline of September.

As this report is being compiled after the release of the USDA report, September corn is trading 3.25 cents lower after making a new contract low of 3.47 3/4.

Chicago wheat:

September Chicago wheat lost 2.75 cents on extremely heavy volume of 202,059 contracts.Volume was the strongest since April 9, 2014 when 203,301 contracts were traded and September Chicago wheat closed at 6.87. On August 11, total open interest declined by 4,684 contracts, which relative to volume is approximately 10% below average. The September contract accounted for loss of 19,711 of open interest.After topping on August 6 at 5.72 and generating a short-term buy signal on August 7, the market has been on a downward trajectory. While some of this is to be expected due to the usual 1-3 day pullback after the generation of a buy signal, the action looks like a potential reversal of the buy signal. For September Chicago wheat to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point of 5.40 1/2.

As this report is being compiled after the release of the USDA report, September Chicago wheat is trading 5.75 cents lower after making a daily low of 5.35, which is considerably above its contract low of 5.18 1/2 made on July 29.

Kansas City wheat:

September Kansas City wheat lost 5.50 cents on heavy volume of 33,258 contracts. Volume was slightly below August 8 when September KC wheat lost 17.00 cents on volume of 34,479 contracts and total open interest declined by 1,300 contracts. On August 11, total open interest increased 55 contracts, which is negligible and reflects open interest increases in the forward months due to the September contract losing 4,515 of open interest.

As this report is being compiled after the release of the USDA report, September KC wheat is trading 5.00 lower and has made a daily low of 6.13, which is above its most recent low of 6.11 made on July 30.

Live cattle:

October live cattle advanced 45 points on heavy volume of 78,732 contracts.Volume was the strongest since July 24 when 86,614 contracts are traded and October cattle closed at 1.58050 up 50 points for the day while open interest declined by 3,390.On August 11, total open interest declined by 2,079 contracts, which relative to volume is approximately average. The August contract lost 1554 of open interest, October -1667, December -872. In short there was liquidation across the board as prices bounced modestly after the severe declines in the past previous sessions. As this report is being compiled on August 12, October live cattle is trading 2.125 cents lower and has made a new low of 1.47450.Until cattle sheds the sizable number of long speculative positions, selling pressure will continue and rallies will be met by participants who long at higher levels who are looking to trim losses, or increase gains.

From the August 10 Weekend Wrap:

“The extremely high ratio of managed money longs in cattle is troubling, and in our view portends even lower prices than we had originally anticipated. The tabulation date for the COT report was August 5 and on August 6,total open interest increased by 2,658 contracts while on Thursday, August 7 total open interest declined by 2,523 contracts. In essence, for the two trading days after the tabulation of the COT report, total open interest was basically a wash indicating that liquidation was minimal.”

“One point to keep in mind is the Russian ban of US poultry (among others)  means that US poultry stocks will increase. Russia accounts for 7% of US poultry exports and the loss of exports is most definitely negative for US poultry prices, a competitor to pork and beef. The price differential between poultry vis-à-vis pork and beef should continue to widen, which is likely to impact pork and beef prices negatively.”

WTI crude oil:

September WTI crude oil advanced 43 cents on volume of 511,561 contracts. Volume declined from August 8 when September WTI crude advanced 31 cents on volume of 552,342 contracts and open interest declined by 6,942 contracts. On August 11, total open interest declined again, this time by 4,233 contracts, which relative to volume is approximately 55% below average. The September contract accounted for loss of 19,157 of open interest.

As this report is being compiled on August 12, September WTI is trading 67 cents lower, however it has not taken out the low for the move of 96.55 made on August 7. We think the downside in crude is overdone, and though the market trades lower and cannot mount a rally, we think a technical bounce of some size is in order. A move to the 20 day moving average of 99.96, or the 100 day moving average of 100.46 seems reasonable.The 200 day moving average for September crude is 97.15, and if the high of the day is below the 200 day moving average, a another leg down is likely.Maintain the short call position recommended in the July 21 report.

Natural gas:

September natural gas advanced 3 ticks on volume of 307,296 contracts. Volume was the heaviest since August 7 when September natural gas lost 5.7 cents on volume of 367,333 contracts and total open interest declined by 2,482 contracts.On August 11, total open interest declined by a substantial 9,888 contracts, which relative to volume is approximately 30% above average meaning that liquidation was fairly substantial on a minor advance. The September contract accounted for loss of 19,157 of open interest. As this report is being compiled on August 12, September natural gas is trading 3.5 cents higher and has made a new high for the move at 4.020, which is the highest print since July 17 (4.106). Since bottoming on July 28, September natural gas has experienced a series of higher highs and higher lows. We think a short-term buy signal is inevitable, and clients should begin to think about how they want to trade the long side of the market.For the October contract to generate a short-term buy signal, the low the day must be above OIA’s key pivot point for August 12 of 4.012.

Gold:

December gold lost 50 cents on very light volume of 71,218 contracts. Total open interest declined by 625 contracts, which relative to volume is approximately 55% below average. As this report is being compiled on August 12, December gold is trading $4.70 higher and has made a high of 1319.30 on low volume. We are becoming more impressed with gold’s performance ever since it generated a short-term sell signal on July 24. From July 24 through August 11 gold is trading $15.10 higher, or +1.17%. During the same period, silver is trading 1.84% lower. On August 4, December gold generated an intermediate term sell signal, and through August 11 is trading 20.30 higher, or +1.57%.

In short, it appears that gold has stabilized and though we cannot rule out further moves to the downside, it appears the bearish side of gold may be playing itself out. The 50 day moving average of 1299.40 is trading above the 200 day moving average of 1289.20, which tilts the bias to the upside. Additionally, gold is not far away from generating a short and intermediate term-term buy signal. If the low the day is above OIA’s key pivot point for August 12 of 1315.40, a short and intermediate term-term buy signal would be generated. The last time December gold closed above the August 12 pivot point occurred on July 21 (1315.50).

Another very important factor to consider is that August is the month when gold usually begins to show seasonal strength. Typically, a major low is made in late July early August and the market rallies through October.During 2014, the low for the year was made on January 2 at 1207.00 for the December contract and a secondary low at 1241.70 on June 3. The 3rd major low occurred on July 31 at 1281.30. We think  it is likely the July 31 low will stem further declines, at least in the short-term. Stand aside, until a short-term buy signal is generated.

Silver:

September silver advanced 15.4 cents on volume of 41,966 contracts. Volume shrank dramatically from August 8 when September silver lost 4.9 cents on volume of 67,270 contracts and total open interest declined by 512 contracts. On August 11, total open interest declined by 1,066 contracts, which relative to volume is average.The September contract accounted for loss of 4,760 of open interest. As this report is being compiled on August 12, September silver is trading 15.5 cents lower. On July 28, September silver generated a short-term sell signal and through August 11 is trading 3.05% lower compared to December gold, which is trading 0.18% higher. Stand aside.

Coffee:

September coffee advanced 8.30 cents on heavy volume of 45,248 contracts. Volume increased from August 8 when September coffee lost 3.15 on volume of 43,744 contracts and total open interest declined by 3,746 contracts. Volume was below that of August 7 when September coffee lost 6.85 cents on volume of 45,696 contracts and total open interest declined by 1,001. On August 11, total open interest increased by 338 contracts, which relative to volume is approximately 60% below average. The September contract accounted for loss of 7,525 of open interest, and there was sufficient open interest increases in the forward months to offset the decline in the September contract. However, considering that coffee is in a major bull market, the tepid total open interest increase is a big disappointment.

As we pointed out in yesterday’s report, September coffee needed to make a daily low above OIA’s key pivot point of 1.8880 in today’s trading in order for the rally to continue. We have leery about the very large net long position of managed money and want to see these longs shaken out to reduce selling pressure. As this report is being compiled on August 12, September coffee has made a daily low of 1.8300 and has closed down 4.55 cents.

From the August 8 report:

“It will be important to see open interest increase substantially on today’s rally. Although we advised the liquidation of bullish positions last week, there is plenty of time to get on the long side of coffee.We are concerned about the very large long position held by managed money according to the latest COT report. However, if September coffee makes a daily low above 1.8880 in tomorrow’s trading, it becomes highly likely the market is headed higher in the very short-term.”