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Corn: On August 19, December corn generated a short term buy signal, but remains on an intermediate term sell signal.

December corn advanced 1.75 cents on volume of 285,176 contracts. Total open interest declined by a massive 18,735 contracts, which relative to volume is approximately 150% above average. The September contract, which enters first notice day in the next week lost 23,130 contracts of open interest.

The COT report revealed that managed money added 6,696 to their long positions and also added 30,310 to their short positions. Commercial interests liquidated 2,102 of their long positions and also liquidated 8,193 of their short positions. As of the latest report, managed money is short corn by a ratio of 2.05:1, up from the previous week of 1.94:1 and the ratio two weeks ago of 1.72:1. We have no recommendation.

Live cattle: On August 19, December live cattle generated a short term sell signal and remains on an intermediate term sell signal.

WTI crude oil: On August 19, October WTI crude oil generated an intermediate term buy signal after generating a short term buy signal on August 15.

October WTI crude oil advanced 22 cents on volume of 1,019,768 contracts. Total open interest declined by a massive 47,969 contracts, which relative to volume is approximately 75% above average meaning liquidation was extremely heavy on on Friday’s modest advance. The September contract accounted for a loss of 45,221 of open interest and there were insufficient open interest increases in the forward months to offset the decline in the September contract. On Friday the October contract made a high of 49.36, which is the highest print since 49.35 made on July 5.

The COT report revealed that managed money added only 1,713 contracts to their long positions and liquidated a sizable 56,880 of their short positions. Even commercial interests did not add much to their long positions and according to the latest report increased their longs by only 1,617 contracts while adding 31,959 their short positions. As of the latest report, managed money is long WTI crude oil by a ratio of 1.76:1, up from the previous week of 1.32:1 and the substantial low ratio of 1.28:1 made two weeks ago.

Friday’s open interest action continues the dismal performance since the rally began on August 11. For the past six days, the October contract has gained $5.10 while total open interest has declined by a massive 133,701 in this time frame. From the beginning of the rally on August 11, there have been been only THREE days in which total open interest increased when prices advanced: August 11 when open interest increased by 74,112 when crude advanced $1.78, on August 15 when total open interest increased by a mere 78 contracts on an advance of 1.25 and yesterday’s increase of 5,349 on a strong advance of 1.43.

The rally that began on August 11 through August 19 has been fueled primarily by shorts covering their positions and this has been the driver of higher prices, not new buying except as noted. As this report is being compiled on August 22, the October contract is experiencing its first major corrective day, down $1.38 and has made a daily low of 47.55, which is the lowest print since 47,28 made on August 18.

The COT report confirms that neither managed money nor commercial interests are supporting higher prices and the open interest action for the past several days is additional corroboration. We continue to recommend a stand aside posture in crude oil.

Natural gas:

September natural gas lost 9.00 cents on volume of 372,234 contracts. Total open interest increased by 6,262 contracts, which relative to volume is approximately 35% below average, but an open interest increase on yesterday’s on Friday’s stiff decline is negative. The September contract accounted for a loss of 8,264 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in September and increase total open interest.

The COT report revealed that managed money liquidated 4,775 of their long positions and added 13,374 to their short positions. On the other hand, commercial interests added 21,715 to their long positions and also added 15,007 to their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.34:1, up from the previous week of 1.25:1 and the ratio two weeks ago of 1.15:1. Commercial interests are long natural gas by a ratio of 1.07:1.

OIA is favorably inclined toward the long side of natural gas and the longer-term moving average setup is bullish: the 50 day moving average stands at $2.723, 100 day 2.549, 200 day 2.459. September and October are very strong months for the performance of natural gas and we recommend avoiding the short side of this market. Clients should be looking to position themselves on the bullish side via options, but we recommend waiting at least another week.

Gold:

December gold lost $11.00 on volume of 192,002 contracts. Total open interest declined by 5,319 contracts, which relative to volume is average. The COT report revealed that managed money liquidated 4,344 their long positions and also liquidated 1,819 of their short positions. Commercial interests added 1,024 contracts to their long positions and also added 3,424 to their short positions. As of the latest report, managed money is long gold by a ratio of 8.06:1, up from the previous week of 7.77:1, but down from the ratio two weeks ago of 8.53:1.

As this report is being compiled on August 22 the December contract is trading just $3.10 lower after making a daily low of 1335.40, which takes out Friday’s print of 1342.00 and is the lowest price since 1335.3 made on August 8. The December contract has penetrated its 50 day moving average for the first time in at least a couple of months and the moving average on August 22 is 1336.30. The December contract has not yet generated a short term sell signal and this will occur if the daily high is below OIA’s key pivot point for August 22 of 1339.80. Gold has been extremely firm after making its contract high at 1384.40 on July 6.

In previous reports, we suggested that clients begin to position themselves on the bullish side of gold, however we included the caveat that gold had not made a low above our pivot point, which would confirm that higher prices were ahead. Instead the market has been trading sideways. 

Silver: On August 19, December silver generated a short term sell signal, but remains on an intermediate term buy signal.

December silver lost 42.3 cents on heavy volume of 107,184 contracts. Total open interest declined by 962 contracts, which relative to volume is approximately 50% below average. The September contract accounted for a loss of 10,659 of open interest, which means there were almost enough open interest increases in the forward months to offset the decline in September.

The COT report revealed that managed money liquidated 2,574 their long positions and added 2,450 to their short positions. Commercial interests liquidated 352 of their long positions and also liquidated 1,205 of their short positions. As of the latest report, managed money is now long silver by a ratio of 5.71:1, down sharply from the previous week of 6.82:1 and the ratio two weeks ago of 8.82:1. Three weeks ago, managed money was long silver by ratio of 12.66:1, a stratospheric number.

Silver has been the weak performer lately and during the last seven trading days has lost 1.98% versus gold gaining 0.45%. During the past 30 days, silver has lost 0.38% while gold has gained 2.06%.  However, on a year-to-date basis, silver has gained 39.12% versus gold +26.13% so it is not unusual for gold to hold its own while silver loses during short time frames. We see higher prices ahead, but keep in mind there is a meeting this week in Jackson Hole of major monetary authorities and news coming out of their conferences will move markets.