For Bloomberg access: { OIAR <GO> }

Soybeans:

November soybeans advanced 21.00 cents on volume of 136,079 contracts. Volume shrank considerably from August 1 when the November contract lost 23.50 cents on volume of 169,105 contracts and total open interest increased by 12,994 contracts. In short, volume increased on the decline and shrank on the advance, which is negative. On August 4, total open interest increased by 2,526 contracts, which relative to volume is approximately 20% below average. The August contract lost 1,304 of open interest. As this report is being compiled on August 5, November soybeans have reversed course and now trade 16.00 cents lower on the day and have made a daily low of 10.58 1/2, which is above its contract low of 10.54 made on August 4.

As we said yesterday, our records for June and July showed that yesterday’s open interest increase on the price decline was the largest in at least 2 months. Furthermore, that the massive increase of open interest likely signaled an interim bottom.

The month of August is a critical time for soybean development , and we think this will tend to keep short sellers on the sidelines and though prices may dip below yesterday’s contract low, we think the downside has been played out for now. The modest increase of open interest in yesterday’s trading indicates there are new participants willing to enter long positions on rallies, and this is a positive change. As mentioned in the August 3 Weekend Wrap, it will take a weather event (hot dry temperatures) to propel soybeans significantly higher. Stand aside.

Corn:

September corn advanced 6.25 cents on volume of 221,156 contracts. Volume increased from August 1 when September corn lost 4.50 on volume of 204,632 contracts and total open interest declined by 5,963 contracts. Additionally, volume was slightly higher than the 221,083 contracts traded on July 30 when September corn advanced 0.25 cents and total open interest declined by 4,119 contracts. On August 4, total open interest increased by 3,664 contracts, which relative to volume is approximately 30% below average. The September contract accounted for loss of 8,385 of open interest and there were open interest increases in the December 2014 through December 15 contracts. As this report is being compiled on August 5, corn is trading 2.75 lower and has made a daily low of 3.53, which is above the contract low of 3.51 1/2 made on August 4 and August 1. Stand aside.

Chicago wheat:

September Chicago wheat advanced 9.75 cents on volume of 111,393 contracts. Volume declined from the 119,885 contracts traded on August 1 when September wheat advanced 4.00 cents and total open interest declined by 3,852 contracts. On August 4, total open interest increased by 2,509 contracts, which relative to volume is approximately 10% below average. However, the September contract accounted for loss of 3,214 of open interest, which makes the total open interest increase more impressive (bullish).

As this report is being compiled On August 5, September Chicago wheat is trading 4.25 cents higher while the Kansas City contract is trading 2.75 higher on the day. September Chicago wheat will generate a short-term buy signal if the daily low is above OIA’s key pivot point of 5.53 1/4. Once this occurs, we expect a pullback lasting from 1-3 days. This will be the opportunity to initiate bullish positions.It is important keep in mind that the harvest is over for the most part and wheat is now entering a period of seasonal strength. Although the fundamentals for wheat are certainly not bullish, this does not preclude a move that would enable clients to make some money in the short-term. Stand aside.

Kansas City wheat:

September Kansas City wheat advanced 5.75 cents on volume of 21,422 contracts. Total open interest declined by 1,265 contracts, which relative to volume is approximately 140% above average meaning that liquidation was very heavy on the advance.The September contract accounted for loss of 1561 of open interest. September KC wheat made a high of 6.48 3/4, which is the highest print since July 18 (6.53 3/4). At this juncture, KC wheat is the weaker sister to Chicago even though its fundamentals are far more bullish. Stand aside.

Live cattle:

October live cattle advanced 22.5 points on volume of 43,137 contracts. Total open interest declined by 1,865 contracts, which relative to volume is approximately 70% above average meaning that liquidation was very heavy on the modest advance. The August contract accounted for loss of 4,136 of open interest. As this report is being compiled on August 5, October live cattle is trading 47.5 points lower on the day, but has not taken out yesterday’s low of 1.54950.

Although the net long position of manage money is at the lowest level since early January 2014, we expect the net long position of manage money to decline further in the upcoming COT report. This sets up a very healthy market condition for an eventual test of the all-time highs. In the meantime, October cattle could decline to its 50 day moving average of 1.51000 and keep its uptrend intact. A short-term sell signal would be generated if this were to occur. However, the bull move in cattle is by no means over in our opinion. After the summer grilling season is over after Labor Day, cattle may experience further weakness, but this will only serve to increase demand, which has been robust despite higher prices. Stand aside.

WTI crude oil:

September WTI crude oil advanced 41 cents on low volume of 398,994 contracts. Volume shrank dramatically from August 1 when September WTI lost 29 cents on volume of 576,815 contracts and total open interest declined by 8,017 contracts. Additionally, volume was the lowest since July 3 when 388,180 contracts were traded and September WTI closed at $103.51.On August 4, total open interest declined by a massive 16,313 contracts, which relative to volume is approximately 55% above average, meaning that liquidation was extremely heavy on the advance. The September contract accounted for loss of 16,751 of open interest.

When abysmal volume and large decline of open interest is combined with the 41 cent advance, a bearish picture continues to emerge.As the August 3 report points out, managed money had not changed their large net long position, and this is adding fuel to the downside move on August 5 when September WTI is trading $1.13 lower and has taken out the low of 97.09 made on August 1. Though September WTI is massively oversold relative to its 20 day moving average of 101.33 and the 50 day moving average of 102.58, downside momentum appears to be increasing with large numbers of speculative longs liquidating. This is likely to keep a lid on rallies as it did on August 4.In the July 21 report, we recommended the initiation of short call positions. Continue to hold.

From the August 3 Weekend Wrap:

“During these 2 COT reporting periods, managed money did little in the way to change their overall net long position. If the changes of the 2 reports are added together, managed money has liquidated only 2,165 contracts of their long positions and 3,724 contracts of their short positions.In short, managed money is the most potent force for fueling a downside move.On Friday, September WTI made a low of 97.09, which is the lowest print since May 7 of 96.98. During July 30 and 31, open interest declined only 11,401 contracts while September WTI lost $2.80.Preliminary stats for Friday’s trading show a minor open interest decline of 1,077 contracts when September crude lost 29 cents.”

Natural gas:

September natural gas advanced 3.6 cents on light volume of 150,643 contracts. Total open interest increased by 2346 contracts, which relative to volume is approximately 35% below average. However, the September contract lost 7,673 of open interest, which makes the total open interest increase more impressive (bullish). The open interest and price increase on August 4 is the first since July 29 when September natural gas advanced 5.9 cents on volume of 202,442 contracts and total open interest increased by 1,007 contracts. We think there is a good chance that the low of $3.725 made on July 28 is the seasonal low and that prices should begin to move sideways to irregularly higher from here. Stand aside.

Copper:

September copper advanced 2.95 cents on volume of 55,880 contracts. Total open interest increased by a massive 4,421 contracts, which relative to volume is approximately 230% above average meaning that huge numbers of new longs entered the market and drove prices higher. As this report is being compiled on August 5, September copper is trading 3.50 cents lower on the day and has made a low of 3.1960, which is below yesterday’s low of 3.1995. Although copper has been acting well, the fact remains that year to date (August 4), the market is trading lower (- 3.51%) and that the major high of 3.2790 made on July 25 was a test that high going back to early March 2014. As of yesterday, September copper was trading 4.4 cents higher during the current quarter, and on August 5 is likely flat for the 3rd quarter. In short, copper has held up better than the rest of the metals complex, but this isn’t saying much. Stand aside.

Gold: On August 4, December gold generated an intermediate term sell signal after generating a short-term sell signal on July 24.

December gold lost $5.90 on very light volume of 77,962 contracts. Total open interest increased by 1,084 contracts, which relative to volume is approximately 45% below average. As this report is being compiled on August 5, December gold is trading 1.20 higher on the day after making a daily low of 1283.30, which is above the most recent low of 1281.00 made on August 1. Stand aside.

Silver:

September silver lost 13.8 cents on volume of 40,915 contracts. Total open interest declined by 310 contracts, which relative to volume is approximately 65% less than average. As this report is being compiled on August 5, September silver has fallen sharply and is trading 33.2 cents lower. On July 28, September silver generated a short-term sell signal, and it now appears likely that it will generate an intermediate term sell signal, probably sometime this week. Stand aside.

10 year Treasury Note:

The September 10 year Treasury Note advanced 4 points on light volume of 759,986 contracts. Volume was the lightest since July 23 when 612,858 contracts were traded and the 10 year note closed at 125-135. On August 4, total open interest declined by 13,451 contracts, which relative to volume is approximately 25% below average. On July 31, the September note generated a short-term sell signal, which reversed the short-term buy signal generated on July 23.As we said in the weekend report, for the 10 year note to reverse the sell signal the daily low must be above OIA’s key pivot point of 125-095. The low of the day on August 4 was 125-055 and the low on August 5 is 125-030. In summary, the short term sell signal generated on July 31 is intact.

From the August 3 Weekend Wrap: 

“We have reprinted last week’s commentary on the 10 year note because we thought the buy signal could easily reverse, which in retrospect it did. Also, we stated if the September note could not make a daily low above 125-09 the market would trade sideways to lower. It did this as well. For the September 10 year note to reverse the sell signal, the daily low must be above OIA’s key pivot point of 125-095. We have no recommendation due to the chop of the market. Stand aside.”

Coffee:

September coffee lost 1.85 cents on volume of 31,833 contracts. Total open interest increased by 1,922 contracts, which relative to volume is approximately 140% above average meaning that new short sellers were entering the coffee market and driving prices lower. The September contract lost 1,053 of open interest, which makes the total open interest increase more impressive (bearish). August 4 was the second day in a row that coffee prices declined and open interest increased.

Additionally, the high of the day on August 4 was 1.9545 and on August 5 is 1.9515. In short the market does not have the momentum to continue moving higher and we suspect that short sellers are primarily commercial interests. It now looks like the market is likely to do more work on the downside before it has the momentum to move higher. In the July 24 report, we recommended initiating a small bullish position, and think the position should continue to be held. However, as we have cautioned before, do not let a winning position turn into a loss. Most of you are long in the high 170 area, therefore there is a healthy margin of safety before you need to liquidate.