Bloomberg Access:{OIAR<GO>}

Soybeans:

November soybeans advanced 1.25 cents on extremely light volume of 109,595 contracts. Volume traded on August 4 was the LOWEST of 2016. On August 4, total open interest declined by 3,806 contracts, which relative to volume is approximately 35% above average. The August contract accounted for a loss of 666 of open interest and there were additional open interest declines in the forward months. Yesterday November contract made a low of 9.50 1/2, which is fractionally above the August print of 9.50 and above the low for the move of 9.43 made on August 2.

As this report is being compiled on August 5 the November contract is rallying, trading 15.75 cents above yesterday’s close has made a daily high of 9.79 3/4, which is the highest print since 10.00 made on August 1. For soybeans to mount a sustained rally, there needs to be a catalyst and at this juncture the only reason would be hot dry weather.  Today, the COT report will be released and last week’s report showed that managed money was long by a ratio of 6.77:1.

It will be interesting to see whether managed money has substantially reduced their net long position. If not, rallies will be met with selling by speculators who are looking to trim losses.There is an old saying that you never short a quiet market and soybeans definitely fit this category. For speculative accounts do not enter bearish positions.

Corn:

September corn lost 4.25 cents on volume of 282,108 contracts. Total open interest increased by a sizable 9,110, which relative to volume is approximately 15% above average meaning aggressive new short-sellers continue to enter the corn market and drive prices lower. The September contract accounted for a loss of 8,290 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in September and increase total open interest substantially.

As this report is being compiled on August 5, the September contract is trading 1.25 cents above yesterday’s close and has made a daily high of 3.25 and a low of 3.20, which is above yesterday’s print of 3.20 1/2 and above the contract low of 3.19 1/2 made on August 2. The COT report will be released today and we are confident the net short position in corn has increased substantially.

According to the last report managed money was short by ratio of 1.46:1, which was up from the previous week of 1.18:1 and the ratio two weeks ago of 1.04:1. Although it appears that corn is likely to head lower, the market should have a rally, which will temporarily take out the weak short-sellers. At this juncture, we recommend a stand aside posture for speculative accounts.

Live cattle:

October live cattle lost 42.5 points on volume of 46,540 contracts. Total open interest declined by 1,340 contracts, which relative to volume is approximately average and the August contract accounted for a loss of 2,321 of open interest. As this report is being compiled on August 5, the October contract is trading firm up 87.5 points and has made a daily low of 114.425, which is fractionally above yesterday’s low of 114.375. Yesterday, the October contract made a high of 116.350 and the high on August 5 has been 115.875. On August 1, OIA announced that the October contract generated a short term buy signal and the December contract generated a short term buy signal on August 2.

The moving average setup is distinctly bearish with the 20 day moving average of 111.356 trading below the 50 day moving average of 113.127. The 100 day moving average stands at 115.256 and is below the 200 day moving average, 118.896. We want to see the 20 day moving average climb above the 50 day moving average. This means that October cattle will have to trade above the 50 day moving average of 113.127 for at least 20 days before the 20 day moving average crosses above the 50 day. 

While price action has been impressive since August 1, the open interest action on rallies leaves much to be desired. For this reason we have advocated a stand aside posture until a correction. We see higher cattle prices ahead, but the market is going to consolidate its recent gains before it can mount a sustained move higher.

We like the COT stats and according to the report issued last week, managed money was long by a ratio of 1.72:1, which was up from the previous week of 1.60:1 and the ratio two weeks ago 1.45:1. This contrasts with lean hogs with managed money long by ratio of 2.90:1. As all of you know, hog prices have collapsed during the past couple of weeks and yet managed money is considerably more bullish on hogs than live cattle. This is positive. Managed money tends to be johnny-come-lately in the markets.

WTI crude oil:

September WTI crude oil advanced $1.10 on heavy volume of 1,092,664 contracts. Volume increased from August 3 when the September contract gained 1.32 on volume of 1,058,599 contracts and total open interest increased by 25,370. On August 4 total open interest increased again, this time by 13,496 contracts, which relative to volume is approximately 45% below average, but a total open interest increase on yesterday strong advance is positive. The September contract accounted for a loss of 6,765 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.

As this report is being compiled on August 5 after the release of the US employment report the September contract is trading only 40 cents lower despite the strong dollar index and has made a daily low of 41.06, which is above yesterday’s print of 40.43 and has made a daily high 42.10, which slightly takes out yesterday’s print of 42.08.

Yesterday, we recommended taking profits on the short call positions recommended on June 21 and move to the sidelines. September WTI crude oil remains on short and intermediate term sell signals.

Gold:

December gold advanced $2.70 on volume of 193,442 contracts. Volume was the strongest since July 29 when gold advanced 16.70 on volume of 253,414 contracts and total open interest increased by 5,186. On August 4, total open interest increased again, this time by 6,583 contracts, which relative to volume is approximately 20% above average meaning aggressive new buyers were entering the market in substantial numbers and driving prices higher (1371.40).

Yesterday’s high was below that of the August 3 print of 1373.40 and below the August 2 high of 1374.20, which was the high for the move. In yesterday’s report, we recommended that clients remain on the sidelines at least until after the employment report and the report has caused the dollar index to move sharply higher, which has tanked gold and silver prices on August 5.

As this report is being compiled on August 5 the December contract is trading $23.10 lower and has made a daily low of 1342.10, which is slightly below the 20 day moving average of 1345.30. The 50 day moving average stands at $1313.50 and this is the value area.

The COT report from last week showed that managed money was long gold by a ratio of 8.89:1, which was up from the previous week of 8.22:1 and the ratio two weeks ago of 8.01:1. In summary, managed money did not become substantially more net long during the past three weeks. This increases the likelihood that profits will be taken if prices continue to decline.

On August 3, OIA announced that December gold generated a short term buy signal and August 5 is the first day of the typical pullback which occurs after the generation of a buy signal. We think it is likely the correction continues into next week and we will take a fresh look at the market before making a recommendation. At this juncture continue to stand aside.

Silver:

September silver is trading sharply lower on August 5, down 66.8 cents or -3.27% versus gold trading -1.73%. On a seasonal basis, silver tends to decline during the first half of August and rebounds through September. The September contract will generate a short term sell signal if the daily high is below OIA’s key pivot point for August 5 of 19.855. Looking  at the moving averages the 20 day moving average for the September contract stands at 20.119 and the 50 day of 18.636, which is the value area and approximately $1.00 below the current price for the September contract.

Managed money is heavily net long silver by a ratio of 12.66:1, which is down slightly from the previous week of 12.69:1 and the ratio two weeks ago at 13.07:1. In summary, there are large numbers of longs who will be looking to exit silver if it continues its decline. Stand aside.

British pound:

The September British pound lost 2.01 cents on strong volume of 167,005 contracts. Total open interest increased by a massive 10,173 contracts, which relative to volume is approximately 140% above average meaning aggressive new short-sellers were entering the market in huge numbers and driving prices lower (1.3111).

As this report is being compiled on August 5 after the release of the US employment report, the September pound is trading only 31 pips lower and has made a daily high of 1.3184, which is above OIA’s key pivot point for the generation of a sell signal, which means the pound will NOT generate a sell signal on August 5. Surprisingly, the pound is the strongest currency among the euro, yen, Swiss franc and Canadian dollar. Stand aside.