Bloomberg Access:{OIAR<GO>}

Corn:

September corn lost 5.50 cents on volume of 342,311 contracts. Total open interest declined by 13,498, which relative to volume is approximately 40% above average meaning market participants were liquidating as prices moved lower (3.58 3/4). The July contract accounted for a loss of 2,752 of open interest, which means there were additional open interest losses in the forward months.

The COT report revealed that managed money liquidated 60,675 of their long positions and also liquidated 12,536 of their short positions. Commercial interests liquidated 27,795 of their long positions and also liquidated 62,127 of their short positions. As of the latest report, managed money is long corn by ratio of 2.88:1, down from the previous week of 3.12:1 and substantially below the 2016 record high ratio of 4.62:1 made two weeks ago.

As this report is being compiled on July 5, the September contract is trading 13 1/4 cents lower and has made a new contract low of 3.41. On June 22, OIA announced that September corn generated a short-term sell signal and an intermediate term sell signal on June 30. We recommend a stand aside posture.

Soybeans:

August soybeans lost 10.00 cents light volume of 186,499 contracts. Volume shrank substantially from June 30 when the August contract gained 33.75 cents on volume of 403,513 contracts and total open interest increased by 14,685.  On July 1, total open interest declined by 5,347 contracts, which relative the volume is average. The July contract accounted for a lost 2,619 of open interest and there were additional open interest declines in the forward months. As this report is being compiled on July 5, the August contract is trading sharply lower, down 52.75 or -4.53%.

The COT report released on Friday showed that managed money liquidated 11,951 of their long positions and also liquidated 3,099 of their short positions. Commercial interests liquidated 28,796 of their long positions and also liquidated 34,671 of their short positions. As of the latest report, managed money is long soybeans by a stratospheric 17.09:1, up from the previous week of 14.04 and a substantial increase from the ratio two weeks ago 11.26:1.

The reason for the sky high ratio was due to the liquidation of short positions, which represented a substantial percentage of outstanding short positions. The August contract will likely generate a short-term sell signal tomorrow. For this to occur, the high of the day must be below OIA’s key pivot point for July 5 of 11.34 3/8.

WTI crude oil:

August WTI crude oil advanced 66 cents on light pre-holiday volume of 728,579 contracts. Total open interest increased by 8,784 contracts, which relative the volume is approximately 45% below average. The August contract lost 10,478 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in August and increase total open interest.

The COT report revealed that manage money liquidated 3,571 of their long positions and added 24,794 contracts to their short positions. Commercial interests added 20,459 to their long positions and also added 14,567 contracts to their short positions. As of the latest report, managed money is long WTI crude oil by ratio of 2.24:1, down from the previous week of 2.84:1 and the ratio two weeks ago up to that 2.32:1.

As this report is being compiled on July 5 the August contract is trading sharply lower, down $2.51 or -5.12% and has made a daily low 46.33, which is the lowest print since 46.54 made on June 28. In the report of June 20, written on June 21 we recommended the initiation of short call positions in the nearby months and the trade continues to work well. Hold the position.

Gasoline: On July 1 August and September gasoline generated intermediate term sell signals after generating short-term sell signals on June 21. As this report is being compiled on July 5 the August contract is trading sharply lower, down 9.03 cents or -5.97%. Stand aside.

Heating oil: Despite being sharply lower on July 5 (-7.18 cents) August heating oil will not generate a short-term sell signal on July 5. For a short-term sell signal to be generated, the high of the day must be below OIA’s key pivot point for July 5 at 1.4821.

Natural gas: Despite August natural gas being sharply lower on July 5, it will not generate a short-term sell signal on July 5. For a short-term sell signal to be generated the high of the day must be below OIA’s key pivot point for July 5 of $2.663.

Gold:

August gold gained $18.40 on volume of 248,581 contracts. Total open interest increased by a massive 19,580 contracts, which relative to volume is approximately 215% above average meaning aggressive new buyers were entering the market in large numbers and driving prices higher (1347.00).

The COT report released on Friday revealed that managed money added 10,959 contracts to their long positions and also added 317 to their short positions. Commercial interests added 1,768 to their long positions on also added 2,232 contracts to their short positions. As of the latest report, managed money is long gold by a ratio of 11.51:1, which is up from the previous week of 11.21:1 and a substantial increase from the ratio two weeks ago of 9.11:1. Three weeks ago, managed money was long gold by a ratio of 6.11:1.

As this report is being compiled on July 5 ,the August contract is trading $19.60 higher and has made a daily high of 1359.20, which is below the Memorial day high of 1360.30.Although, further gains are possible, the gold market is becoming lopsidedly long and whenever this happens a correction is on the horizon.

Silver:

September silver gained 96.5 cents on heavy volume of 97,013 contracts. Surprisingly, total open interest increased only 3,139 contracts, which relative the volume is approximately 10% above average. The July contract accounted for a loss of 518 of open interest. During the holiday shortened Memorial day session, which began on Sunday evening, September silver made a new contract high of $21.225, which is the highest print since 21.525 made during July 2014.

The COT report released last Friday revealed that manage money liquidated 133 contracts of their long positions and also liquidated 2,217 of their short positions. Commercial interests liquidated 42 contracts of their long positions and added 3,170 to their short positions. As of the latest report, managed money is long silver by a ratio of 8.86:1, up from the previous week of 7.25:1 and the ratio two weeks ago a 4.92:1. Three weeks ago, manage money was long silver by ratio 3.59:1. It should be noted that the increase in the current ratio was due to the liquidation and short positions, not the addition of new long positions. Do not enter new bullish positions at current levels.

S&P 500 E-mini: On July 1, the September S&P 500 E-mini generated an intermediate term buy signal, but remains on a short-term sell signal.

The September S&P 500 E-mini gained 6.00 points on volume of 1,668,342 contracts. Total open interest declined by 35,090 contracts, which relative to volume is approximately 20% below average. July 1 was the second day in a row in which prices advanced and total open interest declined. On June 30 the September contract advanced 23.50 points on volume of 2,305,065 contracts and total open interest declined by 14,477. The back to back negative open interest action on price advances is a possible warning sign that the market is near a temporary top.

The COT report revealed that leveraged funds added 3,312 to their long positions and also added 6,015 to their short positions. This leaves leveraged funds short by ratio of 2.31:1, down from the previous week of 3.93:1, but up from the ratio two weeks ago of 1.20:1.

On the monthly chart, the 10 month moving average on the S&P 500 cash index crossed above the 20 month moving average, which puts the S&P 500 on a positive longer-term note. The Dow 30 and Nasdaq 100 also are in a 10 x 20 month bullish moving average set-up. However, the S&P 400, Russell 2000 and New York Composite index are in bearish monthly moving average setups.

The contagion that we wrote about on June 30 appears to have gathered steam on July 5 and there is a great deal of concern about the financial stability of the Italian banking system. Deutsche Bank, which we consider a negative proxy for the entire European banking system is trading 56 cents lower or -3.95% and has made a new all time low of $13.34 on July 5 while the yield on the 10 year note has collapsed to all time lows on July 5. Clients should note that this Friday is the US employment report and if bullish, could stimulate a strong rally.

From the June 30 research note on the S&P 500 Emini:

“We continue to recommend the stand aside posture and want to monitor the September contract for another couple of days to see whether it can generate a short-term buy signal. We are concerned about the European banking situation and the possibility of a major crisis that comes from out of the blue. Italy has been given permission by the European commission to provide substantial liquidity to Italian banks due to their precarious financial situation. The question: can this be contained or is a contagion on the horizon.”