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Soybeans:

August soybeans lost 6.25 cents on light volume of 190,738 contracts. Remarkably, volume exceeded that of July 8 when the August contract gained 32.75 cents on volume of 190,137 contracts and total open interest increased by 295, dismal increase on an advance of this magnitude. On July 11, total open interest declined by 6,056 contracts, which relative to volume is approximately 15% above average meaning both longs and shorts were liquidating as prices declined to a daily low of 10.73, which is above the low for the move of 10.45 1/2 made on July 8.

As this report is being compiled on July 12 after the release of the WASDE report, August  soybeans are trading 13.00 cents above yesterday’s close and had made a daily high of 10.98 1/2, which is below yesterday’s print of 11.01. The counter trend rally continues on July 12, which is to be expected after the generation of a short term sell signal on July 6. The soybean volatility index is trading at 32.27, down 6.03% on July 12, which is considerably below the 52 week high made yesterday of 36.35. If the soybean volatility index continues to decline and the August contract is unable to take out yesterday’s high of 11.01, the rally that began on July 8 is likely coming to a close. Clients should wait until tomorrow’s trading before considering bearish positions. The equity market is rallying on July 12 and the dollar index is trading a bit weaker, which may give soybeans a temporary lift, but we believe the trend is down, barring a weather event.

Corn:

September corn lost 6.75 cents on light volume of 316,182 contracts. Volume increased somewhat from July 8 when the September contract gained 13.25 cents on volume of 310,644 contracts and total open interest increased by 8,532. On July 11, total open interest increased again, this time by 9,409 contracts, which relative to volume is approximately 10% above average meaning new short-sellers were entering the market and driving prices lower. The July contract accounted for a loss of 326 of open interest, September 2016 -8,625, and the December contract gained 17,177 of open interest. It appears for the past two days that market participants have been switching out of the September contract and into December.

As this report is being compiled after the release of the WASDE report the September contract is trading 2.50 higher and has made a daily high of 3.55, which is considerably below yesterday’s print of 3.60 3/4. September and December corn remain on short and intermediate term sell signals. We have no recommendation.

Live cattle:

August live cattle lost 2.875 cents on heavy volume of 78,717 contracts. Total open interest increased by 874 contracts, which relative the volume is approximately 50% below average. The  August contract lost 3,453 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in August and increased total open interest. The COT report compiled last Friday show that managed money added 3,346 to their long positions and liquidated 1,597 of their short positions. Commercial interests liquidated 1,590 of their long positions and also liquidated 1,783 of their short positions. As of the latest report, managed money is long live cattle by a ratio of 1.49:1, up from the previous week of 1.35:1, but only slightly above the ratio two weeks ago of 1.43:1.

As this report is being compiled on July 12 the August contract has made a new contract low of 108.175, which remarkably is takes out the July 2011 print of 109.200. Now that the July low has been taken out the next area of support is 100.750. On April 25, we wrote a special report on live cattle and are reprinting relevant extract.

From April 25: Live Cattle- A Technical Analysis

“On Friday, April 22, June live cattle made a new contract low of 113.900 and closed at 114.650 down 2.25. [Interestingly, the June 2015 contract bottomed on April 22, 2015 (145.175) then rallied to a high of 154.975 on May 14, 2015.]  The low made Friday was slightly above the April 2012 and May 2012 prints of 112.300 and 112.225 respectively.We think these will be penetrated and the next area of major support is the May and June 2011 lows of 101.625 and 100.750 respectively.We tend to think that May and June 2011 support will likely hold for the following reason: When commodities break through their former all-time highs, those highs become areas of support.”

“For live cattle, the all time highs made early this century first occurred during October 2003 at 102.925. During March 2007, cattle made a run at the October 2003 high and printed 102.925, the exact high made 3 1/2 years earlier. During 2008, the all-time highs of October 2003 and March 2007 were broken when live cattle made the high of 104.500 in June 2008. During the subsequent three months, live cattle continued to make all-time highs until the final 2008 high (107.050) was made in September. This held until December 2010 when the September 2008 print was taken out with a new all-time high of 108.700.”

“The lows of May and June 2011 (101.625 and 100.750 respectively) dovetail closely with the previous all-time highs of 102.925 made during October 2003 and March 2007. We think there is a high likelihood the October 2003 and March 2007 highs and the May and June 2011 lows will provide support to live cattle (100.750 – 102.925) .”

WTI crude oil:

August WTI lost 65 cents on volume of 1,108,332 contracts. Total open interest increased by 2,848 contracts, which is a minimal number, however, the August contract accounted for a loss of 63,205 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 slightly. Yesterday’s action was bearish. As this report is being compiled on July 12 the August contract is trading sharply higher, up $1.87 and has made a daily high of 46.82, which is the highest print since 48.25 made on July 7. The equity markets are trading higher on July 12 and this is undoubtedly giving crude oil a lift and the copper market is up sharply as well. Continue to hold the short call position recommended in the June 20 report.

Gold:

August gold lost $1.80 on heavy volume of 286,795 contracts. However, volume fell from July 8 when the August contract lost 3.70 on volume of 338,378 contracts and total open interest increased by 1,102. On July 11, total open interest increased by 1,821, which relative to volume is approximately 65% below average. As this report is being compiled on July 12 the August contract is trading sharply lower, down $21.80 or -1.61% and has made a new low for the move of 1331.00, which is the lowest print since 1323.10 made on July 1.

The COT report released last Friday revealed that managed money added 14,175 contracts to their long positions and also added 2,149 to their short positions. Commercial interests liquidated 785 of their long positions and also liquidated 1,268 of their short positions. As of the latest report, managed money is long gold by a ratio of 11.12:1, down slightly from the previous week of 11.51 and the ratio two weeks ago 11.21.

In summary, the ratio of longs to shorts in the gold market has stayed the same for the past three COT reporting periods and this likely portends topping action, even if temporary and that large surplus of longs will be looking to exit positions as the market goes through normal corrective activity. In past reports we have advised clients to stand aside with respect to new bullish positions and continue to advocate this.

From the July 6 research note on gold:

“Tomorrow, is the US employment report and this will be the driver of precious metal prices for most of the session, especially in the early going. The employment report is released at 8:30 a.m. Eastern daylight Time. We continue to advise a stand aside posture with respect to new positions because the market is not only overbought from a price stand point, but huge numbers of new longs have entered the market, which makes gold vulnerable to a sharp setback on any positive economic news.”

British pound:

The September British pound advanced 55 pips on volume of 126,433 contracts. Total open interest increased by a very strong 4,189 contracts, which relative the volume is approximately 20% above average meaning aggressive buyers were stepping in and pushing the pound higher. As this report is being compiled on July 12 the September contract is trading sharply higher, up 2.57 cents or +1.97% and has made a new high for the move of 1.3306, which is the highest print since 1.3300 made on July 5.

As the extract from the July 8 report indicates, we have been conflicted about the price level for the pound and yesterday’s open interest increase, a sizable number along with today’s very strong rally may portend further advances. One possible fly in the ointment is an interest rate reduction this Thursday, which possibly may send the pound lower, but on the other hand has likely been discounted.

We like the bearish side of the pound and clients should begin to think about buying substantially out of the money puts in the March 2017 contract, or a bear put spread, which involves buying a put out of the money and selling a put, which is further out of the money. In any event, we want to see the open interest stats for today’s trading before making any recommendation.

From the July 8 research note on the British pound:

“We are somewhat conflicted about the pound’s direction in the immediate term. While everyone is bearish and we certainly understand this, it nonetheless makes us nervous. Everyone is expecting the Bank of England will lower interest rates and if for some reason this does not occur, the pound could experience a substantial short covering rally. For this reason we recommend a stand aside posture with respect to bearish positions and strongly advise against bullish positions.”

Yen: The September Japanese yen will generate a short term sell signal if the daily high is below OIA key pivot point for July 12 of .9627. Currently, the September contract is trading at.9555.

S&P 500 E-mini:

The September S&P 500 E-mini advanced 9.75 points on light volume of 1,420,425 contracts. In yesterday’s report, we discussed the very light volume for trading on July 8 when the September contract gained 28.50 points on volume of 1,966,470 contracts and total open interest to increased only 17,612. On July 11, total open interest actually declined, this time by 994 contracts. This is negative open interest action considering that the S&P 500 E-mini and the S&P 500 cash index made new all-time highs yesterday. In summary, for the past two trading sessions, the September contract is gained 38.25 points and total open interest for the two day time frame has increased only 16,618, a dismal number.

As this report is being compiled on July 12 the September E-mini is trading 16.75 points higher and has made a new all time high of 2149.00 and Deutsche bank, a company we have written extensively about is trading sharply higher as well, up $.88 or +6.65% as talk increases about a rescue of Italian banks.The E-mini and S&P 500 cash index remain on short and intermediate term buy signals, and until a sell signal is generated, the path of least resistance is higher despite the poor open interest stats.

The earnings season reporting is here and if earnings disappoint, we may see the major indices turn lower. However, global interest rates are at all-time lows, which is flooding the global monetary system with liquidity. It is difficult to determine how long prices can remain elevated and we strongly advise against shorting these markets.