Bloomberg Access:{OIAR<GO>}

Soybeans:

August soybeans gained 20.50 cents on volume of 232,060 contracts. Volume declined from July 12 when the August contract advanced 25.25 on volume of 239,939 contracts and total open interest increased by a massive 9,266. On July 13, total open interest increased by 2,885 contracts, which relative to volume is approximately 45% below average however, the July contract lost 399 of open interest, August 2060 -8,118, which means there were sufficient open interest increases in the forward months to offset the decline in the two delivery months and increase total open interest. Yesterday’s action was positive and follows the very positive action of July 12.

Yesterday, the August contract made a high of 11.34 3/4 and though this was substantially above the July 12 high of 11.04, volume fell several thousand contracts from July 12 and total open interest increased, but at a much reduced pace. This indicates that there is much less participation as soybeans reached the highest level seen since July 5 when the August contract made a high of 11.49 3/4.

As this report is being compiled on July 14 the August contract is trading 7.75 cents lower after making a new high for the move of 11.41, which is tested OIA’s key pivot point for July 14 of 11.41 7/8 for the generation of a short term buy signal. For a short term buy signal to occur, the LOW of the day must be above the pivot point and implied in this would be a substantially higher soybean price than what has been seen during the past couple of days.

The soybean volatility index remains at elevated levels and currently is trading down 69 points, or-2.00% at 33.90, but this is not far away from the 52-week high of 36.67 made yesterday. We want to see soybean volatility decline further and for soybeans to make a daily high below OIA’s pivot point for july 14 of 10.94 5/8, before recommending bearish positions.

In yesterday’s report (see extract below), we said it was unlikely that the August contract would reverse the short term sell signal and generate a short term buy signal and we continue to stand by this. The trend is lower, but the market will experience periodic rallies due to a host of factors including possible weather scares which occur with regularity at this time of the year.

From the July 12 research note on soybeans:

“On July 6, OIA announced that August, September and November soybeans generated short-term sell signals and for the August contract to reverse the sell signal and generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for July 13 of 11.43 3/8. We think this is unlikely, and that the market will struggle to do this.”

In summary, though we do not think soybeans will generate a new short-term buy signal, but is unwise to initiate bearish positions in the current environment. We would prefer to wait until August makes a daily high below OIA’s pivot point for July 13 of 11.11 and begin to see the soybean volatility index decline. Also, if open interest increases on today’s rally, we again would recommend a stand aside posture.

Corn:

September corns advanced 9.75 cents on volume of 369,148 contracts. Total volume was below that of July 12 when the September contract gained 4.00 cents on volume of 373,691 contracts and total open interest declined by 3,127, which was bearish open interest action relative to the price advance. On July 13, total open declined again, this time by 1,564 contracts, which relative to volume is approximately 65% below average, and a total open interest decline on yesterday’s strong advance is bearish. The July contract lost 298 of open interest, September 2016 -9,690, July 2017 -322, which means there were NOT enough open interest increases in the other delivery months to offset the decline in the three months that lost open interest.

During the past two sessions, September corn gained 13.75 cents while total open interest during the two day time frame declined 4,691 contracts. This is bearish open interest action relative to the two day price advance and on July 11 when September corn lost 6.75 cents total open interest increased massively, by 9409 contracts on volume of 316,182.

In summary, corn is experiencing a pattern of bearish open interest action and as we pointed out in yesterday’s report, a test of the July 6 contract low of  3.39 appears to be inevitable. As this report is being compiled on July 14 the September contract is trading 2.25 cents above yesterday’s close and has made a another new high for the move of 3.73. We see no compelling reason to be involved in the corn market.

WTI crude oil:

August WTI crude oil lost $2.05 on very heavy volume of 1,447,908 contracts. Volume exceeded that of July 12 when 1,381,139 contracts were traded when the August contract gained $2.04 and total open interest declined by a massive 33,125 contracts, which is bearish open interest action relative to the price advance. On July 13, total open interest declined only 483 contracts, but the August contract lost 50,517, which means that there were large increases of open interest in the forward months, but not enough to offset all of the loss in the August contract.

As this report is being compiled on July 14, the August contract is trading 63 cents above yesterday’s close and has made a daily low of 44.95, which is above yesterday’s print of 44.56 and a daily high of 45.80, which is considerably below yesterday’s print of 46.71. Continue to hold the short call position recommended on June 20.

Gold:

August gold advanced $8.30 on volume of 244,321 contracts. Volume was the weakest since July 7 when the August contract lost 5.00 volume of 239,828 contracts and total open interest declined by 1,149. On July 13, total open interest declined by massive 10,853 contracts, which relative to volume is approximately 75% above average meaning liquidation was extremely heavy on yesterday’s advance. This is the first time we have seen a total open interest decline on a price advance in gold for at least a month. This indicates that market participants, especially those that are long from higher levels or who are looking to book profits are taking advantage of any rally to unload their positions.

As this report is being compiled on July 14 the August contract is trading $11.40 lower and has made a daily low of 1320.40, which is the lowest print since 1315.30 made on June 30. Remarkably, the gold volatility index is trading at 17.31, down 1.70% on July 14 and has made a daily low of 17.18, which takes out the June 8 print of 17.29. On June 8, the August contract closed at $1262.30, or 70.00 below the current price for the August contract. In summary, options are relatively inexpensive compared to pricing of the last couple of weeks. Despite this, we think gold is likely to drift lower to the 50 day moving average of $1284.50. Continue to stand aside for new positions.

British pound:

The September British pound lost 1.09 cents on volume of 134,116 contracts. Total open interest increased by 398 contracts, which is minuscule and substantially below average. However, a total open interest increase on yesterday’s price decline is bearish. This follows the unimpressive open interest increase of 282 contracts on July 12 when the September contract gained 2.64 cents on volume of 158,008 contracts.

As this report is being compiled on July 14, the September British pound is rocketing higher, up 1.44 cents after being 3.23 cents higher after the Bank of England decided NOT to lower interest rates, which came as a shock to many foreign currency traders. Thus far in trading on July 14 the September contract has made a daily high of 1.3491, which is the highest print since 1.3502 made on June 30. In yesterday’s report, we recommended a stand aside posture due to the possibility that the Bank of England would decide not to lower interest rates, which would send the pound higher.

With this new development and that leveraged funds are short the British pound by a ratio of 1.75:1 according to the latest COT report, we think it is quite possible the September contract could rally up to its 20 day moving average of 1.3613, but is unlikely to have the momentum to take it up to the 50 day moving average of 1.4127. Continue to stand aside in the pound.

From the July 13 research note on the British pound:

“As we pointed out in yesterday’s report, we like the bearish side of the British pound and wanted to see today’s open interest stats, which have confirmed that the buying has exhausted itself. However, there is one more event that bears watching and this will come tomorrow when the Bank of England makes a decision whether or not to lower interest rates. If they decide NOT to lower interest rates, we could see a spike in the pound up to today’s high. Once this is out of the way, we would feel more comfortable recommending bearish positions.”

S&P 500 E-mini:

The September S&P 500 E-mini gained 0.25 points on volume of 1,635,699 contracts. Total open interest increased by 17,572, which relative to volume is approximately 50% below average. As this report is being compiled on July 14, the September contract has made a new all-time high of 2168.00, but is trading 14 points lower at 2154.75. The E-mini has broken out into new high territory after being range bound for approximately 16 months.

Remarkably, ever since the E-mini generated a short term buy signal on July 8, it has not had its usual 1-3 day pullback and the only explanation for this and for the rally is that global central banks are flooding the system with liquidity with bond buying and the purchase of securities. We have no recommendation except to say that clients should wait for a pullback before considering bullish positions.