Bloomberg Access:{OIAR<GO>}

Soybeans:

August soybeans lost 39.00 cents on volume of 295,969 contracts.Volume exceeded that of July 13 when the August contract gained 20.25 cents on volume of 232,060 contracts and total open interest increased by 2,885 and also exceeded that of July 12 when the August contract advanced 25.25 cents on volume of 239,939 contracts and total open interest increased by 9,266. Remarkably, on July 14, volume exceeded that of July 7 when the August contract lost 51.00 cents on volume of 290,551 contracts and total open interest increased by 5,190.

On July 14, total open interest increased by 1,203 contracts, which relative to volume is approximately 70% below average, but a total open interest increase on yesterday’s strong decline is bearish.The July contract lost 142 of open interest, November 2016 -3,822, which means there were sufficient open interest increases in the forward months to offset the decline in these two delivery months and increase total open interest. July 14 was the second time since July 7 that total open interest increased on a price decline out of the three days that prices declined in this time frame.

The problem for soybeans is there are huge numbers of speculative longs left in the market according to the COT report, which was released last Friday. According to the report, managed money was long soybeans by a ratio of 8.19:1 and though this is down from the record high ratio of 17.09 made the previous week this category of speculator will add selling pressure as prices move lower. Additionally, when prices rally, they will be looking to liquidate to take profits or trim losses. This will keep a lid on future rallies. The new COT report will be released today at 2:30 p.m. central daylight time and we will publish the results on Monday.

As this report is being compiled on July 15 the August contract is trading unchanged on the day, but has made a daily low of 10.57, which is the lowest print since 10.45 1/2 made on July 8. The soybean volatility index has skyrocketed on July 15 and has made a new 52-week high of 42.23, which takes out the previous 52 week high of 36.67 made July 13 and currently is trading 19.32% above yesterday’s close. This indicates there is a considerable amount of put buying, which makes options very expensive.

During the past couple of days, we said that we would not make a bearish recommendation until August soybeans were trading below OIA’s pivot point. On July 15, OIA’s pivot point is 11.03 and the daily high has been 10.97 1/2. If today’s high holds, we recommend waiting for a counter trend rally of 1-2 days duration before initiating bearish positions.

Corn:

September corn lost 4.25 cents on volume of 357,221 contracts. Volume was the lowest since July 11 when the September contract lost 6.75 cents on volume of 316,182 contracts and total open interest increased by 9,409 contracts, which is bearish. On July 14, total open interest increased again, this time by 1,918 contracts, which relative to volume is approximately 75% below average, but a total open interest increase on yesterday’s decline is bearish because it means that new short sellers were piling in and driving prices lower.

This continues the bearish open interest action that we have seen during the previous three consecutive days. On July 14, the July contract lost 126 of open interest, September 2016 -7267, which means there were more than enough open interest increases in the forward months to offset the decline in these two delivery months and increase total open interest.

As this report is being compiled on July 15 the September contract is trading 3.00 cents lower and has made a new low for the move of 3.43, which takes out yesterday’s print of 3.55 12/2 and is the lowest print since 3.42 1/2 made on July 12. As we have pointed out in previous reports, the September contract is headed for a test of the contract low of 3.39 made on July 6. We have no recommendation.

WTI crude oil:

August WTI crude oil advanced 93 cents on substantial volume of 1,200,000 contracts. However, volume shrank dramatically from July 13 when the August contract lost $2.05 on volume of 1,447,908 contracts and total open interest declined by 483. On July 14, total open interest increased by 11,133 contracts, which relative to volume is approximately 45% below average. The August contract accounted for a loss of 43,863 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in August and increase total open interest.

From a price and open interest stand point, yesterday’s performance was respectable, but the fact remains crude oil remains on short and intermediate term sell signals and it appears that yesterday’s rally suckered some market participants who are probably disappointed on July 15 as the August contract is trading 13 cents above yesterday’s close. The carnage seen earlier this year in the crude oil market is over and we don’t expect to see prices drop sharply from here. For the August contract to generate a short term buy signal, the low of the day must be above OIA key pivot point for July 15 of $48.47. Continue to hold the short call position recommended on June 20.

Gold:

August gold lost $11.40 on substantial volume of 304,181 contracts. Volume exceeded that of July 12 when the August contract lost $21.30 on volume of 293,975 contracts and total open interest declined by 24,756. On July 14, total open interest declined again, this time by 12,815 contracts, which relative to volume is approximately 60% above average meaning liquidation was heavy on yesterday’s decline. However, accounting for this was the substantial decline of open interest in the August contract of 28,440 as it approaches first notice day at the end of July. As this report is being compiled on July 15, the August contract is trading $2.50 lower and has made a daily low of 1322.60, which is above yesterday’s print of 1320.40.

The gold volatility index continues to decline and on July 15 has made a new low  for the move of 16.68 which is the lowest print since July June 3 (16.92). This means there is an absence of put buying, which means would be market participants do not anticipate a large price decline in gold. We think it is more likely that gold will continue to drift lower, especially if equities continue their rally. Ultimately, we think the target of the 50 day moving average of 1284.50 is realistic between now and the end of July. Continue to stand aside.

Yen: On July 14, the September and December Japanese yen generated short term sell signals, but remain on intermediate-term buy signals.

The September yen lost 103 pips on volume of 170,903 contracts. Total open interest declined by 1,049 contracts, which relative to volume is approximately 60% below average. As this report is being compiled on July 15, the September contract is trading 12 pips lower on the day and has made a new low for the move of.9427. Though the yen has fallen sharply during the past couple of weeks, ultimately we think it will head higher, but this may not occur until the equity markets head lower again.

British pound:

The September British pound advanced by a strong 1.69 cents on heavy volume of 197,940 contracts. Total open interest declined by 611 contracts, which is extremely negative. This follows the action of July 13 in which the pound lost 1.09 cents on volume of 134,116 contract and total open interest increased by 398, which is bearish as well. On July 12, total open interest increased only 282 contracts when the September contract gained a stunning 2.64 cents on volume of 158,008 contracts, another bearish day. In summary, for the past three days, total open interest has been acting in a distinct bearish fashion.

As this report is being compiled on July 15 the September contract is trading 1.31 cents lower after making a daily high (which was made in the overnight session of 1.3488), which is three pips below the July 14 print of 1.3491. In yesterday’s report, we stated the pound could move up to its 20 day moving average of 1.3613 and though we cannot discount this, the pound may be too weak to move up to its 20 day moving average. No recommendation.

S&P 500 E-mini:

The September S&P 500 E-mini gained 11.25 points on volume of 1,784,522 contracts. Volume exceeded that of July 12 when the September contract advanced 15.50 points on volume of 1,708,289 contracts and total open interest declined by a bearish 33,782. On July 14, total open interest increased by a dismal 1,413 contracts, which is essentially an unchanged number. During the past couple of reports we’ve commented on the terrible open interest action relative to price gains that we have seen since the beginning of the rally, which began last week on July 8 due to a positive employment report. Remarkably, the open interest action has been uniformly dismal on the rallies.

Recently, there have been a number of major market executives who head up some of the largest firms in the financial world cautioning about the lofty price multiples for the S&P 500 and that stocks are essentially priced for perfection. While we don’t disagree, the path of least resistance continues to be higher.