August soybeans lost 11.25 cents on volume of 259,269 contracts. Total open interest declined by 535 contracts, which is dramatically below average and indicates that longs continued to dig in and refuse to liquidate as prices continue to move lower. The COT report, which was released on Friday revealed that managed money liquidated 13,210 contracts of their long positions and added only 14 contracts to their short positions. Commercial interests added 9,238 to their long positions and also added 105 to their short positions. As of the latest report, managed money is still heavily long soybeans by a ratio of 7.52:1, which is only down from 8.19:1 the ratio from the previous week. Two weeks ago soybeans reached a record high ratio of longs to shorts of 17.09:1.
To put the current soybean ratio in perspective, out of the 30 commodities that we track in the weekly COT report there are only 4 commodities that have ratios higher than soybeans. They are: soybean meal-7.80:1, sugar-14.88:1, gold-8.01:1 and silver-13.07:1. On July 6, August, September and November soybeans generated short term sell signals and the August contract will generate an intermediate term sell signal if the daily high is below OIA’s key pivot point for July 18 of 10.71. The high thus far on July 18 has been 10.72 and therefore an intermediate term sell signal will NOT be generated on July 18.
As this report is being compiled on July 18, the August contract is trading 8.25 cents lower on the day and has made a low of 10.50 1/4, which is the lowest print since 10.45 1/2, the low for the move made on July 8. With huge numbers of speculators remaining long soybeans, when it rallies, large numbers of speculators will be looking to take profits or trim losses and will sell into the rally, which will keep a lid on advances. The exception to this would be if there was a major weather scare, especially if it occurred in the month of August.
On Friday, the August contract made a daily high below our pivot point, which means clients should be looking to initiate bearish positions when soybeans rally. However, we want to caution that options should be used instead of futures. and that put options should be in the month of November. In this way, if soybeans have a strong rally, losses will be limited to the put premium and that buy stops are not necessary, which can be problematic when a market rally temporarily and then reverses course. We recommend waiting for a rally before initiating put positions in the November contract.
September corn lost 5.50 cents on volume of 307,691 contracts. Volume fell from July 14 when the September contract lost 4.25 cents on volume of 357,221 contracts and total open interest increased by 1,918 contracts. Surprisingly, even though corn fell to a new low for the move of 3.43, volume did not increase. This tells us there are substantial numbers of longs who have yet to liquidate and will be forced to as prices move lower.
On July 15, total open interest declined only 1,324 contracts, which again confirms the lack of liquidation, and relative to volume is approximately 80% below average.The COT report revealed that managed money assumed a net short position for the first time in a couple of months. According to the latest report, managed money liquidated 37,512 of their long positions and added a massive 54,424 contracts to their short positions. Commercial interests added 32,587 to their long positions and liquidated 46,482 of their short positions. Currently, managed money short corn by ratio of 1.04:1, down sharply from the previous week when they were long by ratio of 1.72:1. Two weeks ago, managed money was long corn by ratio of 2.88:1. This is an unusually quick change in the net long to net short position of managed money. Usually, they hang on to positions long after they are viable.
On June 22, OIA announced that September corn generated a short term sell signal and an intermediate term sell signal on June 30. As this report is being compiled on July 18 the September contract is trading 3.00 cents above Friday’s close and has not taken out Friday’s low of 3.43. We have no recommendation for corn.
Heating oil: August and September heating oil will generate intermediate-term sell signals on July 18 after generating short term sell signals on July 8.
The COT report revealed that managed money added 1,517 to their long positions and liquidated 885 of their short positions. Commercial interests liquidated 8,715 of their long positions and liquidated 13,106 of their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.26:1, up from the previous week of 2.05:1 and the ratio two weeks ago of 1.69:1. This compares to gasoline in which managed money is long by a ratio of 1.07:1, down from the previous week of 1.10:1 and the ratio two weeks ago of 1.32:1. Usually, during the summer driving season gasoline is the substantial out performer, but this has not been the case in 2016.
WTI crude oil:
August WTI crude oil advanced 27 cents on volume of 924,313 contracts. Volume was the weakest since July 1 when the August contract gained 66 cents on volume of 728,579 contracts and total open interest increased by 8,784. On July 15, total open interest declined by a substantial 31,162 contracts, which relative to volume is approximately 20% above average. The August contract accounted for a loss of 50,144 of open interest.
As this report is being compiled on July 18, the August contract is trading lower again, down 75 cents or -1.63% and has made a daily low of 44.86, which is the lowest print since 44.56 made on July 13. The COT report revealed that managed money added 5,653 to their long positions and liquidated 3,511 of their short positions. Commercial interests added 4,336 to their long positions and also added 6,179 to their short positions.
As of the latest report, managed money is long crude oil by a ratio of 2.20:1, up from the previous week of 2.10:1, but down slightly from the ratio two weeks ago of 2.24:1. On June 16, OIA announced that August and September WTI generated short term sell signals and intermediate term sell signals on July 8. Continue to hold the short call position recommended on June 20.
August gold lost $4.80 on volume of 220,460 contracts. Volume was the lowest since July 7 when the August contract lost $5.00 on volume of 239,829 contracts and total open interest declined by 1,149. On July 15, total open interest increased by 3,653 contracts, which relative to volume is approximately 35% below average, however a total open interest increase on Friday’s decline is negative. This is the first total open interest increased on a price decline since July 8 when he August contract lost 3.70 on volume of 338,378 contracts and total open interest increased by 1,102.
The COT report revealed that managed money is somewhat less friendly the gold and liquidated 3,964 their long positions and added 9,983 to their short positions. Commercial interests added 5,940 to their long positions and liquidated 1,385 of their short positions. As of the latest report, managed money is long gold by ratio of 8.01:1, down sharply from the previous week of 11.12:1 and the ratio two weeks ago of 11.51:1.
This is significant because it indicates that managed money is willing to assume a more negative view of gold at least in the short term. As this report is being compiled on July 18 ,the August contract is trading $1.40 higher and has made a daily low of 1323.50, which is above Friday’s print of 1322.60. We continue to recommend a stand aside posture for new positions.
The September dollar index advanced by a very strong 46.3 points on volume of 23,362 contracts. Total open interest declined by 281 contracts, which relative to volume is approximately 45% below average and the total open interest decline on Friday’s strong advance confirms that the index was powered higher by short covering on July 15.
The COT report reveals that leverage funds remain heavily short the dollar index by a ratio of 4.67:1, though this is down from 5.30:1 the previous week, but up from the ratio two weeks ago a 4.17:1. As this report is being compiled on July 18 the dollar index is trading nearly unchanged.
The moving average setup is potentially bullish with the 20 day moving average standing 95.847, 50 day 95.185, which is likely to cross above the 100 day moving average of 95.231. The 200 day moving average stands at 96.741 and the high for the move during the past three months has been 96.865 made on June 27. For the dollar index to resume its rally in earnest, it not only must take out 96.865, it must make a daily low above it. We have no recommendation
10 Year Treasury Note:
The September 10 year treasury note has made a daily high of 132-080, which is the exact key pivot point number for July 18 for a short term sell signal. Because the daily high is right on the pivot point, we will NOT call a short term sell signal on July 18 but will wait for a subsequent day when the daily high is definitively below the pivot point.
S&P 500 E-mini:
The September S&P 500 E-mini lost 4.50 points on volume of 1,520,621 contracts. However, total open interest declined by a substantial 42,828 contracts, which relative the volume is average. The magnitude of total open interest decline was surprising considering the moderate decline in Friday’s trading. Over the weekend we did some research and discovered from the research that many of the major indices have NOT broken out to new highs as has the S&P 500 and Dow Jones Industrial Average.
For example the Russell 2000 made its 52-week high on July 16, 2015 at 1275.90 and closed on Friday at 1205.31. The NASDAQ Composite Index made its 52-week high of 5231.94 on July 20, 2015 and closed on Friday at 5029.59. The NASDAQ 100 index made its 52-week high of 4739.75 on December 2, 2015 and closed on Friday at 4589.83. Finally, the New York Composite Index made its 52-week high on July 16, 2015 at 11,032.61 and closed on Friday at 10,773.11.
Additionally, the majority of sectors that make up the S&P 500 index have not advanced with the index. For example, only consumer staples, industrials and materials made new all-time highs along with the S&P 500 index. The laggards are financials, healthcare, energy, technology, and consumer discretionary. All the aforementioned sectors made their highs in 2015.
In previous reports, we have pointed out the very negative open interest action on price advances and declines and continue to caution clients to be wary of the long side of the market. We are NOT advocating bearish positions because the S&P 500 E-mini and the S&P 500 cash index remain on short and intermediate-term buy signals. However, the market is well overdue for a pullback and though the Dow Jones Industrial Average and S&P 500 may eventually work their way higher, we want to see the other major indices follow suit before we can call a definitive break out in the indices.
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