Bloomberg Access:{OIAR<GO>}

Soybeans:

August soybeans lost 22.75 cents on strong volume of 306,023 contracts. Total open interest declined by massive 14,983 contracts, which relative to volume is approximately 75% above average.The August contract lost 10,879 of open interest. Yesterday, soybeans made a new low for the move and on July 26 has made another new low with the November contract printing 9.63, which is the lowest price since 9.65 3/4 made on April 19.

On July 26 the market is having a little bit of a rally, up 12.00 and has made a daily high of 9.83. As we’ve said in prior reports, there are substantial numbers of longs that have yet to liquidate and will use any rally to trim losses. This will keep a lid on advances unless there is a sustained period of dry weather. November soybeans remain on short and intermediate term sell signals. For speculative accounts, we recommend a stand aside posture.

Corn:

September corn lost 0.25 cents on volume of 279,908 contracts. Total open interest declined by 5,179 contracts, which relative to volume is approximately 25% below average. The September contract accounted for a loss of 14,060 of open interest. As this report is being compiled on July 26, the September contract is trading nearly unchanged on the day and has made a daily low of 3.31, which is above the contract low of 3.26 3/4 made on July 22. We have no recommendation.

Live cattle:

October live cattle advanced the 3.00 cent daily limit on total volume of 55,790 contracts. Volume increased from July 22 when live cattle advanced 2.425 cents on volume of 46,339 contracts and total open interest increased by 450. On July 25, total open interest increased by substantial 2,123 contracts, which relative to volume is approximately 45% above average meaning aggressive new buyers were entering the cattle market and driving prices higher (111.075).

As this report is being compiled on July 26, the cattle market is seeing follow-through on yesterday’s strong buying activity and trading up 1.450 cents and has made a daily high of 112.550, which is slightly above the July 14 print of 112.500. For the October contract to generate a short term buy signal the low of the day must be above OIA’s key pivot point for July 26 of 112.235.

Keep in mind that just last week  live cattle made new five year lows, and though it is overdue for a good size bounce, it is likely to be no more than a bear market rally. First, it must generate a short term buy signal and if not, the market will test last week’s contract lows. As we pointed out in the report of April 25, live cattle is entering its strong seasonal period.

The COT report shows that managed money is long, but at a minimal level. According to the latest report, managed money is long by a ratio of 1.60:1, up from the previous week of 1.45:1 and the ratio two weeks ago of 1.49:1. Compare this to the ratio in lean hogs where managed money is long by 4.50:1 and this is down from the previous week of 5.09:1 and the ratio two weeks ago of 6.39:1. There is substantial speculative firepower on the sidelines that can move cattle prices higher if fundamentals support.

From Live Cattle- A Technical Analysis (April 25);

“Live cattle tends to bottom around mid May and then enters it strong seasonal pattern, which lasts from June through October. The average gain for June is 1.1%, July +1.3%, August +1.6%, September +2.1% and October +2.1%.”

WTI crude oil:

September WTI crude oil lost $1.06 on surprisingly light volume of 618,814 contracts. Volume fell below that of July 22 when the September contract lost 49 cents on volume of 628,952 contracts and total open interest declined by 1,179. On July 25, total open interest increased by 7,481 contracts, which relative to volume is approximately 45% below average, but a total open interest increase on yesterday’s decline is bearish and confirms the downtrend.

As this report is being compiled on July 26, the September contract is trading 32 cents lower and has made a new low for the move of 42.36, which is the lowest print since 42.50 made on April 26. On June 16, OIA announced that September WTI crude oil generated a short term sell signal and an intermediate term sell signal on July 8. Continue to hold the short call positions recommended in the June 21 report.

Gold: December gold will generate a short term sell signal if the daily high on July 26 remains below OIA’s key pivot point for July 26 of 1332.90.

December gold lost $3.90 on heavy volume of 413,123 contracts. Total open interest increased by 12,011 contracts, which relative to volume is approximately 10% above average. The August contract lost 51,073 of open interest as it approaches first notice day and we attribute the substantial open interest increase to switching out of August and into the deferred months. We are switching to the December 2016 contract beginning with today’s reporting.

As this report is being compiled on July 26, the December contract is trading unchanged. The gold market has been trading firmly ever since it topped at $1384.40 on July 6. We do NOT expect that an intermediate term sell signal will be generated and gold is entering its strong seasonal period starting in August. We continue to recommend a stand aside posture, especially because the Federal Reserve will be reporting the results of its two-day meeting tomorrow at 2:00 p.m and this is going to be a major driver of gold prices tomorrow.

10 Year Treasury Note: On July 25, the September 10 year treasury note generated a short term sell signal and remains on and intermediate term buy signal.

The September 10 year treasury note lost 2 points on light volume of 735,245 contracts. Total open interest declined by a massive 42,894 contracts, which relative to volume is approximately 140% above average meaning liquidation was extremely heavy on the modest decline.

As this report is being compiled on July 26, the September contract is trading 4 points lower and has made a daily low of 131-275, which is below yesterday’s print of 131-285. Tomorrow, the Federal Reserve will report the results of its two-day meeting and this will be a major mover for the 10 year note. Stand aside.