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Lean Hogs: October lean hogs will generate an intermediate term sell signal on July 7 after generating a short-term sell signal on June 30.

Soybeans: On July 6, August, September and November soybeans generated short-term sell signals, and remain on intermediate term buy signals.

August soybeans lost 8.50 cents on volume of 310,192 contracts. Volume increased substantially from July 5 when the August contract lost 54.25 cents on volume of 271,682 contracts and total open interest declined by a massive 19,377. On July 6, total open interest declined 1,509 contracts, which relative to volume is approximately 75% below average, which is a bit of a surprise considering that the August contract made a low of 10.63, which is the lowest print since 10.66 made on June 1.

This may be the first indication that longs are digging in and refusing to liquidate as prices move to new 30 day lows. We know that manage money is heavily long soybeans and according to the report released last Friday held long positions by a ratio of 17.09, which is a record high up from the previous week of 14.04:1 and the ratio two weeks ago of 11.26:1. However, the increase in the ratio was due to the liquidation of short positions rather than the addition of long positions. Managed money actually liquidated 11,951 of their long positions and liquidated 3,099 of their short positions.

As this report is being compiled on July 7 the August contract is trading 26.00 cents lower and has not taken out yesterday’s print. Now that soybeans are on short-term sell signals, the market should experience a counter trend rally lasting 1-3 days and this will be the opportune time to initiate bearish positions. Wait for the rally, do not chase the market here.

WTI crude oil:

August WTI crude oil gained 83 cents on heavy volume of 1,159,571 contracts. Volume exceeded that of July 5 when the August contract lost $2.39 on volume of 1,042,159 contracts and total open interest increased by 3,645, a bearish number. On July 6, total open interest declined by 112 contracts, another bearish set-up. The August contract accounted for a loss of 27,121 of open interest.

As this report is being compiled after the release of the EIA report on Thursday, the August contract is trading $1.60 lower on the day and has made a daily low of 45.71, which takes out yesterday’s print of 45.92. WTI is losing ground despite a stock decrease in the EIA report. On June 16, OIA announced that August WTI generated a short-term sell signal and it is getting perilously close to generating and intermediate-term sell signal. For this to occur the high of the day must be below OIA key pivot point for July 7 of $46.17. The September Brent crude oil contract will generate an intermediate term sell signal if the daily high is below OIA’s key pivot point for July 7 of 47.36. On June 16, September Brent crude generated a short term sell signal.

In the June 20 report, written on June 21, OIA recommended short call positions in WTI and the trade continues to work well. Hold the position. The gasoline market has been unbelievably weak and generated an intermediate term sell signal on July 1 after generating a short-term sell signal on June 21. Remarkably, heating oil has been the out performer in 2016 and though it did not generate a short term sell signal yesterday, it appears likely that a sell signal will be generated on July 8.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.2 million barrels from the previous week. At 524.4 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 0.1 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 1.6 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.7 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 3.4 million barrels last week.

Gold:

August gold advanced $8.40 on strong volume of 261,459 contracts. Total open interest increased by 3,031 contracts, which relative the volume is approximately 45% below average. The August contract accounted for a loss of 3,420 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. As this report is being compiled on July 7, the August contract is trading 3.50 lower and has made a daily low of 1352.00, which takes out yesterday’s print of 1356.30.

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.

Silver:

September silver advanced 29.6 cents on heavy volume of 82,467 contracts. Total open interest declined by 1,892 contracts, which relative to volume is approximately 10% below average, but a total open interest decline on yesterday’s advance continues the bearish open interest action when silver prices advance. The July contract accounted for a loss of 79, September -2293. In summary, for the past two days September silver has advanced 61.5 cents while total open interest has declined each day for a total of 5,213 contracts.

As this report is being compiled on July 7, the September contract is trading 38.3 cents lower or -1.87% versus August gold trading -0.37%. Similar to gold, we recommend a stand aside posture with respect to new positions due to the upcoming US employment report and the likelihood that silver will continue to correct its overbought condition.

S&P 500 E-mini:

The September S&P 500 E-mini gained 11.25 points on volume of 2,058,949 contracts. Volume increased from July 5 when the September contract lost 13.50 points on volume of 1,866,391 contracts and total open interest increased by 26,344 contracts, a bearish open interest increase. On July 6, total open interest increased just 992 contracts, a very disappointing increase considering the magnitude of the advance  Beginning on June 30, the E-mini has experienced bearish open interest action relative to price advances and declines.

As this report is being compiled on July 7, the September contract is trading 5.00 points lower and has made a daily low of 2085.00, which means the September E-mini will not generate a short-term buy signal on July 7. Our favorite proxy for the European banking system, Deutsche bank currently is trading 38 cents lower or -2.93% with the last price being $12.59 and the all time low made yesterday of 12.50. In our research note of June 29, published on June 30 we recommended short sales of Deutsche Bank and since then the stock has fallen approximately $1.00 from the June 30 low. We have no recommendations for the E-mini. Caution is warranted.

From the June 29 research note on the S&P 500 E-mini and Deutsche Bank:

“Although European markets and the US equity market have rallied strongly during the past couple of days, our prime concern is about the European banking system. We read a piece by a respected expert on Italian banks who said they are insolvent for the most part. The real canary in the coal mine however, is Deutsche bank, the largest bank in Germany and one of the largest in Europe.”

“In May 2007 the stock made a high of 159.76 and during the height of the financial crisis in January 2009 fell to a low of 21.13. On June 27 Deutsche Bank made a new all-time low of 13.40 and as this report is being compiled on June 30 is trading only 37 cents above the all time low despite global markets rallying very strongly.”

“The ramifications of Brexit are yet to be felt, but it is safe to say that it is deflationary in nature and that negative interest rates will not only continue, but likely get more negative. This is disastrous for all banks, but especially European banks who never experienced the housecleaning of American banks. In short, we think it is highly likely that the next financial crisis will come from European banks.”

“According to a variety of sources, Deutsche bank has derivatives exposure of approximately 70 trillion, a number which is frightening in its scope. We think short sales in Deutsche Bank make perfect sense and though the stock may have periodic rallies, they are not likely to far. There will be a surplus of new short-sellers waiting in the wings looking to initiate positions.”