Lean hogs: On July 7, October lean hogs generated an intermediate term sell signal after generating a short-term sell signal on June 30.
October lean hogs lost 42 points on volume of 42,679 contracts. Total open interest declined by a massive 5,218 contracts, which relative the volume is approximately 375% above average meaning that liquidation was off the charts heavy as the October contract made a new low for the move of 68.950.
According to the latest COT report, managed money is heavily long hogs and liquidated 5,786 of their long positions and also liquidated 2,907 of their short positions, which leaves manage money long lean hogs ratio of 6.47:1, up from the previous week of 5.58:1 and the ratio two weeks ago a 5.51:1. The ratio in the current report is the highest seen during the rally. Commercial interests were liquidating as well: they sold 434 contracts of their long positions and also liquidated 1,580 of their short positions.
As this report is being compiled on July 8 the October contract is trading 77 points lower on the day and has made another new low of 68.350. Although we think are prices are headed lower, the market could have a major rally at any time. Stand aside.
August soybeans lost 51.00 cents on volume of 290,551 contracts. Remarkably, volume was below that of July 6 when the August contract lost 8.50 cents on volume of 310,192 contracts and total open interest declined by 1,509, however the August contract made a low of 10.63 and rebounded to close fractionally lower. On July 7, total open interest increased by 5,190 contracts, which relative to volume is approximately 25% below average, and the July contract lost 703 of open interest.
The open interest increase in yesterday’s trading was the first we have seen on a price decline since June 15 when soybeans lost 13.50 cents on volume of 252,117 contracts and total open interest increased by 3,064. On June 15, the August contract closed at 11.55 . This indicates that new short-sellers have come into the market and were willing to initiate short positions at the bottom of the recent trading range as the August contract made a new low for the move of 10.48 1/2. the lowest print since 10.41 3/4 made on May 24.
Although, yesterday’s open interest increase indicates that some market participants are becoming increasingly bearish, the surprisingly light volume also reveals that many market participants are refusing to liquidate as prices move to lows last seen in late May. We brought this to your attention in the July 6 report when we commented on the very light open interest decline even though prices plunged substantially. This means there are large numbers of speculative longs who have not liquidated, but will be forced to as prices move inexorably lower
On July 6, August, September and November soybeans generated short-term sell signals and as we pointed out in the July 6 report, markets have a tendency to experience counter trend rallies after the generation of sell signals. As this report is being compiled on July 8, the August contract is undergoing its first rally day, and this is undoubtedly being helped by the very robust equity market, which is trading sharply higher on a very positive employment report.
Currently, the August contract is trading 24.50 cents higher on the day after making a new low for the move of 10.45 1/2 and a daily high of 10.78 1/4, which means that August soybeans will NOT generate an intermediate term sell signal on July 8. For this to occur the daily high must be below OIA key pivot point for July 8 of 10.58 1/8. For those of you who want to initiate bearish positions in soybeans, wait for at least one more rally day before considering these positions.
From the June 20 research note on soybeans:
“Although we think a short-term sell signal is likely in the not-too-distant future, for the market to reverse its current trading pattern and move higher, the July contract must make a daily low above OIA’s pivot point for June 21 of 11.64 3/4. A short-term sell signal will be generated if the daily high is below OIA’s key pivot point for June 21 of 11.14 7/8. We recommend that sell parameters be in place and strongly advise against initiating new long positions at current levels.”
From the June 17 research note on soybeans:
“In summary, both position limit traders (managed money) and commercial interests were increasing their short exposure as prices were rising. This is the canary in the coal mine and reveals a loss of momentum. As this report is being compiled on June 20, the July contract is trading 13.50 lower or -1.14%. We think that soybeans are headed for a short-term sell signal and this will occur when the daily high is below OIA’s key pivot point for June 20 of 11.11 5/8.”
WTI crude oil: August and September WTI crude oil will generate intermediate term sell signals on July 8 after generating short-term sell signals on June 16.
Brent crude oil: September and October Brent crude oil will generate intermediate term sell signals on July 8 after generating short-term sell signals on June 16.
August WTI crude oil lost $2.29 on heavy volume of 1,213,731 contracts. Volume exceeded that of July 6 when the August contract gained 83 cents on volume of 1,159,571 contracts and total open interest declined by 112, a bearish open interest stat on a price advance. On July 7, total open interest increased by 13,025 contracts, which relative to volume is approximately 50% below average, but an open interest increase on yesterday sharp price decline is bearish. The August contract lost 14,651 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.
For the past three days, price and open interest action has been acting in a bearish fashion:It increases on price declines and declines when prices advance.The short call position recommended in the June 20 report, which was published on June 21 continues to be profitable and we recommend holding it. Even though equities are rallying sharply on July 8, crude oil is trading only slightly above unchanged.
Heating oil: August and September heating oil will generate short-term sell signals on July 8, but remain on intermediate term by signals. We have no recommendation.
The September dollar index advanced 25.2 points on volume of 16,316 contracts. Total open interest declined by 1,160 contracts, which relative the volume is approximately 185% above average meaning liquidation was heavy on the modest advance. As this report is being compiled on July 8, this September contract is trading unchanged on the day. On June 27, the September dollar index generated short and intermediate term buy signals.
The COT report released last Friday revealed that leverage funds remain massively short the dollar index by a ratio of 4.17:1, though this is down slightly from the previous week of 4.37:1 and the ratio two weeks ago of 4.48:1. We think leverage funds are on the wrong side of the trade at this point and will be forced to cover positions as the dollar index continues to advance.We recommend a stand aside posture.
S&P 500 E-mini-S&P 500 cash index: The September S&P 500 E-mini and the S&P 500 cash index will generate short term by signals on July 8. Both contracts remain on the intermediate term buy signals.
The September S&P 500 E-mini lost 2.00 points on light volume of 1,669,418 contracts. Total open interest declined by 18,678 contracts, which relative to volume is approximately 50% below average. As this report is being compiled after the release this morning of the US employment report, which showed job gains of 287,000, the equity markets are rocketing sharply higher.
Despite the giddiness associated with today’s advance, we want to caution clients to keep an eye on three markets: First, the Japanese yen is advancing against the dollar, when it should be declining. Second, gold should be declining sharply when in fact it has been firm all day. Third, the 10 year note should be declining and in fact is trading very firmly. These three markets may indicate there is something on the horizon that currently is being ignored by the equity markets. We have written extensively about the problems in the Italian banking system and our concern about the financial condition of Deutsche bank, the largest bank in Germany. We have no recommendation at this juncture.
From the July 1 research note on the S&P 500 E-mini:
“On the monthly chart, the 10 month moving average on the S&P 500 cash index crossed above the 20 month moving average, which puts the S&P 500 on a positive longer-term note. The Dow 30 and Nasdaq 100 also are in a 10 x 20 month bullish moving average set-up. However, the S&P 400, Russell 2000 and New York Composite index are in bearish monthly moving average setups.”
“The contagion that we wrote about on June 30 appears to have gathered steam on July 5 and there is a great deal of concern about the financial stability of the Italian banking system. Deutsche Bank, which we consider a negative proxy for the entire European banking system is trading 56 cents lower or -3.95% and has made a new all time low of $13.34 on July 5 while the yield on the 10 year note has collapsed to all time lows on July 5. Clients should note that this Friday is the US employment report and if bullish, could stimulate a strong rally.”
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