Bloomberg Access:{OIAR<GO>}

Corn:

July corn advanced 12.50 cents on volume of 446,774 contracts. Interestingly, volume was slightly below that of June 16 when the July contract lost 3.75 cents on volume of 449,193 contracts and total open interest declined by 5,016. Additionally, volume was below that of June 15 when the July contract lost 7.50 cents on volume of 447,132 contracts and total open interest declined by 2,217.

On June 17, total open interest exploded higher, up 27,159 contracts, which relative to volume is approximately 140% above average meaning aggressive new buyers were entering the market in large numbers and driving prices higher (4.38 1/4). This is the highest print since 4.39 made on June 15. The July contract accounted for a loss of 11,785 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in July and increase total open interest substantially. As this report is being compiled on June 20 the July contract is trading sharply lower, down 13.75 cents or -3.14%.

The COT report released on Friday showed that managed money substantially increased their net long position and added 31,482 to their long positions and liquidated 13,347 of their short positions while commercial interests liquidated 15,509 of their longs and added 20,730 to their short positions. As of the current report, managed money is long corn by ratio of 4.62:1, up from the previous week of 3.56:1 and more than double the ratio two weeks ago of 2.26:1.

Though Friday’s open interest increase was impressive, the lack luster volume compared to previous days indicates that many would be participants were sitting on the sidelines. Additionally, the July contract is encountering formidable resistance at the 439 level and with managed money heavily long and the seasonal  tendency for corn to top, at least temporarily in the late June early July time frame, it appears that the path of least resistance is lower for now.

The first sign that corn is likely to generate a short-term sell signal would be if the daily high is below OIA’s pivot point for June 20 of 4. 26 3/8. July corn will generate a short-term sell signal if the daily high is below OIA’s key pivot point for June 20 of 4.12 1/2.We continue to advise a stand aside posture with respect to new positions and those who are long from lower levels should have appropriate sell parameters in place.

Soybeans:

July soybeans advanced 25.00 cents on volume of 280,791 contracts. Volume was below that of June 16 when the July contract lost  21.50 cents on volume of 300,405 contracts and total open interest declined by 6,665. On June 17, total open interest exploded higher, up 14,176 contracts, which relative to volume is approximately 100% above average meaning aggressive new buyers were entering the market in substantial numbers and driving prices higher (11.60). The July contract accounted for a loss of 14,527 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in July and increase total open interest substantially. Yesterday’s action was positive.

The COT report released on Friday showed that managed money remains long soybeans by ratio of 11.26:1, which is down from the previous week of 13.03:1 and the ratio two weeks ago of 13.47:1. The high ratio for soybeans occurred three weeks ago at 14.52:1. During the COT tabulation period (June 8-June 14) July soybeans advanced 28.25 cents, yet during this time frame, managed money liquidated 562 of their long positions and added to 2,311 to their short positions. Commercial interests liquidated 8254 of their longs and added 8293 to their short positions.

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.

From the June 15 research note on soybeans:

“For clients who are long at lower levels, we recommend that partial profits be taken and that sell parameters are in place. As readers of our reports know, we have been discouraging the initiation of new bullish positions and have been warning that soybeans have a tendency to top out in the June-July time frame.”

WTI crude oil:

August WTI crude oil gained $1.82 on volume of 872,247 contracts. Volume fell substantially from June 16 when the August contract lost $1.80 on volume of 1,166,459 contracts and total open interest declined by 18,457. On June 17, total open interest declined by 1,093 contracts, and though this is a minor decline, the fact is the July contract lost 36,635 of open interest and there were insufficient open interest increases in the forward months to fully offset the decline in July. Friday’s action was bearish.

The COT report revealed that managed money reduced their net long exposure by liquidating 13,221 contracts of their long positions and adding 26,672 to their short positions. This leaves managed money long WTI crude oil by ratio of 2.32:1, down sharply from the previous week of 3.16:1 and nearly half the ratio two weeks ago of 4.33:1. Commercial interests added 37 contracts to their long positions and liquidated 8,868 of their short positions.

As this report is being compiled on June 20, the August contract is trading $1.08 above Friday’s close and has made a daily high of 49.93, which is the highest print since 49.91 made on June 13. Currently, the August contract is trading at approximately its 20 day moving average of 49.48.

On June 16, OIA announced that the August contract generated a short-term sell signal and remains on an intermediate term buy signal. As we stated in the June 16 report, after a short-term sell signal is generated markets have a tendency to rally from 1-3 days and this is the most opportune time to initiate bearish positions.

On June 20, the dollar index is trading sharply lower while the major equity indices are trading sharply higher and this combination is a bullish for crude oil. Also, gasoline is extremely strong on June 20, up 4.03% versus WTI +2.37% and heating oil +2.35%.

Both gasoline and heating oil remain on short term sell signals and the August gasoline contract is on an intermediate term sell signal as well. We prefer to wait one more day to see whether the short-term sell signal is going to be reversed. This will occur if in tomorrow’s trading, the August contract makes a daily low above OIA’s key pivot point for June 20 of $49.63.

Gold:

August gold lost $3.60 on volume of 236,283 contracts. Total open interest increased again, this time by 7,231 contracts, which relative to volume is approximately 10% above average. From June 8 through June 17 total open interest has increased every day for a total of 85,634 contracts while August gold has advanced by $47.80. 

To put the collective open interest increase in perspective consider that for each dollar increase in the price of gold from June 3 through June 17, it has taken an open interest increase of 1,784 contracts. While open interest increases during the past 11 days on price advances is bullish, OIA thinks it has been substantially overdone relative to the price advance. Hedgers are active and taking the other side of the trade.

The COT report reveals that managed money added 45,439 contracts to their long positions and liquidated 6,435 of their short positions, which leaves manage money long gold by a stratospheric ratio of 9.11:1, which is up from the previous week of 6.11:1 and more than double the ratio two weeks ago of 4.41:1. The current ratio of manage money longs takes out the previous high of 8.31:1 made several weeks ago.

Commercial interests added 259 contracts to their long positions and added 29,102 to their short positions, which supports our thesis that hedgers had been aggressively entering the short side of the market. As this report is being compiled on June 20, the August contract is trading $2.90 lower and has made a daily high of 1296.80, which is below Friday’s print of 1302.70.

The lopsided position of managed money concerns us and it should be noted that the tabulation date of June 14 (Tuesday) does not reflect the massive open interest increases of Wednesday, Thursday and Friday, which means that managed money has likely increased their net long position and this will be reflected in this Friday’s report.We continue to recommend a stand aside posture due to the extreme volatility regarding Brexit.

Silver:

July silver lost 19.6 cents on strong volume of 80,710 contracts. Volume fell from June 16 when the July contract gained 10.4 cents on volume of 102,018 contracts and total open interest increased only 172. On June 17, total open interest increased by 3,141 contracts, which relative to volume is approximately 30% above average, which means short-sellers were in control during Friday’s trading driving prices to a low of 17.210, which is slightly above the June 16 print of 17.170.

The COT report revealed that managed money added 8,937 to their long positions and liquidated 3,321 of their short positions. This leaves manage money long silver by a ratio of 4.92:1, up from the previous week of 3.59:1 and the ratio two weeks ago of 4.22:1. The high ratio for silver occurred several weeks ago at 9.21:1.The open interest action in silver has been uneven and certainly not as impressive as gold. Like gold, we recommend a stand aside posture due to the extreme volatility associated with Brexit.

British pound:

The September British pound advanced 1.44 cents on volume of 132,923 contracts. Volume fell from June 16 when the September contract advanced 31 pips on volume of 162,237 contracts and total open interest increased by 1,394. On June 17, total open interest increased by 1,477 contracts, which relative to volume is approximately 45% below average, but an open interest increase on Friday strong advance is positive. As a matter-of-fact open interest action the pound has been consistently bullish.

The COT report revealed that leverage funds added 2,595 contracts to their long positions and liquidated 822 of their short positions, but regardless, they remain short by ratio of 1.06:1, which is down from the previous week of 1.13:1, but up from the ratio two weeks ago of 1.006:1 (the lowest short ratio thus far in 2016). Volatility in the pound is off the charts and we strongly advise a stand aside posture. As this report is being compiled on June 20 the September pound is trading sharply higher, up 3.24 cents or +2.26% and is by far the best-performing currency futures contract on the board.