Bloomberg Access:{OIAR<GO>}

Today June 30, the grain stocks and planting intentions report has been released by the USDA and we will provide an analysis of today’s action in our report published tomorrow. Currently, August soybeans are trading 32.50 cents higher while September corn is making new lows for the move and trading 9.75 cents lower.

Lean hogs: October lean hogs will generate a short-term sell signal on June 30 if the daily high is below OIA’s key pivot point for June 30 of 71.835.

WTI crude oil:

August WTI crude oil advanced by a strong $2.03 on surprisingly light volume of 967,120 contracts. Although volume was above that of June 28 when the August contract gained 1.52 on volume of 892,993 contracts and total open interest increased by 15,528, it was below that of June 24 when the August contract lost 2.47 on volume of 1,096,908 contracts and total open interest declined by 21,775. In summary, market participation was significantly greater when crude declined than when it advanced.

On June 29, total open interest increased by 27,773 contracts, which relative the volume is average. As this report is being compiled on June 30, the August contract is trading $1.21 lower after making a daily high of 49.62 which is below yesterday’s print a 50.00. In yesterday’s report, we recommended clients maintain the short call position originally recommended in the June 20 report written on June 21. The trade continues to work well as volatility decreases and prices trade in a sideways pattern.

The short-term sell signal will reverse if the August contract makes a daily low above OIA’s pivot point for June 30 of $49.72. The downtrend will resume if the August contract makes a daily high below OIA’s pivot point for June 30 of 48.09. As we pointed out before, we think the worst of the carnage in crude oil is over, but have no strong conviction about the direction of crude.

Silver:

September silver advanced 51.8 cents on heavy volume of 121,323 contracts. Volume exceeded that of June 28 when September silver gained 10.3 cents on volume of 116,153 contracts and total open interest declined by 2,099. On June 29, total open interest declined by 2,874 contracts, which relative to volume is approximately 10% below average. The July contract lost 10,834 of open interest, which means there were NOT enough open interest increases in the forward months to offset the decline in July. We view this as being very negative, especially when silver made a new high for the move of $18.580. 

Open interest has been negative for the past two days when silver has advanced and during the strong advance in yesterday’s trading, volume was only slightly above June 28 when it gained a much smaller percentage. Also, the silver volatility index has been declining as prices had been rising. This is another negative for the white metal. Stand aside.

Euro:

September euro advanced by 58 pips on volume of 157,201 contracts. Total open interest increased by 2,558 contracts, which relative the volume is approximately 35% below average.As this report is being compiled on June 30, the September euro has reversed course and trading 54 pips lower on the day. On June 27, OIA announced that the September euro generated short and intermediate term sell signals. We have no recommendation.

British pound:

The September British pound advanced 78 pips on volume of 135,029 contracts. Volume fell below that of June 28 when the September contract gained 1.64 cents on volume of 144,902 contracts and total open interest declined by 550, a bearish open interest reaction to a relatively strong advance. Yesterday the September pound made a high of 1.3540, which took out the June 28 high of 1.3429 and the June 27 print of 1.3502. The high thus far in trading on June 30 has been 1.3502 and the September contract is currently trading 1.77 lower on the day and has made a daily low of 1.3222, which takes out the June 28 print of 1.3228 and is the lowest since the contract low of 1.3133 made on June 27.

In summary, there appears to be strong resistance at the 1.35-1.3550 area and on June 30, the market is plumbing lows last seen right after the Brexit crisis. Additionally, we think there are potential landmines in the European banking system that could dramatically affect the pound and the euro. The pound is too volatile to trade. Stand aside.

S&P 500 E-mini:

The S&P 500 E-mini gained 38.25 points on volume of 2,068,415 contracts. Volume declined from June 28 when the September contract gained 43.75 points on volume of 2,288,494 contracts and total open interest declined by 32,421. On June 29, total open interest increased by a sizable 76,284 contracts, which relative the volume is approximately 25% above average.

As this report is being compiled on June 30 the September contract is trading 16.25 points higher and has made a daily high of 2085.50, which is above yesterday’s print of 2074.75. For the September contract to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for June 30, 2089.85 and an intermediate-term buy signal will be generated if the daily low is above OIA’s key pivot point for June 30, 2072.60. On June 27, OIA announced that the September S&P 500 many generated short and intermediate term sell signals.

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.

In our experience when a market is trending lower and making new lows in an orderly manner the worst part of the decline very often occurs from a very low level. For example, when the markets crashed in October 1929 and October 1987, the Dow Jones industrial average was already down approximately 20%. A In other words, the crash occurred after prices had already declined substantially. Earlier this year, we saw the same phenomena in natural gas. Natural gas prices were trending lower in an orderly manner in the low $2.00 dollar range and then suddenly crashed to the $1.65 level in a matter of days.

Today, is the third day of the counter trend rally in the E-mini after the generation of short and intermediate term sell signals on June 27. The real test will come in tomorrow’s trading. The impetus for the recent rally has likely been institutional end of quarter window dressing. As we pointed out yesterday’s report, the July-August-September time frame is unfavorable for equities. Continue to stand aside.

From the June 27 research note on the S&P 500 E-mini:

“As this report is being compiled on June 28, the September contract is having its typical counter trend rally after generating sell signals and trading up 24.50 points. It has made a daily high of 2018.25 and low of 1982.25, which is fractionally above yesterday’s print. It should be noted that the July-August-September time frame is usually a period of under performance for the major indices.”

“We think it is premature to enter bearish positions and want to see another day or two of rally activity before making a recommendation. The 10 year note is trading unchanged even though equities are rallying and it appears likely that further declines in the 10 year yield are on the horizon, which may indicate that a further slowdown in the global economy is on the horizon. Stand aside for now.”