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August 2nd Note: Considering that equities are sharply lower along with metals and crude oil, the grains are holding up remarkably well.
September soybeans closed 18.00 cents lower on volume of 266,281 contracts. Volume was the highest since July 25 when 273,894 contracts were traded and soybeans closed 4.50 cents higher. Additionally, volume was approximately 63,000 contracts higher on August 1 than on July 31 when soybeans lost 4.75 cents. On August 1, open interest increased by 1,016 contracts, which in relation to volume was significantly below average. The market continues to trade in its sideways to lower pattern, punctuated by sporadic rallies. The market will likely trade in this fashion into early next week, and then start to rally as speculators anticipate a bullish report from the USDA supply and demand report to be released on August 10. The market has been trading in a very positive fashion and the open interest action in relation to price is positive as well. As I write this on August 2, September soybeans are trading 13.00 cents lower. The market remains on a short and intermediate term buy signal.
September soybean meal lost $3.30 on volume of 95,384 contracts. Volume increased by approximately 18,500 contracts from July 31 when soybean meal closed $2.30 lower and open interest declined by 1,652 contracts. On August 2, open interest declined by 3,269 contracts, which in relation to volume was above average. During the past eight trading days, open interest has declined by 25,950 contracts and soybean meal has declined by $2.30 in this time frame. Like soybeans, the market is in a corrective phase which so far has consisted of sideways to lower consolidation punctuated by sporadic rallies. Soybean meal will likely trade in this fashion until early next week when the market will be anticipating a bullish reading in the August 10 USDA supply demand report. As I write this on August 2 soybean meal is trading $3.60 lower.
September corn lost 6.00 cents on volume of 322,353 contracts. Volume was the highest since July 24 when 344,674 contracts were traded and corn declined by 24.00 cents while open interest increased by 3,660 contracts. On the 24th, corn made its low at $7.74, and this low has held through trading on August 2. Open interest declined by 9,101 contracts on August 1, which in relation to volume is an average number. This is the second day in a row that open interest declined when price declined bringing the two-day total to 16,309 contracts. The corn market is trading in a very positive fashion and will likely to continue its recent trading pattern of sideways to lower with sporadic rallies until early next week.
September wheat lost 8.75 cents on volume of 115,086 contracts. Open interest declined by 3,197 contracts, which in relation to volume was an average number. Though the market made a low of $8.61 3/4 on August 1, which was 25.00 cents below the July 31 low, volume only increased by 953 contracts from July 31. Although this is one day’s activity, it may indicate that the pace of selling is drying up, which is positive. As I write this on August 2 September wheat is trading $5.25 lower.
September crude oil gained 85 cents on volume of 540,299 contracts. Volume on August 1 increased by approximately 19,000 contracts from July 31 when the market declined $1.72 and open interest declined by 1,906 contracts. For the past seven days, open interest in crude oil has increased by 46,723 contracts. There was only one day when open interest declined and this occurred on July 31 when crude oil closed lower. Although open interest has increased substantially during the past seven days, the aggregate increase is a mere 75 cents. This is indicative of determined longs and shorts who strongly disagree about the future direction of crude oil prices and are aggressively buying and selling, which is causing paltry gains in price. Remember, open interest increases when there is disagreement between longs and shorts.
The fact that crude oil has not been able to advance significantly, despite the build in open interest indicates the market is in equilibrium. The most notable feature of the seven-day advance has been the small incremental changes in price. For example, since July 24 through August 1, crude oil has made daily advances of (in cents) : 34, 47, 42, 74, and 85. On the 24th, crude oil advanced 34 cents and open interest increased by a massive 33,673 contracts. To put that massive open increase in perspective and how it has hardly affected price, consider on July 24, September crude oil closed at $88.50 and had barely budged by the close on August 1 of $88.91. Again, this confirms that aggressive buyers and sellers are keeping the market in equilibrium. On July 19, crude oil generated a short-term buy signal, but remains on an intermediate term sell signal.
September gasoline gained 5.99 cents on volume of 116,254 contracts. Volume increased by approximately 11,000 from July 31 when gasoline closed 4.41 cents lower and open interest declined by 2,846 contracts. On August 1, open interest increased by 3,694 contracts, which in relation to volume was somewhat above average. This is the first increase of open interest since July 23 when open interest increased by 526 contracts and September gasoline fell 8.07 cents. The last time that open interest increased when gasoline prices advanced was on July 19 when September gasoline advanced 6.59 cents and open interest increased by 7,142 contracts on volume of 157,742 contracts. The high on July 19 was 2.8460 and the high on August 1 was 2.8533 meaning that gasoline is at the same level it was on July 19, yet volume and open interest on August 1 was significantly below the move on the 19th.
According to yesterday’s EIA report, gasoline stocks are below year ago levels and below the five-year average, but consumption is lower than year ago levels. On August 1, gasoline reached its highest level since May 10 when gasoline reached a high of of 2.8651. Gasoline generated a short-term buy signal on July 16, but as I write this on August 2, an intermediate term buy signal has not yet been generated. Gasoline is a great example of how price action can contradict volume and open interest action. Until an intermediate term buy signal is generated, it is best for investors to stand aside, especially at current price levels. As I write this on August 2 September gasoline is trading 3.99 cents higher.
September copper lost 4.25 cents on volume of 61,385 contracts. Open interest increased by 2,991 contracts which in relation to volume is a significantly higher than average increase. The shorts have been in control of this market for couple of months and it doesn’t look like this will end anytime soon. As I write this on August 2, September copper is trading 7.95 cents lower.
December gold closed $7.30 lower on volume of 174,947 contracts. Volume increased by approximately 34,500 contracts from the day before when gold lost $9.40 and open interest declined by 9,990 contracts. On August 1, open interest declined for the fifth consecutive day, which brings the total decline to 28,459 contracts while gold has declined by $5.50 in this time frame. Gold began its rally on July 23 at $1562.00 (the low the day) and peaked at $1628.60 on July 27. However, open interest action was unimpressive even though volume was rather heavy. In prior reports, it was stated that the weak open interest action in gold showed that investors gave gold little credibility. Open interest action on the advance was paltry and the open interest decline accelerated as the market declined. Gold remains on a short term buy signal and an intermediate term sell signal. As I write this on August 2 December gold is trading $17.10 lower.
September silver lost 37.9 cents on volume of 49,178 contracts. Volume was higher by 195 contracts than on July 25 when silver closed 65.5 cents higher and open interest declined by 2,780 contracts. On August 1, open interest increased by 1,576 contracts, which in relation to volume was somewhat above average. The market continues to act poorly and the metal has yet to prove itself as a viable candidate for long positions. The market remains on a short and intermediate term sell signal.
The September Euro declined by 70 points on volume of 211,823 contracts. Open interest increased by 7,157 contracts, which in relation to volume was somewhat above average. As I write this on August 2, the September Euro is trading 63 points lower on Mario Draghi’s failure to put action behind his words. It appears the Euro is headed for a retest of 1.2051, the low made on July 24.
S&P 500 E mini:
The September S&P 500 E mini lost 4.00 points on volume of 1,803,981 contracts. Open interest increased by 13,959 contracts, which in relation to volume was significantly below average. During numerous prior reports, it has been mentioned that the S&P 500 E mini is not a good candidate for long positions based upon the terrible performance of open interest (massive liquidation) as the market was moving higher. Although the ndex remains on a short and intermediate term buy signal, the preferred position is to be long Apple Computer. As I write this August 2, the S&P 500 E mini is trading 14.00 points lower on heavy volume of 2,533,657 contracts. Undoubtedly, this is due to the Mario Draghi fiasco, as well as data that shows global economies are weakening.