September soybeans lost 15.50 cents on volume of 153,385 contracts. Open interest increased by only 578 contracts, which relative to volume is approximately 85% less than average. The August contract accounted for loss of 1,680 of open interest. As this report is being compiled on August 2, September soybeans have made another new low at 12.21 and is trading 12.25 cents lower. Soybeans remain on a short and intermediate term sell signal.
August soybean meal lost $6.30 on volume of 70,102 contracts. Total open interest increased by 606 contracts, which relative to volume is approximately 55% less than average. The August contract lost 895 of open interest. As this report is being compiled on August 2, September meal is trading $7.10 lower and has made a low of $390.00 which is $1.00 above the low of $389.00 made on July 26. It appears increasingly likely that soybean meal will generate a short-term sell signal next week. Although for a time, we thought soybean meal would attempt to rally up to the high made on July 23 of $455.10, we think this is a very a distant probability. Soybean meal remains on a short and intermediate term buy signal.
September corn lost 11.50 cents on volume of 246,646 contracts. Volume was the highest since July 25 when 318,155 contracts were traded and corn lost 12.25 cents while open interest increased by 1,204 contracts. On August 1, total open interest increased by 2,497 contracts, which relative to volume is approximately 50% less than average. The September contract accounted for loss of 8,389 of open interest. During the decline, we have seen a consistent build in open interest, which is bearish. As we have said before, our concern for being short at current levels is weather related that could fuel a good-sized short covering rally. Corn remains on a short and intermediate term sell signal.
September wheat lost 6.25 cents on volume of 140,992 contracts. Volume declined approximately 7,000 contracts from July 31 when September wheat advanced 9 cents and open interest increased by 462 contracts. In the report of July 31, we stated: “On August 1, September wheat is trading 9.75 cents lower and has made a low of $6.48 1/4, which matches the low of July 29 and is 0.25 above the low of $6.48 made on July 26. It would be a very positive development if wheat could continue to find support at $6.48.”
As this report is being compiled on August 2, September wheat is trading 5.25 cents higher and support of $6.48 has held. Wheat has tested 6.48 a total of 4 times: August 1, July 29, July 26, and July 25. During this time the grain complex traded negatively. When we examine the relatively high level of export sales for this time of year, and the potential for increasing sales, we are very friendly to the market. Additionally, managed money is massively short. Wheat is on a short and intermediate term sell signal, which means OIA would not recommend out right bullish positions. However, one strategy that could be employed now would be to write out of the money puts (strikes dependent upon your risk tolerance) in the October- December contracts. We think the worst-case scenario is that wheat trades sideways to slightly lower, which will allow put option sellers to make some money in a lower risk trade while waiting for wheat to generate a short-term buy signal.
December cotton gained 25 points on relatively heavy volume of 16,553 contracts. Volume exceeded the July 16 trading of 16,449 contracts. On August 1, open interest increased by a massive 2,260 contracts, which relative to volume is approximately 390% above average. December cotton has been trading in a sideways pattern since July 19 and through August 1, total open interest has increased by 11,749 contracts, while December cotton prices have advanced only 58 points, or a little bit more than 1/2 cent. This is bearish, especially since managed money is long cotton by a ratio of 5.64:1 as of last week’s report. Additionally, it shows that new longs have not been able to push prices higher even though they have been entering the market at rates that are dramatically above average. A massive build up in open interest with prices moving fractionally over a period of time indicates that a major move is in the offing. We believe the move will be sharply lower. We advise those with bearish positions to exit if cotton breaks above 86.55.
October live cattle lost 97 points on fairly heavy volume of 53,155 contracts. Total open interest increased by 2,236 contracts, which relative to volume is approximately 55% above average meaning that new shorts were entering the market aggressively and pushing prices lower. The August contract accounted for loss of 1,383 of open interest, which makes the total open interest increase much more impressive (bearish). On June 27, October cattle generated a short-term buy signal and by July 15 had generated an intermediate term buy signal. From June 27 through August 1, October cattle lost 90 points, and from July 15 through August 1 cattle lost 1.58 cents. This is bearish price action since the buy signals have been generated. We would avoid cattle on the long side, and clients should consider writing out of the money calls. As this report is being compiled on August 2, October cattle has made a new low of 1.24100.
September crude oil advanced $2.86 on volume of 700,506 contracts. Although volume increased by approximately 118,000 contracts from July 31 when September crude advanced $1.95 and open interest increased by 14,698, compared to other instances where crude oil had a significant advance, the volume was fairly mild. Consider July 19 when September crude made a high of $108.93, and crude oil advanced just 6 cents, volume was 801,653 contracts on that day, and the range was a little bit more than $2.00. On August 1, the trading range was almost $3.00. To put trading volume on August 1 in perspective consider that year to date average daily volume is 614,764 contracts, average daily volume for July was 699,266 and average daily volume for June was 655,533 contracts.
On August 1, total open interest increased only 8,528 contracts, which relative to volume is approximately 45% less than average. The September contract accounted for loss of 11,267 contracts. As this report is being compiled on August 2, September crude has made a high of $108.82, which is 11 cents shy of the high made on July 19. We are unimpressed with oil fundamentals, and think the move higher is stretched to the limit. September WTI remains on a short and intermediate term buy signal.
September natural gas lost 5.9 cents on volume of 310,122 contracts. Total open interest declined by 6,697 contracts, which relative to volume is approximately 15% less than average. The September contract lost 5,291 of open interest. On August 1, natural gas made a new low for the move at $3.341, which is the lowest price since February. It remains on a short and intermediate term sell signal.
The September euro lost 1.23 cents on volume of 278,581 contracts. Remarkably, open interest declined by only 865 contracts, which is dramatically below average. This is positive, especially since the euro is on a short and intermediate term buy signal. In short, speculators were not shaken out by yesterday’s decline. As this report is being compiled on August 2, the euro is trading 68 points higher and the daily low has been 1.3187, which is slightly lower than the trade yesterday of 1.3193. We think the euro may do some consolidation at current levels, and could see somewhat more downside before it makes another leg higher.
S&P 500 E mini:
The S&P 500 E mini gained 19.75 points on volume of 1,520,928 contracts. Open interest increased by 23,482 contracts, which relative to volume is approximately 40% less than average. The market made a new high at 1703.75, and as this report is being compiled on August 2 the E mini high has been 1703.75. The employment report was released, and though it is negative, the market is holding its own. We consider the US equity market to be in a bubble along with some European markets. We strongly advise long put protection, especially for those clients who hold long equity positions.