September soybeans gained 11.75 cents on volume of 159,336 contracts. Total open interest increased by a massive 11,080 contracts, which relative to volume is approximately 360% above average, meaning that longs and shorts had a major battle for dominance, and the longs were clearly the winners. We suspect players on the buy side were commercial interests. The August and September contracts lost 739 of open interest, which makes the total open interest increase more impressive. The longs continue to be on the right side of the trade because as this report is being compiled on August 15, September soybeans are trading 16.50 cents higher and have made a new high for the move at $12.94. Based upon open interest action of the last 3 days, it is apparent that speculative shorts are digging in and refusing to cover positions even though September soybeans have rallied over a dollar from the low of $11.86 made on August 5. The USDA reported cancellations of 10,500 tons for the 2012-2013 season and a massive sale of 1893.4 thousand tons for the 2013-2014 season. It is highly likely that November soybeans will generate a short-term buy signal on August 15. November soybeans show stronger relative performance to the September contract. Do not short soybeans.
September soybean meal advanced $6.10 on volume of 75,239 contracts. Total open interest increased by a massive 4,008 contracts, which relative to volume is approximately 110% above average. The September and October contracts lost a total of 576 of open interest. The USDA reported for the 2012-2013 season, 122.4 thousand tons were sold for the current year and 121.1 thousand tons for 2013-2014. Although it is close, soybean meal will not generate a short-term buy signal on August 15. We advise against shorting any of the grain markets at this juncture.
September corn advanced 9.50 cents on volume of 274,673 contracts. Total open interest increased by 6,500 contracts, which relative to volume is approximately average. Making the total open interest increase more impressive was the fact that September corn lost 10,612 of open interest. The USDA reported cancellations totaling 59.1 thousand tons for the 2012-2013 season and sales of 836.1 thousand tons for the 2013-2014 season. As this report is being compiled on August 15, September corn is trading 16.00 cents higher and has made a new high for the move at $4.85. Although, in yesterday’s report we suggested it was a possibility to short corn as it neared the 4.80 level, we also warned of the high net short position of speculators and the critical growing season being far from over. Do not short corn at this juncture.
September wheat gained 2.50 cents on volume of 127,609 contracts. Open interest declined by 6,569 contracts, which relative to volume is approximately 100% above average, meaning that liquidation was unusually heavy. The September contract lost 11,771 of open interest. The USDA reported that 490.1 thousand tons were sold for the 2012-2013 season and 5,500 tons for the 2013-2014 season. Wheat remains on a short and intermediate term sell signal.
December cotton lost 17 points on volume of 20,959 contracts. Open interest increased by 2,877 contracts, which relative to volume is approximately 330% above average. Cotton remains on a short and intermediate term buy signal, but we caution speculators about being long at current levels.
October live cattle gained 10 points on volume of 36,154 contracts. Open interest increased by 157 contracts, which relative to volume is approximately 75% below average. The August contract lost 610 of open interest. We advise waiting for a setback before initiating bullish positions.
September crude oil gained 2 cents on volume of 652,593 contracts. Total open interest declined by 2,821 contracts, which relative to volume is approximately 85% less than average. The September accounted for loss of 33,069 contracts of open interest. For the past 3 days beginning on August 12, crude oil has advanced 88 cents, while open interest has increased only 4,993 contracts. This action dovetails with our thesis that crude oil looks tired at current levels, and the risk is being long at current levels. As this report is being compiled on August 15, crude oil is trading 57 cents higher and has made a new high for the move at $107.87. As we have said in previous reports, we think the top in crude is at the $109.00 level. Additionally, we think it will struggle to move higher. Crude oil remains on a short and intermediate term buy signal.
September natural gas gained 5.7 cents on volume of 391,154 contracts. Total open interest increased by 4,843 contracts, which relative to volume is approximately 45% below average. The September contract accounted for loss of 16,720 of open interest. According to the Energy Information Administration, natural gas storage increased by 65 bcf, and total gas storage is 7.7% lower than it was at the same time last year. As this report is being compiled, September natural gas is trading 7.2 cents higher. We continue to think that $3.129 made on August 8 was a major low. Natural gas remains on a short and intermediate term sell signal.
December gold gained $12.90 on low volume of 127,897 contracts. Open interest increased by 1,881 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on August 15, gold has exploded to the upside and is trading $29.00 higher and has made a new high for the move at 1367.90. On August 9, gold generated a short-term buy signal, but as of August 15 will not generate an intermediate term buy signal. Since generating a buy signal, gold has not had a setback of any size with the exception of August 13 when it lost $13.70 on volume of 158,069 contracts and open interest declined 2,995 contracts. The market is overbought relative to its 50 day moving average of 1309, and we would encourage clients to wait for a setback before getting on board. As the comments below indicate, just as everyone has thrown in the towel on gold, and now it is rallying strongly. We think the low made on June 28 will prove to be a major inflection point.
From various publications on August 14:
“Billionaire hedge fund manager John Paulson, who told investors as recently as last month that they should own gold, cut his holdings in the metal by more than half as prices plunged into a bear market.”
“Paulson & Co., the largest investor in the SPDR Gold Trust, the biggest exchange-traded product for the metal, pared its stake to 10.2 million shares in the three months ended June 30 from 21.8 million at the end of the first quarter, according to a government filing yesterday. The New York-based firm, which manages $18 billion, cut its ownership for the first time since 2011 “due to a reduced need for hedging,” according to an e-mailed response to questions.”
“The hedge fund is following other money managers who have been more aggressive in getting out as investors lost faith in gold as a store of value. Prices plunged by a record 23 percent in the second quarter as U.S. equities rallied and inflation was muted, while the Federal Reserve suggested it will reduce fiscal support for the economy. Billionaires George Soros and Daniel Loeb sold their entire SPDR stakes in the past quarter, U.S. Securities and Exchange Commission filings showed.”
“Gold’s plunge, including two days in April when the price plummeted the most since 1980, roiled livelihoods from the 1 million miners in Ghana who scour in the dirt for the metal to thousands of executives and geologists at mining exploration firms that are running out of cash in Vancouver. Gone are jobs for auditors, bankers and analysts in the finance capitals of Toronto and London. Some investors who bet big and lost are scaling back retirement plans.”
September silver gained 44.4 cents on volume of 66,710 contracts. Open interest declined by 1,904 contracts, which relative to volume is average. On August 9, September silver generated a short-term buy signal, and has exploded higher ever since. As this report is being compiled on August 15, silver is trading $1.233 higher, and will generate an intermediate term buy signal on August 15.
From the August 13 report:
Like gold, clients should wait for a decent size pullback in silver. Although based upon price, silver is overbought, but certainly not from a COT and open interest standpoint. Silver has a tendency to trend upwards or downwards sharply in a compressed period of time. Corrections can be significant, and speculators do not want to be caught in one of these.
The September euro lost 10 points on volume of 170,372 contracts. Open interest increased by 190 contracts, which is minuscule and dramatically below average. As this report is being compiled on August 15, the euro made a low of 1.3207 in the early morning cdt, but has reversed and is now trading 83 points higher on heavy volume. On July 22, the September euro generated a short and intermediate term buy signal.
From the August 12 report:
“We have seen lower closes for the past 2 days, and it appears that a 3rd lower close in store on August 13. The critical area to watch for is the August 2 low of 1.3187. If the euro can maintain strength above this level, we could see an opportunity to initiate bullish positions. It is important to keep in mind that managed money has gotten increasingly net long in the euro as the market has reached the upper end of its trading range. For example, the latest COT report showed that managed money was long the euro by a ratio of 1.15:1, which was up dramatically from the previous week when they were short by a ratio of 1.01:1 and the ratio of 2 weeks ago when managed money was short by 1.43:1. As a consequence, there is going to be an inordinate amount of selling pressure in the euro due to the Johnny-come-lately trend followers who have piled in at the top. The euro remains on a short and intermediate term buy signal.”
S&P 500 E mini:
TheS&P 500 E mini lost 8.75 points on volume of 1,508,812 contracts.Open interest declined by 5,910 contracts, which relative to volume is minuscule and dramatically below average. As this report is being compiled on August 15, the E mini is trading 22.75 points lower, and we expect the slide to continue. As we have been warning for quite some time, speculators should have long put protection.