Soybeans:

September soybeans lost 5.00  cents on volume of 147,039 contracts. Total open interest increased by 2,154 contracts, which relative to volume is approximately 40% below average. The September contract accounted for loss of 1,905 of open interest. As this report is being compiled on August 19, September soybeans are trading 29 cents higher and the November contract +33.50. It is highly likely that November soybeans will generate a short and intermediate term buy signal on August 19. The September contract will likely generate a short-term buy signal. We have been warning clients to avoid the short side of the market because the critical growing season is just ahead and supplies remain tight. Despite this, managed money remains net long by 1.85:1, but this is the lowest ratio of the past several weeks. In summation, managed money shorts will add fuel to the rally. Two weeks ago, the number of net longs was 2.78:1.

Soybean meal:

September soybean meal lost $1.00 on volume of 64,755 contracts. Total open interest increased by 1,721 contracts, which relative to volume is average. The September and October contracts accounted for loss of 2,198 of open interest. On August 12, September soybean meal generated an intermediate term buy signal and it is highly likely that a short-term confirming buy signal will be generated on August 19. As this report is being compiled on August 19, September meal is trading $8.20 higher. The long to short ratio is at the very low-end of the range at 1.62:1 which is up slightly from the previous week, but down from 1.84:1 2 weeks ago. Managed money shorts will provide additional fuel to the rally.

Corn:

September corn lost 7.75 cents on volume of 232,558 contracts. Total open interest declined by 10,514 contracts, which relative to volume is approximately 75% above average, meaning that liquidation was very heavy. The September contract accounted for loss of 11,345 of open interest. As this report is being compiled on August 19, corn is trading 13.50 cents higher and has made a new high for the move at $4.88 3/4. We have been warning about a potential rally in corn due to the fact that the growing season is still in its critical stage and periodic rallies during this time are fairly common. Corn remains on a short and intermediate term sell signal.

 Wheat:

September Chicago wheat lost 6.50 cents on volume of 110,432 contracts. Total open interest declined by 3,236 contracts, which relative to volume is approximately 20% above average. The September contract accounted for loss of 6,666 contracts. Both Chicago and Kansas City wheat remain on short and intermediate term sell signals, however we expect that KC wheat will be the first to generate a buy signal.

 Cotton:

December cotton gained 1.53 cents on volume of 24,529 contracts. Open interest increased by 4,334 contracts, which relative to volume is approximately 480% above average, meaning that new longs were piling into the market at extraordinary rates, and we suspect that commercials were on the other side of the transaction. To put the total open interest in perspective, on August 16 it was 212,738 contracts. This was the highest total since March 19 when total outstanding contracts were 212,739. On March 19, December cotton closed at 88.26 cents. The highest total open interest for 2013 occurred on February 6 at 214,167 contracts and cotton on the continuation chart closed at 81.72. The closest price and total open interest analog occurred on March 15 when cotton made a high of 93.93 on the continuation chart and closed at 92.50 while total open interest was 213,471 contracts. This was the high move and during the next 30 days, cotton dropped into the low 80s. We remain very cautious at current levels and clients should have reasonably tight stops if long because we think the market could turn on a dime. Cotton remains on a short and intermediate term buy signal.

Live cattle:

October live cattle lost 17 points on relatively heavy volume of 54,298 contracts. Total open interest increased by a massive 4,768 contracts, which relative to volume is approximately 250% above average. The August contract accounted for loss of 1,612 of open interest, which makes the total open interest increase much more impressive. Cattle made a new high for the move at 1.29100. We are still waiting for the market to pull back, and although cattle may continue to move higher from here, we suspect there will be increasing consumer resistance at as retail beef prices rise As we move into the fall, supplies will tighten further which will give cattle the impetus it needs to move higher.

Crude oil:

October crude oil gained 13 cents on volume of 603,709 contracts. Total open interest declined 16,268 contracts, which relative to volume is average. The September contract accounted for loss of 21,056 contracts. For the past 3 days beginning on August 15, crude oil has been making attempts to break above the $108.00 level, but has failed to do so on 3 occasions, which include trading on August 19. From August 12 through August 16, crude oil has advanced $1.49, but open interest during this time declined by 40,876 contracts. This is very bearish action, and suggests that crude oil is approaching the end of its bull move. Although crude remains on a short and intermediate term buy signal, clients may want to consider writing out of the money calls.

From the August 14 report:

“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.”

Natural gas:

September natural gas lost 5.1 cents on volume of 193,196 contracts. Total open interest declined by only 714 contracts, which relative to volume is approximately 85% less than average. The September contract lost 14,350 of open interest, which makes the total decline more impressive. As this report is being compiled, September natural gas is trading 9.7 cents higher and has made a new high for the move at $3.501. Natural gas remains on a short and intermediate term sell signal.

Gold:

December gold advanced $9.90 on volume of 190,341 contracts. Open interest declined by 10,937 contracts, which relative to volume is approximately 120% above average meaning that longs and shorts were liquidating as the market was rallying. Please see the August 18 Weekend Wrap for more on the open interest action relative to price during the past week. In short, the dismal open interest action relative to price is telling us that market participants do not believe in the rally.

Silver:

September silver gained 38.7 cents on volume of 83,378 contracts. Open interest declined by 1,443 contracts, which relative to volume is approximately 25% less than average. Although the open interest action in silver is far superior to gold or platinum, there remains a great deal of skepticism about silver’s ability to move higher from here. Please see the Weekend Wrap about the open interest increase relative to the price advance of the past week.

Euro:

The September euro lost 12 points on volume of 182,872 contracts. Open interest increased by 3,701 contracts, which relative to volume is approximately 20% below average. Ever since the euro pulled back to 1.3207 on August 15, the market has continued to act well, and we expect higher prices. The euro remains on a short and intermediate term buy signal.

S&P 500 E mini:

The S&P 500 E mini lost 4.75 points on volume of 1,747,925 contracts. Open interest increased by 8,823 contracts, which relative to volume is approximately 75% below average. We encourage all clients to initiate long put protection if they have not done so already.