Soybeans: On August 19, November soybeans generated a short and intermediate term buy signal. Also, on August 19, September soybeans generated a short-term buy signal, but not an intermediate term buy signal.
September soybeans advanced 38.75 cents and the November contract gained 44 cents on volume of 250,845 contracts. Volume was the highest since May 23 when 307,139 contracts were traded and the September contract closed at $12.99 1/2. On August 19, total open interest increased by a massive 12,192 contracts, which relative to volume is approximately 75% above average meaning that new buyers were entering the market aggressively and pushing prices significantly higher. The September contract lost 2,751 of open interest, which makes the total open interest increase much more impressive. As this report is being compiled on August 20, both September and November soybeans are trading 8.25 cents lower, and we want to see another day or two of pullbacks, before bullish positions should be considered.
Soybean meal: On August 19, September soybean meal generated a short-term buy signal, which confirms the intermediate term buy signal generated on August 12.
September soybean meal advanced $11.50 on volume of 93,632 contracts. Total open interest increased by 4,665 contracts, which relative to volume is approximately 100% above average. Making this more impressive was the fact that the September contract lost 3,384 of open interest. Soybean meal should experience a 1-3 day correction before bullish positions should be considered.
September corn advanced 19.50 cents on heavy volume of 300,330 contracts. Volume was the heaviest since August 15 when 391,789 contracts were traded and September corn advanced 16.75 while total open interest increased 12,027 contracts. On August 19, total open interest declined only 569 contracts, which is minuscule and dramatically below average. The September and December contracts accounted for loss of 6,789 of open interest. Corn remains on a short and intermediate term sell signal, but with the large number of managed money shorts, and the critical growing season just ahead, we recommend a stand aside posture.
September Chicago wheat gained 10.50 cents and Kansas City gained 5.00 cents. Volume for Chicago wheat was 100,667 contracts and total open interest declined 1,219 contracts, which is approximately 50% below average. The September Chicago contract lost 8,075 of open interest. We hate to sound like a broken record, but we think the Kansas City contract will offer a terrific opportunity on the long side, just not yet. Both Chicago and KC wheat remain on a short and intermediate term sell signal.
December cotton lost 46 points on volume of 15,620 contracts. Total open interest increased by 1,640 contracts, which relative to volume is approximately 320% above average. Total outstanding contracts for all delivery months came in at 214,378 on August 19,a high for 2013, which broke the February 6, 2013 high of 214,167. As this report is being compiled on August 20, December cotton is trading down the 4 cent limit and has been limit down for most of the day session. We have been warning that cotton could turn at any moment and actively discouraged clients from entering long positions. We think the market has topped and the stratospheric total open interest, along with a very high net long position by managed money, in addition to cotton having reached the highest level in nearly 18 months, makes cotton a good bearish play for long option traders. Keep in mind, the fundamentals for cotton are bearish and the massive price increase was due to a short-term squeeze of deliverable stocks. We think this is a relatively low risk trade with high potential for profit. However, this suggestion is only for option traders.
From the August 16 report:
“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.”
October live cattle advanced 12 points on light volume of 36,332 contracts. Total open interest declined by 1,385 contracts, which relative to volume is approximately 50% above average meaning that liquidation was fairly heavy. The August and October contracts accounted for loss of 2,349 of open interest. We continue to wait for a decent size pullback before recommending the initiation of bullish positions.
October crude oil lost 43 cents on light volume of 515,608 contracts. Total open interest declined by 21,644 contracts, which relative to volume is approximately 55% above average, meaning that liquidation was heavy on a rather modest decline. The market looks like it is topping out, and as we suggested in yesterday’s report (see below), clients may want to consider writing out of the money calls.
From the August 16 report:
“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.”
September natural gas advanced 9.5 cents on volume of 320,547 contracts. Volume increased approximately 130,000 contracts from August 16 when natural gas lost 5.1 cents and open interest declined 714 contracts. On August 19, open interest declined by 2,808 contracts, which relative to volume is approximately 50% less than average. Natural gas remains on a short and intermediate term sell signal.
December gold lost $5.30 on volume of 135,507 contracts. Open interest increased by 2,028 contracts, which relative to volume is approximately 40% below average. Gold needs to trade in a positive manner for an extended period before it is apparent to the masses that the market has finally turned. Gold remains on a short-term buy signal, but an intermediate term sell signal.
September silver lost 15.6 cents on volume of 59,047 contracts. Open interest increased by 1,500 contracts, which relative to volume is average. During the evening session, silver pulled back to $22.28, and is now trading 13.6 cents lower on the day. We want to see more corrective action in both silver and gold before recommending bullish positions. We are looking forward to seeing how the precious metals trade when there is a major slide in the equity indices, which we think is imminent.
The September euro gained 3 points on light volume of 137,104 contracts. Total open interest increased by 3,250, which relative to volume is average. The September euro generated a short and intermediate term buy signal on July 22, and as this report is being compiled on August 20, the euro has made a new high for the move at 1.3454. This is the highest level since mid February 2013. If long the euro, we recommend that sell stops be raised to protect profits. We get concerned when markets reach old highs, and managed money has the largest net long position in quite a while.
S&P 500 E mini:
The September S&P 500 E mini lost 6.00 points on volume of 1,473,232 contracts. Open interest increased by 29,975 contracts, which relative to volume is approximately 20% below average, but a large increase nonetheless. For the past 3 sessions beginning on August 15, open interest has increased every day as the market declined each day. For example, from August 15 through August 19 the E mini has declined 37 points and open interest increased by 65,625 contracts. This is bearish open interest action relative to the price decline. We think the market is headed significantly lower and strongly encourage the initiation of long put protection.