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Soybeans:

September soybeans gained 32.75 cents on volume of 148,625 contracts. Volume increased approximately 50,000 contracts from the day before, when soybeans gained 14.75 cents and open interest increased by 895 contracts. On August 20, open interest increased by 2,408 contracts, which in relation to volume is approximately 30% below average. As indicated in previous posts, we posited that soybeans were going to test its July 20 high of $17.77 3/4. As this report is being compiled on August 21, September soybeans are up 43.50 cents which is approximately 30.00 cents from the all-time high.

Soybean meal:

October soybean meal gained $11.70 on volume of 61,658 contracts. Volume increased by approximately 15,000 contracts from August 17 when soybean meal closed at $9.20 higher and open interest increased by 3,629 contracts. The long October-short December soybean meal spread lost $1.20. As indicated before, speculators should exit positions if the spread narrows to $4.90. During the past four trading sessions (August 15-August 20) soybean meal open interest has increased by 11,483 contracts while soybean meal advanced $32.90. During the same period, soybean open interest has increased 1,245 contracts while soybean prices have advanced 83.00 cents. It is clear that commitments to soybean meal are significantly greater than the meager commitment to soybeans. On August 21, October soybean meal is trading $9.80 higher.

Corn:

December corn gained 16.50 cents on volume of 244,173 contracts. Volume increased approximately 47,000 contracts from August 17 when corn closed 0.75 cents lower and open interest declined by 1,916 contracts. On August 20 open interest increased by 7,555 contracts, which in relation to volume is slightly above average. As indicated before, we believed the market would rally up to the $8.29-$8.31 level. As this report is being compiled on August 21, corn has made a high of $8.40. We have suggested that speculators write calls in out of the money December options when the market rallied up to this level. We think this is the correct strategy, even though it is possible the market could take out its high made on August 10 of $8.49. Corn’s history during the past four years shows that all time highs are made in small increments. This will be discussed in greater detail in the upcoming Weekend Wrap. In other words, if corn were to surpass its all-time high, we do not think the rally would continue for much more than 25.00-30.00 cents. The EPA is reviewing the ethanol mandate and will make a decision about it in 90 days. This is going to hang over the market until a final decision is made. In the meantime, livestock producers are lobbying the government to reduce the mandate.

Wheat:

December wheat gained 8.25 cents on volume of 88,602 contracts. Volume increased approximately 12,000 contracts from August 17 when wheat advanced 12.75 and open interest increased by 1,143 contracts. On August 20, open interest increased by 4,546 contracts, which in relation to volume is approximately 75% above average. The increase of open interest relative to volume for wheat was significantly higher than corn. As this report is being compiled on August 21, wheat is up 16.00 cents while corn is up 11.00 cents. With all the talk about the drought and its impact on the corn crop, wheat has been ignored, but since August 15-August 20, wheat has advanced 5.27% while corn has gained 4.40%. We think the performance of wheat is outstanding, and is underrated in terms of its ability to rally further. As indicated before, we prefer to wait until the end of August, or early September before recommending that bullish positions be implemented.

Crude oil:

October crude oil lost 6.00 cents on volume of 472,553 contracts. Volume declined by approximately 16,000 contracts from August 17 when crude advanced 43.00 cents and open interest increased by 3,464 contracts. On August 20, open interest declined by 18,306 contracts, which in relation to volume is approximately 30% greater than average. The open interest decline appears to be garden-variety profit-taking. The market made a new high for the move at $96.83 and as this report is being compiled on August 21 crude oil is trading $1.29 higher and has made a new high at $97.85. Despite the move higher, as of August 21, crude oil has not generated an intermediate term buy signal. This will occur if the low of the day is not less than $97.00.

Heating oil:

October heating oil closed unchanged on low volume of 79,739 contracts volume declined approximately 40,000 contracts from August 17 when heating oil declined 3.03 cents and open interest increased by 4,873 contracts. On August 20 open interest increased by 2,194 contracts, which in relation to volume is average. As this report is being compiled, heating oil is trading 4.13 cents higher.

Gasoline:

October gasoline gained .0045 cents on light volume of 94,709 contracts. Volume declined approximately 61,000 contracts from August 17 when gasoline declined 5.57 cents and open interest increased by 9,434 contracts. On August 20, open interest increased by 4,029 contracts, which in relation to volume is approximately 80% above average. As the report is being written on August 21, October gasoline is trading 3.87 cents higher. One important point: If the ethanol mandate is reduced, this would serve to increase the consumption of gasoline, and therefore would be a bullish development.  However, with the consumption of gasoline declining, combined with current high prices and the end of the summer driving season, this is not the time to be bullish on gasoline.

Copper:

September copper lost 4.85 cents on volume of 51,658 contracts. Volume declined approximately 10,000 contracts from August 17 when copper gained 3.70 cents and open interest declined by 1,717 contracts. On August 20, open interest declined by 1,052 contracts, which in relation to volume is somewhat below average. As indicated in previous reports, we stated it was likely that copper had made a temporary bottom and to stand aside due to the possibility of more money printing by the Europeans and Federal Reserve. As this report is being compiled on August 21, copper is trading 7.80 cents higher. Stand aside.

Gold:

December gold gained $3.60 on light volume of 72,450 contracts. In yesterday’s report, we wrote that volume on August 17 was the lowest of the year. However, this was surpassed by the volume on August 20. Ironically, on August 21 gold is making new highs for the move on heavier than normal volume. On August 20, open interest increased by 1,285 contracts which is approximately 20% below average. As this report is being written on August 21, gold has made a high of $1643.60. This is the highest price for gold since June 6 when it made a high of $1646.40. Despite the move higher, gold has not generated an intermediate term buy signal, but will do so,  if the daily low is above $1639.50.

Silver: On August 20 September silver generated a short-term buy signal.

September silver gained 59.1 cents on volume of 39,065 contracts. Volume increased approximately 10,000 contracts from August 17 when silver closed lower by 21.00 cents and open interest declined by 1,072 contracts. On August 20, open interest increased by 2,559 contracts, which in relation to volume is 225% above normal. Silver’s performance was outstanding and reached the highest point since June 6, when silver made a high of $29.915. The market has clearly broken out, and like gold, is fairly close to generating an intermediate term buy signal. As this report is being written on August 21, September silver is trading 80.7 cents higher on the day.

Euro:

The September Euro gained 27 points on volume of 184,343 contracts. Volume declined approximately 15,000 contracts from August 17 when the Euro declined 42 points and open interest declined 429 contracts. On August 20, open interest declined by 1,189 contracts, which in relation to volume is 75% less than average. In previous reports we have suggested a stand aside position because of the possibility of more money printing from the European Central bank. Additionally, the Euro is loaded with speculative shorts and any reasonably positive news could send the Euro sharply higher. We think a temporary bottom is in for the Euro. Do not short the Euro. As this report is being written on August 21, the Euro is trading 1.29 higher.

10 Year Treasury Notes:

The 10 year treasury note closed essentially unchanged (+.005) on volume of 688,475 contracts. Volume declined approximately 5,000 contracts from August 17 when notes closed 4.5 points higher and open interest declined 11,897 contracts. On August 20, open interest declined by 20,521 contracts, which in relation to volume is average. However, this is still a very large number. Notes continue to exhibit a great deal of weakness and over the past four days have not been able to break above 132-22.5. As this report is being compiled on August 21, notes are unchanged on the day. Notes are on a short and intermediate term sell signal.

S&P 500 E mini:

The S&P 500 E mini lost one half point on low volume of 1,114,360 contracts. Volume fell approximately 26,000 contracts from August 17 when the S&P closed 2.25 points higher and open interest increased by 32,031 contracts. On August 20, open interest increased by 22,899 contracts, which in relation to volume is below average. Since August 7, open interest has increased by 180,768 contracts while the S&P 500 E mini has advanced 25.00 points or 1.80%. As this report is being written on August 21, the S&P 500 E mini is trading 5.25 points lower after making a high of 1424.75. Apple computer made a high of $674.88, and then sold off to make a low of $650.31. The question we will examine going forward: Is the reversal of the S&P 500 E mini on August 21, the sign of a major top. Investors should have appropriate stop loss protection order to keep profits intact. Long put protection on the S&P 500 is recommended.