The USDA will release its crop production and supply demand report on Monday, August 12.

Soybeans:

September soybeans advanced 28.75 cents on volume of 145,743 contracts. Total open interest increased by 5,932 contracts, which relative to volume is approximately 55% above average. The August and September contracts lost a total of 799 of open interest. Soybeans remain on a short and intermediate term sell signal. Do not enter new positions prior to Monday’s report.

Soybean meal:

September meal gained $15.60 on volume of 72,910 contracts. Total open interest increased 128 contracts, which is minuscule and dramatically below average. The August contract lost 955 of open interest. Soybean meal remains on a short and intermediate term sell signal. Do not enter new positions prior to the USDA report.

Corn:

September corn gained 5.25 cents on volume of 272,194 contracts. Total open interest increased by a hefty 11,113 contracts, which relative to volume is approximately 60% above average. The September contract lost 11,232 of open interest, which makes the total open interest increase more impressive. Considering the heavy increase of open interest on a relatively small move, it appears there was a major battle between longs and shorts. Remember, open interest increases when there is disagreement among longs and shorts about the direction of prices. Do not initiate new positions prior to the USDA report.

Wheat:

September wheat lost 2.25 cents on healthy volume of 136,733 contracts. Total open interest declined by 2,239 contracts, which relative to volume is approximately 35% less than average. The September contract lost 11,365 of open interest. As this report is being compiled on August 9, September wheat is trading 8 cents lower and has made a new low for the move at $6.30 1/2.

From the August 5 report:

“In the August 1 report, we recommended writing out of the money puts, and on August 2 suggested that these positions be covered because wheat had penetrated the $6.48 level, which has been providing support since July 25. As this report is being compiled on August 6, wheat is trading 3.50 cents higher. We continue to think that wheat is a turnaround story, but until it generates a short-term buy signal, it is better to be on the sidelines.”

Cotton:

December cotton gained 92 points on volume of 23,857 contracts. Volume fell approximately 10,000 contracts from August 7 when cotton advanced 2.64 cents and open interest increased 11,186 contracts. On August 8, open interest increased by 4,902 contracts, which relative to volume is approximately 595% above average. On August 8, total open interest for all contracts in cotton was 191,123 contracts, which is the highest total open interest since April 12 when it reached 195,147 contracts. On April 12, December cotton closed at 86.34. The prior high in December cotton occurred on June 14 when it reached 89.56 and closed at 89.44. Total open interest on that date was 180,557 contracts. In 2 trading sessions open interest has increased 16,088 contracts, or a gain of approximately 9% of total open interest. This is a huge number.

On June 14, 2013 December cotton made a high of 89.56 and the same day, cotton made a high of 92.58 on the continuation chart. On March 15, 2013, cotton made a high of 93.93 on the continuation chart. We are not convinced  the rally is for real, and although cotton generated a short and intermediate term buy signal on August 7, we advise against chasing the market higher.

Live cattle: On August 8, October cattle generated a short and intermediate term buy signal. This reverses the short-term and intermediate term sell signals generated on August 6 and August 5 respectively.

October live cattle gained 2.40 cents on extremely heavy volume of 84,660 contracts. Volume was the highest since March 28 when 96,616 contracts were traded and October cattle closed at 1.29525. On August 8, total open interest increased by 3,967 contracts, which relative to volume is approximately 75% above average, meaning that new longs were heavily entering the market and driving prices sharply higher. The August contract lost 1,955 of open interest, which makes the total open interest increase much more impressive. Cattle made a new high for the move at 1.27675, which is its highest price since April 5 when it made a high of 1.27775. We think the market should pull back from here, and our protocol calls for a correction of the move for 1-3 days.

Crude oil:

September crude oil lost 97 cents on volume of 694,391 contracts. Volume increased approximately 47,000 contracts from August 7 when September crude lost 93 cents and open interest increased 13,207 contracts. On August 8, total open interest increased by 8,285 contracts, which relative to volume is approximately 45% less than average. The September contract lost 21,733 of open interest. As this report is being compiled on August 9, September crude is trading $2.28 higher and has made a high of $105.92. We remain skeptical of WTI taking out its two previous highs of $108.82 and 108.93.

Natural gas:

September natural gas gained 5 cents on extremely heavy volume of 583,332 contracts. Volume was the highest since April 18 when 666,421 contracts were traded and September natural gas closed at $4.477. On August 8, open interest increased 5,095 contracts, which relative to volume is approximately 50% less than average. The September contract accounted for loss of 18,427 contracts, which makes the total open interest increase more impressive. September natural gas made a new low for the move at $3.129, which is its lowest price on the continuation chart since January 2013. Based upon the extremely heavy volume and the initial spike and rebound after the release of the natural gas storage report, we think it is highly likely that natural gas has put in a bottom. This is not to say there will not be a retest, but  often when a market makes a major new low on extremely heavy volume, chances are it is a temporary bottom at the very least. Natural gas remains on a short and intermediate term sell signal.

Euro:

The September euro gained 57 points on volume of 203,761 contracts. Open interest increased by a massive 6,726 contracts, which relative to volume is approximately 30% above average. The open interest increase in the euro for August 8 was the largest increase on a rally since the euro began its ascent in early July. Additionally, it made a new high for the move at 1.3402. In our view, this is confirmation the Johnny-come-lately’s have climbed aboard, which means the euro is in for a healthy correction. 

S&P 500 E mini:

The S&P 500 E mini gained 5.50 points on volume of 1,524,707 contracts. Open interest increased by 8,243 contracts, which relative to volume is approximately 75% below average. We continue to advise clients to initiate long put protection, if they have not done so already. This is especially applicable for those who hold long equity positions.