September soybeans lost 21.50 cents on volume of 146,233 contracts. Total open interest declined by 609 contracts, which is minuscule and dramatically below average. The August contract lost 587 of open interest. During August 1 and 2, September soybeans have fallen 37 cents, yet open interest has declined only 31 contracts. With the current long to short ratio at 2.78:1, there is a significant amount of additional liquidation to occur as prices move lower. As this report is being compiled on August 5, September soybeans are trading 11.50 cents lower and have made a new low for the move at $11.86 1/2. Soybeans remain on a short and intermediate term sell signal. The market has cratered without so much as a technical rally. Although we think soybeans are headed lower, at technical rally can occur at any moment, which can make a solid position trade on the short side untenable due to an adverse move. Is important to remember that the key growing period for soybeans remains ahead.
September soybean meal lost $12.50 on volume of 65,501 contracts. Total open interest declined 6,012 contracts, which relative to volume is approximately 250% above average, meaning that liquidation was extremely heavy. The August contract lost 1,028 of open interest. The open interest action between soybeans and soybean meal during August 1 and 2 have been dramatically different. While total soybean open interest is almost unchanged, open interest in soybean meal is down significantly. Additionally, the long to short ratio in soybean meal is significantly less at 1.84:1. However, soybean meal performance has been far superior to that of soybeans. For example through August 2 for the current quarter, soybean meal has declined 3.87% while soybeans have declined 6.94%. On a year-to-date basis, soybean meal has declined only 0.26% while soybeans have declined 9.11%. It is a certainty that soybean meal will generate a short and intermediate term sell signal on August 5.
September corn lost 11.50 cents on volume of 241,460 contracts. Total open interest increased by 2,920 contracts, which relative to volume is approximately 45% below average. The September contract lost 6,781 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on August 5, September corn is trading 9.50 cents lower and has made a new low for the move at $4.65 1/2. As we have said before, but it bears worth repeating, a turn in the weather could be the catalyst of a short covering rally, and we discourage the initiation of new short positions at current levels.
September wheat gained 2.50 cents on volume of 108,011 contracts. Total open interest declined by 4,896 contracts, which relative to volume is approximately 75% above average, meaning that liquidation was substantial on the minor advance. The September contract accounted for loss of 6,606 of open interest. As this report is being compiled on August 5, wheat is trading 17.25 cents lower and has made a new low for the move at $6.41 1/2. This takes out the low of 6.48, which was first made on July 25. As the extract from the August 1 report states, we thought the worst-case scenario was a sideways to lower movement and thought we had seen the lows after making 4 previous attempts to penetrate the $6.48 level and failing to do so. As a result, we suggest that short put positions be covered because it is apparent that wheat has not yet found a bottom.
From the August 1 report:
“Wheat is on a short and intermediate term sell signal, which means OIA would not recommend out right bullish positions. However, one strategy that could be employed now would be to write out of the money puts (strikes dependent upon your risk tolerance) in the October December contracts. We think the worst-case scenario is that wheat trades sideways to slightly lower, which will allow put option sellers to make some money in a lower risk trade while waiting for wheat to generate a short-term buy signal.”
December cotton lost 45 points on volume of 10,296 contracts. Open interest declined 5 contracts. Cotton continues to trade in a sideways movement, and we are expecting the market to move lower, however due to declining stocks, we could see a move sharp higher temporarily. This is why we have advocated the exit of bearish positions at or slightly above 86.55 which was the high on July 23.
October live cattle lost 2 points on relatively heavy volume of 54,606 contracts. Open interest declined by 7,059 contracts, which relative to volume is approximately 290% above average, which is extraordinarily heavy liquidation. The August contract accounted for loss of 5,310 of open interest. On August 2, we recommended that clients write out of the money calls in cattle. Cattle will likely generate an intermediate term sell signal on August 5, but not a short-term sell signal.
September crude oil lost 95 cents on volume of 523,952 contracts. Volume was the lowest since July 29 when 428,816 contracts were traded and September crude oil lost 15 cents while open interest increased 712 contracts. On August 2, open interest declined by 5,118 contracts, which relative to volume is approximately 50% less than average. The September contract lost 19,376 of open interest. As we indicated in the August 4 Weekend Wrap, managed money has not been adding to their net long position for the past 2 weeks, despite the fact that crude oil has been trending higher. On the other hand, they don’t seem to be liquidating oil prices move lower.
During the rally of July 31 and August 1, crude oil prices advanced $4.81, but open interest for these 2 days increased only 23,226 contracts. In short, market participants are reluctant to add to their positions on rallies and reluctant to liquidate on declines. Additionally, the long to short ratios of gasoline and heating oil are at their highest levels in 4 to 5 months, which makes the products vulnerable to further declines, further negatively affecting crude values. We much prefer the bearish side of the market and continue to think that rallies will be met by a new sellers and a dearth of buyers. Crude oil remains on a short and intermediate term buy signal.
September natural gas lost 4 cents on volume of 185,977 contracts. Total open interest declined 1,422 contracts, which relative to volume is approximately 60% less than average. The September contract lost 3,557 of open interest. On August 2, natural gas made a new low for the move at $3.330, and on August 5 as this report is being compiled, September natural gas has made another new low at 3.309. Natural gas generated a short-term sell signal on May 31 and an intermediate term sell signal on June 24.
The September euro gained 72 points on light volume of 229,851 contracts. Volume was the lowest since July 31 when 184,358 contracts were traded and the euro lost 2 points while open interest increased 2,365 contracts. On August 2, open interest increased by 1,608 contracts, which relative to volume is approximately 55% less than average. The euro looks strong and remains on a short and intermediate term buy signal.
S&P 500 E mini:
The September S&P 500 E mini gained 3.75 points on light volume of 1,218,631 contracts. Although the market made a new high for the move at 1705.00, volume shrank approximately 300,000 contracts from August 1 when the E mini gained 19.75 points and open interest increased by 23,482 contracts. On August 2, open interest declined by 27,931 contracts, which relative to volume is approximately 10% below average, but a fairly substantial decline nonetheless. During the past 2 days, the E mini has advanced 23.50 points, but open interest has declined 4,449 contracts. This is negative open interest action relative to the price advance of the past 2 days. Although we think the market can move higher, the risk is all to the downside and as a result we strongly encourage the purchase of long puts, especially for those who hold long equity positions.
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