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For the grains, open interest increases relative to volume was considerably above average. Corn and wheat tied for the highest increase relative to volume followed by soybean meal and soybeans.
With respect to the grains, investors should not let themselves get carried away by the drought narrative. The grain markets can have devastating setbacks even though nothing has changed with respect to the weather. Psychologically attaching yourself to a narrative is a financial hazard, regardless of how bullish scenario is. At some point, all markets, run out of new buyers, and thus the corrective cycle begins.
August soybeans closed 39 cents higher on fairly light volume of 190,088 contracts. Open interest increased by 6,695 contracts. Soybeans made a new high for the move and a new contract high of $16.36. So far, nothing has been able slow the upward momentum of soybeans. However, it is important to know there needs to be a constant flow of new buyers at record highs to keep soybeans on the upward path. As I said in yesterday’s post, and it bears repeating, conceivably the market could have a very sharp setback, despite the fact the drought situation continues to worsen. That setback may be a short term buying opportunity for those nimble enough to catch it. The market is way too dangerous to buy at these levels and investors should not attempt to short soybeans. Stand aside
August soybean meal closed $13.20 higher on volume of 74,228 contracts. Open interest increased by 2,894 contracts. My comments about soybeans are applicable to soybean meal. Do not short the market. Stand aside.
September corn closed 36.25 cents higher on volume of 345,444 contracts. Open interest increased by 19,984 contracts. Open interest in corn has increased for 10 consecutive days bringing the 10 day total increase to 115,920 contracts. As I write this on July 17, corn has reached a high of $7.96 1/2, which is a scant 3 1/4 cents from its all-time high of $7.99 3/4. It will be fascinating to see if corn breaks above its all-time high. If it can, there will be huge numbers of buy stops by traders initiating new longs, or covering old shorts. As bullish as the fundamental situation is in corn, investors should keep in mind that much of the damage to the crop has already been discounted by the current price. As I have pointed out in previous posts, the demand side of the equation for corn has been relatively weak compared to soybeans and stratospheric prices will further crimp demand. Investors should not attempt to enter new positions at current levels and definitely should not short the market. Stand aside.
September wheat closed 36 3/4 cents higher on volume of 103,615 contracts. Open interest increased by 6,029 contracts. The performance of wheat is perhaps the biggest surprise considering its fundamental supply set up is far less bullish than corn. This can be explained by corn being the leader and wheat is the follower. As I pointed out in the July 15 Weekend Wrap, the ratio of longs to shorts for managed money is at record highs in wheat. This makes wheat extremely vulnerable to a major setback in the event corn begins to head south. On the other hand, the ratio of long to shorts in corn is in the mid range and far from the highs made last year. Stand aside.
August crude oil gained $1.33 on volume of 503,009 contracts. Open interest declined by 4,747 contracts. At this juncture, I see no reason to be involved in the crude oil market. The market remains on a short and intermediate term sell signal. Stand aside.
August gasoline gained 3.86 cents on extremely low volume of 90,031 contracts. Open interest increased by 1,176 contracts, which in relation to volume is significantly below average. On July 16, gasoline generated a short-term buy signal. The market is approximately 8-10 cents away from generating an intermediate term buy signal. As I have pointed out before, volume and open interest action leaves a lot to be desired. Stand aside.
September copper lost 1.90 cents on extremely light volume of 34,551 contracts. Open interest increased on the decline by 410 contracts. In the past, I stated that I want to see copper move to the $3.60 level before implementing bearish positions. It doesn’t seem that the market wants to move there, and possibly this can be explained by the dismal performance of the Shanghai Composite Index. Since May 4, 2012 through July 16, the index has fallen a tad over 12%. There have been numerous stories about a Chinese soft landing of the economy, and for some reason the chattering class seems to think the Chinese economy is not as bad as some people make it out to be. However, the Chinese stock market is telling a very different tale. The massive slowing of the economies of Europe is undoubtedly having a major impact on China and this is not going to end anytime soon. The volume and open interest action for copper has been acting poorly on a consistent basis. If the stock market has a good-sized rally, perhaps copper will move higher along with equities. This may give us the opportunity to implement bearish positions. On the continuation chart, the 150 day moving average is $3.62 and the 200 day average is $3.57. Stand aside.
August gold lost 40 cents on light volume of 118,815 contracts. Open interest increased by 2,817 contracts. The market continues to act in a bearish fashion. I have no doubt if the equities market has a major tumble that gold will follow. For anyone long the market, sell stops should be at or somewhat below the December 29, 2011 low of 1523.90. A more conservative stop would be at the June 28, 2012 low of 1547.60.
September silver closed 4.8 cents lower on extremely light volume of 28,036 contracts. Open interest declined by 525 contracts. Stand aside.
The September Euro gained 35 points on volume of 212,498 contracts. Open interest declined by 2,320 contracts. Stand aside.
S&P 500 E mini:
The September S&P 500 E mini lost 4.25 points on volume of 1,548,567 contracts. Open interest declined by 10,574 contracts. On July 16, Bloomberg News reported that short interest on the New York Stock Exchange has risen to 5.35% of outstanding shares, which eclipsed the September 15 record of 5.28%, the high for 2011. In other words, there are more people bearish as of the latest NYSE short interest report than in 2011. This indicates the likelihood of a rally, perhaps a major one that will blowout the shorts. On July 12, the S&P 500 cash index generated in intermediate term sell signal. A short-term sell signal in the S&P 500 E mini has not been generated. As I have pointed out in previous posts, I think the safest way to play an equity rally is to be long Apple Computer. Investors should be consulting with their investment advisor or broker about entering long positions in Apple, whether this takes the form of investing in the stock or purchasing call options. Remember, Apple reports its earnings after the close on July 24. Caution must be exercised when entering new positions prior to an earnings report.