Soybeans:

August soybeans gained 21.50 cents on volume of 172,489 contracts. Volume was the highest since July 10 when 173,600 contracts were traded and August soybeans lost 3.50 cents while open interest increased 5,319 contracts. On July 16, total open interest increased by 2,889, which relative to volume is approximately 35% less than average. August beans made a new high for the move at $14.88, and as this report is being compiled on July 17, soybeans are trading unchanged on the day and have not made a new high. We think soybeans will continue to grind higher, and they remain on a short and intermediate term buy signal. 

Soybean meal:

August soybean meal gained $15.30 on volume of 88,500 contracts. Total open interest increased by 4,659, which relative to volume is approximately 100% above average meaning that new longs were aggressively entering the market and pushing prices higher. August soybean meal made a new high for the move at $470.70, and as this report is being compiled on July 17 has made another new high at 471.40 and is trading $2.50 higher on the day. As we have said before, we are more bullish on soybean meal than soybeans, and continue to think that soybean meal will move higher into the August time frame. Soybean meal remains on a short and intermediate term buy signal.

Corn:

September corn gained 9 cents on volume of 194,528 contracts. Volume increased approximately 41,000 contracts from July 15 when corn lost 9.25 cents and open interest increased by 1,287 contracts. Additionally, volume was approximately 500 contracts higher than July 12 when corn lost 15.25 cents while open interest declined 542 contracts. On July 16, open interest declined by 1,246 contracts, which relative to volume is approximately 65% less than average. There is an obvious lack of enthusiasm for the long side of corn, which makes it vulnerable to a short covering rally in the event that weather in the corn belt takes a turn for the worse. Corn remains on a short and intermediate term sell signal.

Wheat:

September wheat closed unchanged on volume of 73,446 contracts. Open interest declined by 2,092 contracts, which relative to volume is average. Wheat remains on a short and intermediate term sell signal, but as we have said before, we think wheat is in a transition period from a bear to bull market.

Cotton: On July 16, December cotton generated an intermediate term sell signal and generated a short-term sell signal on June 24.

December cotton lost 73 points on volume of 16,449 contracts. Volume was the highest since July 11 when 18,070 contracts were traded and December cotton lost 2.05 cents while open interest increased 770 contracts. On July 16, open interest declined 166 contracts, which relative to volume is approximately 50% less than average. From July 11 when corn topped out at 87.11 through July 16, December cotton  declined 3.11 cents while open interest has declined a mere 46 contracts. This tells us that longs are digging in and refusing to liquidate. We know based upon the recent COT report that managed money is long cotton by a ratio of 7.05:1, Their refusal to liquidate when prices are sliding will only add fuel to the continuing move lower. As this report is being compiled on July 17, December cotton is trading 65 points lower and has made a new low for the move at 83.58. It is only 55 points away from the low of 83.11 made on June 24. We think it is only a matter of time before this is taken out and the market makes new lows for the move.

Live cattle:

October live cattle lost 27 points on light volume of 36,779 contracts. Volume was the lowest since July 5 when 29,101 contracts were traded and open interest increased by 1,638 contracts while cattle closed unchanged. On July 16, open interest declined by 1,369 contracts, which relative to volume is approximately 40% above average, meaning that liquidation was fairly heavy on the modest decline. The August contract lost 4,990 of open interest. As this report is being compiled on July 17, October cattle is trading 55 points lower and has made a low at 1.25125, which means that long futures positions should have been liquidated. Previously, we recommended that sell stops be placed at 125400. Our problem with cattle is that it made its high at 1.26950 on July 9, and has not been able to break through this point of resistance. This indicates that the market may move lower temporarily before making an assault on the July 9 highs. Cattle remain on a short and intermediate term buy signal.

Crude oil:

August WTI crude oil lost 32 cents on volume of 634,093 contracts. Total open interest declined by 3,550 contracts, which relative to volume is approximately 70% below average. The August contract accounted for loss of 13,858 contracts. The Energy Information Administration released its weekly report and it showed that crude oil stocks declined 6.9 million barrels and that crude oil stocks stand 10.4 million barrels below this time last year. Interestingly, August crude is trading 7 cents higher and the range for the day has been $1.24, which is significantly below its 21 day average true range. The real test will be how WTI trades tomorrow. WTI remains on a short and intermediate term buy signal.

Brent crude oil:

September Brent crude advanced 6 cents on light volume of 569,012 contracts. Open interest declined by 2,816 contracts, which relative to volume is approximately 75% below average. Brent remains on a short and intermediate term buy signal, and on July 17 as this report is being compiled, Brent is trading 28 cents higher.

Heating oil:

August heating oil gained 2.08 cents on volume of 125,642 contracts. Total open interest increased 3,843 contracts, which relative to volume is approximately 20% above average. The August contract lost 6,123 of open interest, which makes the total open interest increase more impressive. The Energy Information Administration report showed there was a 3.9 million barrel build in distillate stocks and the total inventory as of the latest report is 127.7  million barrels versus 123.5  million at this time last year. Heating oil remains on a short and intermediate term buy signal, and as this report is being compiled on July 17, heating oil is trading 1.96 cents higher and has made a new high for the move at $3.0729.

Gasoline:

August gasoline advanced 3.14 cents on heavier than normal volume of 155,610 contracts. Total open interest increased 3,019 contracts, which relative to volume is approximately 20% below average. However, mitigating this was the August contract which lost 2,509 of open interest. Gasoline stocks reported by the Energy Information Administration showed a build of 3.1 million barrels, which puts current stocks at 224.1 million barrels versus 205.9 million barrels at this time last year. During the week of July 16, 2012, August gasoline traded in a range of 2.8439 to 2.9447, or approximately 18-28 cents lower than the price on July 17. As the extract from Dow Jones indicates (below), there is no fundamental reason  justifying the outsized move in gasoline. If managed money has aggressively increased their net long position in this week’s COT report, gasoline may become extremely vulnerable to a sharp move to the downside. 

From Dow Jones:

“Implied gasoline demand fell 6.1% last week from the 11-month high hit in the July 4 holiday week, EIA data show. The decline, and a jump in imports, helped push gasoline supplies up by a surprise 3.1 M bbls in the week vs expectations of a 400,000-bbl drop. Stocks of 224.1 M bbls are the highest for the week in 21 years, EIA data show. Gasoline output fell 629,000 b/d from record high output of 9.6 M b/d a week earlier. But gasoline supplies still cover 25.7 days of current demand, two days above the five-year average.”
 
Natural gas:
 
August natural gas advanced 3 ticks on volume of 257,622 contracts. Total open interest increased by 1,018 contracts, which relative to volume is approximately 75% below average. The August contract accounted for loss of 11,783 of open interest. August natural gas remains on a short and intermediate term sell signal.
 
Euro:
 
The September euro gained 93 points on volume of 221,993 contracts. Open interest declined by 1,477 contracts, which relative to volume is approximately 65% less than average. The euro remains on a short and intermediate term sell signal.
 
S&P 500 E mini:
 
The S&P 500 E mini lost 6.25 points on very light volume of 1,174,547 contracts. Open interest increased by 22,691 contracts, which relative to volume is approximately 20% less than average. However, it should be noted that the open interest increase is the second-largest since the rally began on June 25. On July 9, open interest increased by 28,719 contracts but on that day, the E mini advanced 10.00 points. In short, the open interest increase on July 16 was greater (with one exception) than in previous days when the market was rallying. This is another negative sign and the relatively heavy open interest build indicates the willingness of market participants to initiate new shorts on a modest decline. As this report is being compiled on July 17, the E mini is trading 5.25 higher and has made a high at 1680.50 on very low volume. It is interesting to note that during the week when earnings are being released,  there is little enthusiasm for the upside. We think the market is vulnerable to a major correction, and thus we advise clients to initiate put protection, especially if they hold positions in equities. As an alternative, writing calls that are significantly out of the money also make sense.