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August soybeans advanced 50.25 cents on very heavy volume of 399,183 contracts and the new crop November contract gained 32.25. Volume was 38,150 contracts above the July 11 volume of 361,033 contracts when the market had a major reversal down. Total open interest declined by 1,949 contracts, which in relation to volume is a minuscule decline and only indicative of profit-taking by longs and liquidation by panicked shorts. August beans made a new contract high of $17.49 and as I write this on July 20 ,August beans has made a new contract high at 17.77 3/4. The move in the soybean complex is accelerating because we are nearing the crucial stage when the crop can be severely damaged. To say that the market is overbought is an understatement and investors should be wary of being in the market at current levels. Do not enter new short or long positions. Stand aside.
August soybean meal gained $18.00 and the new crop December contract gained $8.30 on total volume of 165,533 contracts. Volume was the highest seen during the past couple of months. Open interest declined by a massive 8,461 contracts, which in relation to volume is an off the chart number. Like soybeans, longs were profit-taking and shorts were liquidating. August meal made a new contract high at $534.00 and as I write this on July 20, August soybean meal has made another contract high at $552.00. Do not enter long or short positions. Stand aside.
September corn gained 12.75 cents on heavy volume of 413,802 contracts. Volume was the highest since July 11 when corn traded 550,005 contracts and made a new high, then sharply reversed to close 14.50 cents lower. Open interest increased by 14,155 contracts, which in relation to volume is significantly above average. Open interest has increased for 13 consecutive sessions, which brings the 13 day increase to 151,190 contracts.
September corn made a new contract high and new all-time high at $8.16 3/4, and as I write this on July 20, corn has made a new all-time high at $8.28 3/4. The fact that September corn closed above the previous all-time high of $7.99 3/4 ($8.07) indicates the market is likely to take another leg higher. Do not enter new long or short positions. Stand aside.
September wheat gained 31.75 cents on heavy volume of 169,740 contracts. Although the open interest increase was respectable at 3,286 contracts, it was significantly below the nominal increases of the past several days, and in relation to volume, open interest was slightly below average. Although the market is taking its cues from corn, there looks to be a considerable shortfall in the wheat crop of Argentina, Australia and the black sea region. However, the impact of this will not be felt until later on in the crop year. The September-December 2012 spread inverted for the first time since February 23, 2011 with September selling at a one cent premium over December. The spread bottomed out on June 5, 2012 when December sold at a 26.50 cent premium over September. I will continue to follow the spread to see whether the inversion signals a possible topping of the spread, or portends a further widening. Do not enter new long or short positions. Stand aside.
On July 19, September crude oil generated a short-term buy signal. An intermediate term buy signal has not been generated, which means investors should stand aside.
September crude oil gained $2.80 on heavy volume of 690,954 contracts. However, open interest increased by a minuscule 768 contracts. Volume was the highest since June 29 when 787,945 contracts were traded and crude oil closed higher by $7.27 while open interest increased by 10,046 contracts.
One of the very important aspects of analyzing price, volume, and open interest is to look for patterns in their collective behavior that points to a likely scenario. For the past couple of sessions, I have mentioned the very disappointing open interest action relative to price. This continued on the 19th, and as crude oil has moved to its highest level since mid-to-late May, open interest action relative to price has been disappointing. During the past four sessions, crude oil has gained $4.87 and open interest has declined by 47,526 contracts. This is bearish open action relative to price. Also, during the past four sessions, new highs have been made each day. In short, crude oil is making new highs and the net result is that long and shorts liquidating.
The Middle East situation with Iran and Syria being the focus has generated some enthusiasm for the upside in crude oil. However, this is a tenuous situation which can change at a moments notice. In my view it is unwise to make trading decisions based solely upon an evolving political landscape. One day it works for you and the next day it doesn’t. Stand aside.
September gasoline gained 6.59 cents on volume of 157,742 contracts. Open interest increased by 7,142 contracts, which was the highest increase in open interest since July 5 when open interest increased by 8,139 contracts. The open interest increase relative to volume on July 19 was fractionally lower than the open interest increase relative to volume on July 5. As mentioned yesterday, the pattern of increasing prices and healthy increases in open interest has been occurring for the past five sessions. Ethanol prices have been increasing with corn and as of yesterday’s close is within 20 cents of its all-time high of $2.95. Undoubtedly, this is acting to push gasoline prices higher along with tight inventory as evidenced by the EIA report, which is occurring during the current summer driving season. On July 16, gasoline generated a short-term buy signal, but as of July 20, an intermediate term buy signal (which would confirm the implementation of long positions) has not been generated. For gasoline to generate an intermediate term buy signal, the low for the day would have to be above $2.9344. The market is overbought and due for a pullback. Stand aside.
September copper gained 6.05 cents on volume of 60,622 contracts. Volume was the highest since July 5 when 68,020 contracts were traded. Open interest increased by a hefty 2,904 contracts, which in relation to volume is at the very high end of the range. Although this was the first positive day when price, volume and open interest acted well, more of this action would be required before I could get enthusiastic about a possible turnaround. The market remains on a short and intermediate term sell signal.
Copper made a high of $3.5450, which slightly exceeded the high made on July 5 of $3.5400, but fell short of the high of $3.5565 made on July 3. As I write this on July 20, September copper is trading 9.30 cents lower and has made a low of $3.4180. It is apparent that the 3.55-3.56 area is a point of major resistance and that any further rallies to this price range should be shorted.
August gold closed $9.60 higher on volume of 155,896 contracts. Open interest declined by 5,731 contracts. The bearish open interest action versus price continues to be the story in gold. Longer-term, I like the metal, but it simply has not been acting well for quite some time. Investors should have their sell stops in place at the December 29, 2011 low of 1523.90.
September silver gained 12.2 cents on light volume of 36,115 contracts. Open interest declined by 264 contracts. Stand aside.
The September Euro gained 15 points on volume of 256,679 contracts. Open interest declined by 1,132 contracts. As I write this on July 20, the September Euro is down 1.19 cents. Although the market looks terrible at these levels, the danger of some announcement from Europe whether or not it has any merit, still lurks in the background. The Euro may be going to parity with the dollar, but I suspect there will be a large number of shorts who will be blown out of the market before this occurs.
S&P 500 E mini:
The S&P 500 E mini closed 5.25 points higher on volume of 1,744,626 contracts. Open interest increased by 12,400 contracts, which in relation to volume, was significantly below average. For the past couple of days, I have commented on the low quality of the rally based upon the performance of open interest. On the four days that the S&P 500 E mini has rallied since July 13, open interest has increased by a total of 18,875 contracts. However, during these four days price has advanced 47.50 points. In order to place the current dismal four day performance in perspective, open interest should have increased by 140,000 contracts relative to volume, if the increase was only an average number.
On July 18, the S&P cash index generated in intermediate term buy signal, which reversed the sell signal generated on July 12. Additionally, the S&P 500 E mini is on a short-term buy signal. Despite this, I remain unenthusiastic about being long the indices, in great part because speculators are unwilling to make commitments as the market moves higher. Based upon volume and small open interest changes, there appears to be a large amount of position churning. Rather than being long indices, a much safer route (and more lucrative) in my opinion is to be long Apple Computer. Investors should be speaking with their investment advisor or broker regarding long positions in Apple. Keep in mind that Apple’s earnings report will be released on July 24 after the close.