Soybeans:

August soybeans gained 21.50 cents on light volume of 119,553 contracts. Total open interest declined by 2,412 contracts, which relative to volume is approximately 20% less than average. The August contract accounted for a decline of 2,741 of open interest. During the past 4 days beginning on July 16, soybeans have advanced 37 cents while open interest has increased 562 contracts. This is less than bullish, we think it reflects a bearish mindset common in the agricultural commodity sector. The fact remains, soybeans are extremely tight and as further corroboration, it is increasing the value of the new crop November contract. As this report is being compiled on July 22, August soybeans are trading 28 cents higher and have made a new high for the move at $15 21 1/2. With a tremendous amount of managed money on the sidelines, we expect the move higher in soybeans to continue. First notice day is approximately one week away, and we expect that speculators should begin to increase their long positions at the upper end of the trading range. Remarkably, the long to short ratio in soybeans is considerably higher than soybean meal, even though soybean meal is dramatically outperforming soybeans (see July 21 Weekend Wrap).

Soybean meal:

August soybean meal gained $12.00 on volume of 84,024 contracts. Total open interest declined by 1,464 contracts, which relative to volume is approximately 25% less than average. The August contract accounted for loss of 5,284 of open interest. For the past 4 trading sessions beginning on July 16, soybean meal has advanced $30.90 while open interest has declined by 593 contracts. This is bearish open interest action relative to the price advance. Again, we attribute this to a bearish mindset in the agriculture sector. Soybean meal is much tighter than soybeans due to massive meal demand and has been outperforming beans for the entire year. As this report is being compiled on July 22, soybean meal is trading up the $20.00 limit and the September contract is trading $14.70 higher. We expect the move higher to continue, especially since managed money is essentially on the sidelines, which represents additional buying power.

Corn:

 September corn gained 3 cents on volume of 239,556 contracts. Volume was the highest since July 11 when 274,833 contracts were traded and corn advanced 7 cents while open interest increase 6,749 contracts. On July 19, open interest increased by a massive 10,683 contracts, which relative to volume is approximately 75% above average. Corn remains on a short and intermediate term sell signal, but speculators should keep in mind that at the first sign of an extended dry spell, corn could rally significantly blowing out the large number of speculative shorts. Corn remains on a short and in intermediate term sell signal.

Wheat:

September wheat gained 4 cents on volume of 76,483 contracts. Open interest declined by 1,826 contracts, which relative to volume is average. Wheat continues to trade lower, primarily due to harvest pressure and the fact that US wheat is priced at a premium to wheat of other origins. We continue to think that wheat is a turnaround story and that demand globally will increase significantly in the months ahead. Wheat remains on a short and intermediate term sell signal.

Cotton:

December cotton gained 1.33 cents on light volume of 11,800 contracts. Open interest increased by a an extraordinary 2,379 contracts, which relative to volume is approximately 595% above average, which is an off the chart increase. For the past 4 trading sessions beginning on July 16, price and open interest have been acting in a bullish congruent fashion. For example, cotton has advanced 1.08 in this time frame while open interest has increased by 2,422 contracts. Despite this, cotton remains on a short and intermediate term sell signal, and it is at a crucial juncture with respect to price. For cotton to generate a short-term buy signal, the low the day must be above 86.37. Since the 21 day average true range is 1.57,  using this as a guide, it would imply a potential high of 87.95 (86.38+1.57 = 87.95). If this were to occur, cotton would be trading at the highest level since June 17 and 18. We think this is highly unlikely.

Live cattle:

October live cattle lost 25 points on light volume of 38,396 contracts. Total open interest declined by 1,094 contracts, which relative to volume is average. The August contract accounted for loss of 3,189 of open interest. Cattle has struggled to break above the high of 126.950 made on July 16 and 18 and the high of 126.975 made on July 15. Cattle continues to trade in a sideways pattern, and  it needs a catalyst to send it significantly higher. Cattle remains on a short and intermediate term buy signal. On July 17 per our earlier recommendation, clients should have liquidated longs at 1.25400 and are on the sidelines.

Crude oil:

September crude oil gained 6 cents on heavy volume of 801,653 contracts. Total open interest declined 11,143 contracts, which relative to volume is approximately 45% less than average. The August contract accounted for loss of 36,779 of open interest. WTI made a new high for the move $108.93, and as this report is being compiled on July 22, September crude trading $1.08 lower. It is difficult to tell when crude oil will make its top, but we discourage clients from initiating new long positions at current levels, even though the market may continue to move higher.

Brent crude oil:

September Brent crude oil lost 63 cents on volume of 636,588 contracts. Open interest declined by a mere 77 contracts.. The spread between Brent and WTI continued to narrow on July 19, but as this report is being compiled on July 22, the spread has widened out again by $1.27. Brent remains on a short and intermediate buy signal.

Natural gas:

August natural gas lost 2.3 cents on volume of 237,818 contracts. Total open interest declined by 1,323 contracts, which relative to volume is approximately 70% below average. The August contract accounted for loss of 9,965 of open interest. As this report is being compiled on July 22, August natural gas is trading 11.3 cents lower. Natural gas remains on a short and intermediate term sell signal.

Euro:

The September euro gained 34 points on light volume of 146,892 contracts. Open interest increased by 2,082 contracts, which relative to volume is approximately 40% less than average. As this report is being compiled on July 22, the euro is trading 53 points higher on light volume and has made a new high for the move at 1.3222. This takes out the high of 1.3212 made on July 11. Although it is likely the euro will generate a short and intermediate term buy signal on July 22, we caution clients about initiating bullish positions at current levels.

S&P 500 E mini:

The September S&P 500 E mini gained 9.00 points on very light volume of 1,149,497 contracts. Open interest declined by 9,291 contracts, which relative to volume is approximately 60% less than average, however, open interest declined  as it was making new highs for the move, which is negative. As this report is being compiled on July 22, the E mini has made a new high for the move at 1694.25. We think it is highly likely that the market will continue to grind higher, but clients must protect themselves despite this. We envision the possibility of a May 2010 style flash crash or a 1987 style crash that essentially was a massive correction in an ongoing bull market. We think equities are in a bubble and many economic indicators have been consistently lackluster. This points to a greater and greater disconnect between the real economy and equities. At some point, there will be a correction of this disparity.