August soybeans lost 57.75 cents on volume of 215,748 contracts. Surprisingly, total open interest declined only 475 contracts, which relative to volume is minuscule and dramatically below average. As this report is being compiled on. July 24, August soybeans are trading 49.50 cents lower and have made a low of $13.92 1/2 (limit down). Soybeans remain on a short and intermediate term buy signal, but as we said in yesterday’s report, clients should have had protective sell stops in place. Keep in mind, the 50 day moving average on the soybean continuation chart is $13.57 and $14.30 on the August chart, which means soybeans are massively overbought and sizable correction should be expected. In yesterday’s report we stated that clients should monitor the following price points: 14.72 1/2, 14.68 and 14.63. Additionally, we said that a move under 14.63 could likely spell the end of the rally. Although, we think that soybeans will attempt to test the highs of $15.25 1/2 and 15.26 1/4 made on July 22 and July 23 respectively, we think it may be difficult for August soybeans to surpass these. Clients who previously had long positions, should be on the sidelines.
August soybean meal lost $14.60 on huge volume of 147,925 contracts. Total volume was not only the highest for 2013, but the highest going back one year. Total open interest declined by 6,315 contracts, which relative to volume is approximately 70% above average, meaning that liquidation was extremely heavy. August soybean meal made a high of $521.00, and reversed to make a low of 482.70, which along with high volume and an open interest decline has look of a key reversal day. We take this is as a sign the top is in, and while there may be an attempt to test the rally high, it will fail. As this report is being compiled on July 24, August soybean meal is trading down the $20.00 limit. All those who previously held long positions should now be out of the market.
September corn lost 18.25 cents on heavy volume of 308,221 contracts. Volume was the highest since June 28 when 443,821 contracts were traded and corn declined 25 cents while open interest declined 14,412 contracts. On July 23, open interest increased by a massive 17,427 contracts, which relative to volume is approximately 120% above average meaning that new shorts were entering the market en masse and driving prices lower. During the past 5 days beginning on July 17, corn prices have declined by 22.75 cents while open interest has increased by 53,950 contracts. This is an extremely large increase of open interest considering the magnitude of the decline. This tells us it is likely that managed money shorts are entering the market at the low-end of the trading range, which makes corn vulnerable to a short covering rally. As this report is being compiled on July 24, September corn is trading 8.75 cents lower. Corn remains on a short and intermediate term sell signal. Do not chase the market lower.
September wheat lost 6 cents on volume of 65,263 contracts. Open interest increased by 2,401 contracts, which relative to volume is approximately 40% above average, meaning that new shorts were entering the market at above average rates and driving prices lower. We continue to think that wheat is in a bottoming process, and that higher prices are in the offing down the road.
December cotton lost 52 points on volume of 14,942 contracts. Volume was the highest since July 16 when 16,449 contracts were traded. On July 23, open interest declined only 34 contracts, which tells us that the new longs that entered the market during the past several days are digging in and refusing to liquidate. We have recommended entering bearish positions at the 86.00 level, and there have been numerous opportunities to establish these. We think cotton is one of the best bearish positions with less risk because cotton is loaded with managed money longs. This will add fuel to any downside move. As this report is being compiled, cotton is trading 64 points lower.
October live cattle gained 30 points on volume of 40,290 contracts. Open interest increased by 1,813 contracts, which relative to volume is approximately 75% above average, meaning that new longs were aggressively entering the market, but were unable to move prices much higher. The August contract accounted for loss of 2,334 of open interest. Cattle remain on a short and intermediate term buy signal, and needs a catalyst to take another leg higher.
September crude oil gained 29 cents on volume of 559,744 contracts. Open interest increased by a massive 23,236 contracts, which relative to volume is approximately 55% above average, but new longs were unable to move prices beyond a fractional gain. The increase of open interest on July 23 was the largest since July 12 when WTI advanced $1.04 on volume of 647,156 contracts and open interest increased by 30,856 contracts. The open interest increase on July 12 was the largest of the rally. We had targeted the high in WTI at $109.72, which was the high in the Brent contract on July 16. As this report is being compiled on July 24, September WTI is trading $2.02 lower and has made a new low for the move at $104.86. Interestingly, the Energy Information Administration reported that crude oil stocks declined by 2.825 million barrels,but the impact on prices are negative. This is the first time during the past couple of reports that crude oil stocks have declined, but prices have not advanced. The market has been massively overbought, not only from a price standpoint, but by the stratospheric number of new managed money longs.
August natural gas gained 6.6 cents on volume of 246,273 contracts. Total open interest declined by 5,388 contracts, which relative to volume is approximately 15% below average. The August contract lost 19,842 of open interest. Natural gas remains on a short and intermediate term sell signal.
The September euro gained 45 points on light volume of 170,826 contracts. Open interest declined by 4,014 contracts, which relative to volume is approximately 5% below average. On July 22, the September euro generated a short and intermediate term buy signal. Usually, after the generation of a buy signal, there is a pullback lasting 1-2 and possibly 3 days. As this report is being compiled on July 24, the euro is trading 46 points lower. This is the first day since the generation of a buy signal that we have seen a pullback.
Dollar index: On July 23, the September dollar index generated a short-term sell signal, but has not yet generated an intermediate term sell signal.
S&P 500 E mini:
The S&P 500 E mini lost 2.00 points on extremely low volume of 983,607 contracts. Volume was approximately 79,000 contracts higher than July 22 when 904,394 contracts are traded and the E mini gained 0.75 points while open interest declined 11,279 contracts. On July 23, open interest increased by 6,159 contracts, which relative to volume is approximately 65% below average. The E mini made another new high at 1695.50, and as this report is being compiled on July 24, the E mini has made a high of 1695.25, or 0.25 points below the high of July 22. For those clients who hold long equity positions, we believe it is mandatory to have long put protection in order to mitigate any future losses caused by a market meltdown.