August soybeans fell the 70 cent daily limit on surprisingly light volume of 198,443 contracts. Volume declined approximately 17,000 contracts from July 23 when soybeans fell 57.75 cents and open interest declined by 475 contracts. On July 24, open interest declined 5,428 contracts, which relative to volume is average. August soybeans lost 7,166 of open interest. As this report is being compiled on July 25, August soybeans are trading 28.25 cents lower and have made a new low for the move at $13.48 1/2. It is a virtual certainty that September soybeans will generate a short and intermediate term sell signal on July 25.
August soybean meal lost $20.00, (limit down) on heavy volume of 135,469 contracts. Volume declined approximately 12,500 contracts from July 23 when soybean meal lost $14.60 and open interest declined 6,315 contracts. On July 24, total open interest declined by 442 contracts, which relative to volume is approximately 85% less than average. The August contract accounted for loss of 4,045 of open interest. Due to the longer-term strength in soybean meal, it will not generate a short or intermediate term sell signal on July 25. Although soybean meal is in a liquidation phase, it is important to keep in mind that sales of meal are at stratospheric levels. For example, the USDA reported sales on July 25 at 183.97 thousand tons of meal sold. This is the largest weekly sale in 13 weeks. Additionally, current commitments are 182 thousand tons above the USDA export projection for the crop year, which ends on September 30. In short, buyers are paying up for soybean meal at prices that are among the highest of the past several months and the current season has 2 months to go. Even export sales for soybeans were at their highest level in 10 weeks, and now exceeds USDA export projections by 29.9 million bushels.
September corn lost 14.25 cents on volume of 239,182 contracts. Open interest increased by 3,395 contracts, which relative to volume is approximately 40% less than average. July 24 marks the 5th day in a row that open interest has increased while corn prices have been sliding. As this report is being compiled on July 25, September corn is trading 11.75 cents lower and has made a new low for the move at $4.92 1/4. Though corn has been on a short and intermediate term sell signal for quite some time, our reticence to recommend short positions was based upon the very real possibility of a weather scare, which could cause corn to rally sharply if only for a day or two. This is the set up we would have preferred before recommending bearish positions.
September wheat lost 0.50 cents on light volume of 72,826 contracts. Open interest declined by 601 contracts, which relative to volume is 50% below average. As this report is being compiled on July 25, September wheat is trading 4.00 cents lower. Wheat remains on a short and intermediate term sell signal.
December cotton gained 7 points on volume of 12,384 contracts. Open interest increased by 575 contracts, which relative to volume is approximately 75% above average meaning that new longs were entering the market, but could only push prices up fractionally. From July 18 through July 24, cotton has advanced 2.07 cents while open interest 5,581 contracts, which relative to 5 day volume is. 250% above average. This is an astounding increase of open interest over a 5 day period and when compared to the rather minor advance of a bit more than 2 cents, it is apparent that market participants on the short side are keeping a lid on prices. Cotton remains on a short-term sell signal, but an intermediate term buy signal. We think the path of least resistance is lower, and although cotton has not broken down the way the grains have, we think it is only a matter of time before this occurs. The Chinese economy continues to slow, and this will have a major affect upon global cotton consumption. Continue to hold bearish positions, but plan to exit bearish positions if cotton rallies above the July 11 high of 87.11.
October live cattle lost 22 points on light volume of 34,364 contracts. Open interest declined by 426 contracts, which relative to volume is approximately 45% less than average. The August contract accounted for loss of 2,090 contracts. Cattle continues to trade in its sideways pattern, and we are awaiting a breakout to the upside. As this report is being compiled on July 25, October cattle has made a new low for the move of 1.24550, which took out the low of 1.24975 made on July 18. Cattle remain on a short and intermediate term buy signal.
September crude oil lost $1.84 on surprisingly light volume of 604,753 contracts. To put the low volume in perspective consider on July 23 September crude advanced 29 cents on volume of 559,744 contracts and on July 22 crude oil declined 93 cents on volume of 581,771 contracts. Additionally, the minor decline of open interest on July 24 of 3,296 contracts is additional corroboration that longs are digging in and refusing to liquidate. This minor decline of open interest is 75% below average. Tomorrow, the COT report will be released and we will get a better idea of how much more long managed money has gotten. As this report is being compiled on July 25, September crude has made a new low for the move at $104.08. Crude remains on a short and intermediate term buy signal, but we are not bullish. The market made its high on July 19 at $108.93, and a test of this high is more than likely. Additionally, we think it is possible WTI could test the Brent high of $109.72 made on July 16, but we think it will struggle at this level.
August natural gas lost 4.5 cents on volume of 228,334 contracts. Total open interest declined by 17,535 contracts, which relative to volume is approximately 210% above average, meaning that liquidation was extraordinarily heavy on the rather minor decline. The August contract accounted for loss of 20,109 of open interest. The report released by the Energy Information Administration on July 25 showed there was a 41 bcf build in stocks. Natural gas remains on a short and intermediate term sell signal.
The September euro lost 40 points on volume of 222,467 contracts. Open interest declined by 1,453 contracts, which relative to volume is approximately 60% less than average. On July 22, the September euro generated a short and intermediate term buy signal, and as this report is being compiled on July 25, the September euro is trading 55 points higher. Although we are not bullish from a fundamental point of view, it appears the market wants to go higher. We discourage clients from initiating bearish positions at current levels because managed money is heavily net short according to last week’s COT report. On July 24, the September euro’s 50 day moving average crossed above the 200 day moving average.
S&P 500 E mini:
The S&P 500 E mini lost 4.50 points on volume of 1,510,230 contracts. Open interest declined by 8,531 contracts, which relative to volume is approximately 70% below average. For those holding long equity positions, we strongly advocate initiating long put protection to protect those positions.