July 3 report

Soybeans:

August soybeans gained 7.75 cents on volume of 103,073 contracts. Total open interest increased by 3,006 contracts, which relative to volume is approximately 20% above average. The July contract accounted for loss of 1,115 of open interest. USDA released its export sales numbers and for the 2012-2013 season 120,600 tons were sold and for 2013-2014 249,000 tons were committed.  Although the market is on a short and intermediate term buy signal, soybeans look lackluster at current levels. On a seasonal basis, soybeans tend to top out in June or July.

Soybean meal:

August soybean meal lost 30 cents on light volume of 51,313 contracts. Open interest declined by 3,108 contracts, which relative to volume is approximately 140% above average meaning that liquidation was unusually heavy. The July contract accounted for loss of 1,572 of open interest. Export sales were excellent for the 2012-2013 season at 116,300 tons and 4,200 tons for the 2013-2014 season   Soybean meal prices have risen sharply during the past month, and this may cause a certain amount of substitution from other feedstock. Soybean meal continues to be on a short and intermediate term buy signal, but the market may struggle to move higher even though meal demand is robust.

Corn:

September corn lost 0.75 cents on volume of 181,681 contracts. Total open interest increased by a massive 13,923 contracts, which relative to volume is approximately 210% above average, meaning that heavy numbers of new longs and shorts entered the market but were not able to move prices much one way or the other. During the past 3 days, open interest has increased by 28,697 contracts while September corn has declined by 15 cents. This is bearish open interest action relative to the price decline. Export sales for the 2012-2013 season totaled 233,100 tons and for the 2013-2014 season 81,400 tons. Corn exports continue to be anemic.

As we have said in previous reports, the key part of growing season is ahead, and any kind of weather scare is likely to move corn prices sharply higher, at least temporarily. Additionally, corn is trading at levels where it has found support going back to June of 2012. We suspect that managed money has gotten significantly more short, and the COT report will be released Friday afternoon at 3:30 pm. Eastern daylight time. Corn has been on an intermediate term sell signal, and generated a short-term sell signal on June 28.

Wheat:

September wheat gained 6.75 cents on healthy volume of 106,680 contracts. Total open interest increased by 249 contracts, which is minuscule and dramatically below average. The July contract accounted for loss of 719 of open interest. Wheat exports totaled 593,900 tons for the 2013-2014 season which is a respectable number. Wheat remains on a short and intermediate term sell signal.

Cotton:

December cotton gained 1.02 cents on volume of 15,320 contracts. Total open interest increased 364 contracts, which relative to volume is average. On June 24, December cotton generated a short-term sell signal, but it remains on an intermediate term buy signal. We think cotton prices are headed lower along with most other agricultural products.

Live cattle:

August live cattle gained 5 points on light volume of 43,379 contracts. Total open interest increased by 669 contracts, which relative to volume is approximately 40% less than average. The August contract accounted for loss of 2,900 of open interest. Ever since cattle generated a short-term buy signal on June 27, it has been trading in a sideways to lower pattern. We see this consolidation as positive, and believe that cattle will make another leg higher as inventory of cattle declines into the 3rd and 4th quarters. Cattle has not yet generated an intermediate term buy signal.

 Crude oil:

August WTI crude oil gained $1.74 on huge volume of 1,078,939 contracts. For the 3rd day in a row open interest declined and on July 3 lost 5,135 contracts while the August contract lost 14,879. Remarkably, for 4 consecutive days beginning on June 28 through July 3, open interest has declined by 53,083 contracts while August crude oil has advanced $4.29. This is bearish open interest action relative to the price advance.

The Energy Information Administration released its stocks report and it showed that stocks declined 10.347 million barrels from the previous week. Additionally. The report showed that current stockpiles are 896,000 above year ago levels and are 35.6 million barrels above the five-year average. During the week of July 2 2012, August crude oil closed at $84.45, which is dramatically lower than current prices.

Although we have always reminded clients that crude oil has been on a short and intermediate term buy signal, we have been reticent to embrace the bullish case because of continuing negative fundamentals. It is of great concern that WTI has been moving into new high territory on very heavy volume, but open interest is declining when it should be rising. As this report is being compiled on July 5, August crude has again broken out to new highs and is trading $1.75 higher on the day. WTI is massively overbought by any standard and the first reliable signal that WTI is about to pullback may e through a substantial increase of open interest on heavy volume. This is an indicator that speculators who are late to the party are getting on board.

Brent crude oil: On July 3, August Brent generated a short-term buy signal, and will likely generate an intermediate term buy signal on July 5.

August Brent crude advanced $1.76 on heavy volume of 894,784 contracts. Volume was the heaviest since April 16 when 1,133,673 contracts were traded. On July 3, open interest declined by 6,659 contracts, which is minuscule and dramatically below average. However, it is negative because open interest should be rising, especially as Brent breaks out into new high territory. As this report is being compiled on July 5, Brent is trading $1.90 higher and has made a new high for the move at $107.74, which is its highest price since early April 2013.

Heating oil:

August heating oil gained 5.66 cents on volume of 118,543 contracts. Total open interest increased by a massive 6,556 contracts, which relative to volume is approximately 120% above average, meaning that new longs were entering the market aggressively and pushing prices higher. The August contract accounted for an increase of 637 of open interest. The open interest increase on July 3 was the highest since June 5 when it increased by 6,805 contracts while heating oil lost .0095 cents. It is the largest open interest increase on a price advance in over a month. The Energy Information Administration reported that distillate stocks declined by 2.4 million barrels and current stocks are 2.9 million above last year’s level. However, distillate stocks are 19.4 million barrels below the five-year average.

According to the latest COT report, which was released last Friday, managed money was substantially net short heating oil, and this may account for the declines of open interest as heating oil  advanced during the past week. It is highly likely that heating oil will generate an intermediate term buy signal on July 5.

Gasoline: On July 3, August gasoline generated a short-term buy signal, but remains on an intermediate term sell signal

August gasoline gained 6.02 cents on volume of 128,476 contracts. Total open interest increased by 3,203 contracts, which relative to volume is average. Making the total open interest increase more impressive was the fact that the August contract lost 2,042 of open interest. The Energy Information Administration reported that gasoline stocks declined by 1.72 million barrels and stocks are 18.7 million barrels above year ago levels. Additionally, stocks are 11.3 million barrels above the five-year average. As this report is being compiled on July 5, August gasoline is trading 4.63 cents higher.

Natural gas:

August natural gas gained 3.6 cents on volume of 207,811 contracts. Total open interest declined by 2,960 contracts, which relative to volume is approximately 50% below average. The August contract accounted for loss of 2,602 contracts. Natural gas remains on a short and intermediate term sell signal, and as this report is being compiled on July 5, natural gas is trading 9.3 cents lower.

Euro: On July 3, the September euro generated a short and intermediate term sell signal.

 The September euro gained 36 points on volume of 237,653 contracts. Open interest declined by 1867 contracts, which relative to volume is approximately 55% below average.

 Dollar index: On July 3, the September dollar index generated a short-term buy signal, and the cash dollar index, generated an intermediate term buy signal on June 26.

As this report is being compiled on July 5, the dollar index is trading 1.21 higher and has made a new high for the move at 84.930.

From the June 30 Weekend Wrap:

 “The COT report shows that leveraged funds are stubbornly short by a ratio 2.68:1, which has increased during the rally. The modest increase in open interest and the high short to long ratio indicates that professional money managers are digging in and refusing to cover short positions. This provides a terrific opportunity for speculators because these imbalances can be profitably exploited. Since the September dollar index is on the verge of generating a short-term buy signal, the question is: will a pullback occur before the buy signal, or after. If the index pulls back prior to the generation of a buy signal, we think approaching the dollar index on the long side with a small position would be a fairly low risk proposition because many key currencies that comprise the index are on sell signals or very close to it. Our preference would be for the index to generate a short-term buy signal, then pull back for 1-2 and possibly 3 days. Another factor bolstering the strength of the dollar is that the euro has a hefty number of net longs. Since it comprises approximately 57% of the weight of the dollar index, the strength of the dollar rally could take many shorts by surprise.”

S&P 500 E mini:

The S&P 500 E mini gained 1.75 points on volume of 1,034,231 contracts. Open interest increased by 13,876 contracts, which relative to volume is approximately 40% less than average. As this report is being compiled on July 5, the E mini is trading 12.75 points higher and has made a new high for the move at 1630.75. We continue to think the market is in a corrective phase and is headed lower, but is getting a lift due to the employment report. Long put options should continue to be held.

From the July 2 report:

 “Keep in mind that the employment report will be released on July 5, and this can swing the market sharply in either direction. Make sure appropriate stops are in place. Previously, we have recommended that those holding short futures positions have stops at 1620.50 or slightly above. If the report is reasonably positive, it is quite easy to get stopped out on an initial thrust higher. Rather than risk this, a better approach might be to buy a long call to offset upside risk rather than get stopped out prematurely.”