July 5 report

Soybeans:

August soybeans lost 9.25 cents on light holiday volume of 87,303 contracts. Total open interest declined by 3,490 contracts, which relative to volume is approximately 55% above average. The July contract lost 683 of open interest. As this report is being compiled on July 8, August soybeans are trading 12.25 cents higher and the July contract has reached a new high of $16.07 and is trading 19.50 cents higher on the day. August soybeans  have taken out the July 1 high of 14.53 3/4. The balance sheet for soybeans remain tight and the July contract is providing August with support. Additionally, with a couple of exceptions, most commodity are markets are trading higher on July 8. Soybeans remain on a short and intermediate term buy signal.

Soybean meal:

August soybean meal lost $4.00 on volume of 52,562 contracts. Total open interest declined 765 contracts, which relative to volume is approximately 40% below average. The July contract accounted for loss of 603 of open interest. As this report is being compiled on July 8, August soybean meal is trading $8.90 higher while the July contract is trading 15.40 higher and has made a new high for the move at $504.50. For August soybean meal to mount a sustained move higher it must take out the high of $442.30 made on June 28. Meal demand remains robust, and we favor meal over soybeans. Soybean meal remains on a short and intermediate term buy signal.

Corn:

September corn lost 6.50 cents on volume of 163,431 contracts. Total open interest declined 3,207 contracts, which relative to volume is approximately 20% less than average. The July contract lost 1,302 of open interest. On July 5, September corn made a new low for the move at $5.25 1/2, which is its lowest price going back to June 2012. We have consistently cautioned clients that corn is trading at levels where short covering rallies can occur at any time. Additionally, corn is entering its critical growing period, and with ending stocks at significantly low levels, weather will be the driving factor for corn prices. The COT report, which was not released July 5 due to the July 4 holiday will be released on July 8. We will provide a special report on COT. As this report is being compiled on July 8, September corn is trading 8.00 cents higher. Corn remains on a short and intermediate term sell signal.

Wheat:

September wheat lost 5 cents on light holiday volume of 67,480 contracts. Total open interest declined 796 contracts, which relative to volume is approximately 50% less than average. The July contract accounted for loss of 537 of open interest. As this report is being compiled on July 8, September wheat is trading 4.50 cents higher. Wheat remains on a short and intermediate term sell signal. Like corn, we recommend against short positions at current levels.

Cotton:

December cotton lost 71 points on light holiday volume of 5746 contracts. Open interest increased by 468 contracts, which relative to volume is approximately 230% above average meaning that new shorts were aggressively entering the market and driving prices lower. As this report is being compiled on July 8, December cotton is trading 15 points lower after making a high of 85.95, which is its highest price since June 20 when December cotton made a high of 86.67. Cotton remains on a short-term sell signal, but in intermediate term buy signal.

Live cattle:

August live cattle closed unchanged on volume of 29,101 contracts. Total open interest increased by 1,638 contracts, which relative to volume is approximately 120% above average meaning that both longs and shorts were aggressively entering the market, but were unable to move it one way or the other. The August contract lost 1,768 of open interest. As this report is being compiled on July 8, August cattle is trading 25 points higher. The market has been consolidating ever since it generated a short-term buy signal on June 27. The market needs a catalyst to take it out of its current trading range, or it may become a victim of discouraged longs looking to exit the market. Cattle supplies will be declining during the 3rd and 4th quarter, and the only caveat to higher prices is the consumer. If consumers increase their beef consumption during the summer months, cattle could begin move higher from here.

 Crude oil:

August WTI crude oil gained $1.98 on volume of 615,153 contracts. Volume declined 463,786 contracts from July 3 when August crude oil advanced $1.74 and open interest declined 5,135 contracts. On July 5, open interest increased by a minuscule 8,416 contracts, which relative to volume is approximately 40% below average. The August contract lost 5,291 of open interest. During the past 4 trading sessions beginning on July 1 through July 5, August crude oil has advanced $6.76 while open interest has declined by 44,598 contracts. This is definitely bearish open interest action relative to the price advance. There has been heavy trading activity based upon the large volumes that we’ve seen over the past few days, but the fact is the dominant action has been shorts and longs liquidating as the market moved higher. July 5 was the first day that open interest increased, and it was dramatically below average, indicating there is very little enthusiasm among market participants for the long side of WTI. This does not mean that WTI is not going higher, just that market participants do not believe in the rally. The topping scenario we envision is that crude oil will experience a major rally on heavy volume with open interest increasing dramatically. This will  likely be a sign that those who are late to the party have decided to get on board before they miss out on a further move higher. WTI  is massively overbought, and it can stay that way as long as there are frustrated and reluctant bulls sitting on the sidelines. WTI remains on a short and intermediate term buy signal. We advise against shorting WTI.

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

August Brent crude oil gained $2.18 on heavy volume of 814,943 contracts. Volume was the highest since July 3 when 894,784 contracts were traded and Brent advanced $1.76 while open interest declined 6,659 contracts. On July 5, open interest increased by a minuscule 3,366 contracts, which relative to volume is approximately 80% less than average. From July 1 through July 5 (4 trading sessions) Brent has advanced $5.78 while open interest has increased by 14,082 contracts. While the open interest increase is tepid at best, it is a much better performance than the open interest decrease of 44,598 contracts in WTI over the same time frame. Although open interest action has been disappointing in Brent, especially considering the heavy volume and the magnitude of the price rise, we discourage shorting the market.

Heating oil: On July 5, August heating oil generated an intermediate term buy signal, and remains on a short-term buy signal.

August heating oil gained 3.85 cents on volume of 120,290 contracts. Total open interest increased by 1,141 contracts, which relative to volume is approximately 55% below average. Heating oil is trading at levels last seen in April. We discourage shorting this market.

Gasoline:

August gasoline advanced 5.86 cents on volume of 87,430 contracts. Total open interest increased by 3,874 contracts, which relative to volume is approximately 75% above average, meaning that new longs were entering the market aggressively and pushing prices higher. Adding to this impressive performance was the August contract which lost 1,770 of open interest. Gasoline generated a short-term buy signal on July 3 and may generate an intermediate term buy signal on July 8. Do not short gasoline.

Natural gas:

August natural gas lost 7.3 cents on volume of 180,727 contracts. Open interest increased by 381 contracts, which is minuscule and dramatically below average. The August contract lost 1,874 of open interest. As this report is compiled on July 8, August natural gas is trading 13.4 cents higher. Natural gas remains on a short and intermediate term sell signal.

Euro:

The September euro lost 1.84 cents on heavy volume of 432,233 contracts. Open interest increased by a massive 22,496 contracts, which relative to volume is approximately 100% above average, which means that new shorts entered the market aggressively and drove prices lower. On July 3, the September euro generated a short and intermediate term sell signal. As is usually case after the generation of a sell signal, the market has a countertrend rally lasting 1-2 and possibly 3 days. Wait for more of a rally before considering the initiation of bearish positions.

S&P 500 E mini:

The September S&P 500 advanced 18.25 points on volume of 1,725,597 contracts. Total open interest declined by 17,926 contracts, which relative to volume is approximately 50% below average. Since the rally began on June 25 through July 5, the S&P 500 E mini has rallied 61.00 points, while open interest has declined by 46,292 contracts. This is bearish open interest action relative to the 61 point advance. It is highly likely that the E mini will generate a short-term buy signal on July 8, which would reverse the short-term sell signal generated on June 21. The market remains on an intermediate term buy signal. Previously, we have recommended bearish positions, and with the E mini on the verge of a buy signal, we would peel off the position on any decline. The second quarter earnings season is upon us, and this will  influence the direction of the E mini. There have already been huge numbers of negative pre-announcements, which do not bode well for the market as a whole.