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August soybeans closed 12.50 cents higher on light volume of 203,872 contracts. Total open interest increased by 3,205 and open interest in the July contract declined by 3,982 contracts. Although the market continues to move higher and made a new contract high, I am concerned about the consistent low volume and the less than stellar open interest action. The open interest increase was very modest in relation to volume and was below average. In other words, we are seeing low participation by the speculative community, and a below average degree of commitment on the part of longs and shorts. Another concern is that corn and wheat continue to outperform soybeans, and if these should correct (which they will eventually), soybeans prices could take a dive. Another concern, is that soybeans, soybean meal and corn have a seasonal tendency to top out in July. Investors should consult with their investment advisor or broker regarding taking full or partial profits as the market advances.
August soybean meal gained $5.80 on light volume of 59,578 contracts. Open interest increased by a minuscule 623 contracts and the open interest in the July contract declined by 3,982. Volume was the lowest since June 4 when 54,155 contracts were traded. To put yesterday’s volume in perspective, on a year-to-date basis for 2012, 74,762 contracts per day have been traded and on a year-to-date basis for 2011, 67,144 contracts per day. Like soybeans, the low volume combined with a below average increase in open interest is troubling because soybean meal made a new contract high at $440.80. In other words, speculators are not participating in the rally in large numbers and the volume and open interest action of the past couple of days indicates this is becoming a pattern. Ideally, in a bull market, as price moves higher, volume should be increasing and open interest should be increasing above average. This is not occurring in soybean meal, nor is it occurring in soybeans. Although soybeans are affected by the dry conditions in parts of the Midwest, the major impact at this particular time is in the corn market. As long as corn continues to move in a parabolic fashion, soybeans and soybean meal will continue to move higher, but will lag the performance of corn and wheat. The critical time for soybeans from weather perspective is in the mid July to mid August period. Investors should consult with their investment advisor or broker regarding taking full or partial profits as the market moves higher.
One important factor to keep in mind about soybeans and soybean meal is that the real fireworks will occur in the late 2012- early 2013 crop year. This is when extreme soybean tightness will occur because stocks to usage ratios will be at historical lows, and the South American crop will not hit the market until the first quarter of 2013. In other words, this is a longer term bull market. There will be wild swings on the upside and downside, but in my view, the major action will not occur until later in the crop year.
September corn closed 23.75 cents higher on lower than normal volume of 318,457 contracts. Total open interest increased by 4,627 and open interest in the July contract declined by 3,091 contracts. Volume in corn was the lightest since June 11 when 314,099 contracts were traded. On a year-to-date basis corn has traded an average of 331,186 contracts per day and the average daily volume during June was 382,236 contracts. Relative to volume, the open interest increase was below average, which shows a lack of commitment by longs and shorts and the low volume shows a lack of participation by the speculative community. The rally in corn, which started on June 18 from a low of $5.12 1/4 has been characterized by declining open interest. The market may indicate that a top (temporary or longer-term) has been made when corn makes a new high on very heavy volume accompanying a massive increase in open interest. The market is too dangerous to trade from the long or short side because of the weather, which can change at any time. Corn remains on a short and intermediate term buy signal. Stand aside.
September wheat advanced by 15.25 cents on volume of 83,101 contracts. Like others in the grain complex, volume was extremely light. Open interest declined on the advance by 709 contracts, and open interest in the July contract declined by 438 contracts. I attribute the decline of open interest to position squaring and profit-taking ahead of the July 4 holiday. Wheat is following corn and reaching a level in which sales of American wheat may be dramatically impacted. Also because wheat is selling at over a $1.00 premium to corn, the use of wheat as a feed will decline. The market is currently pricing in a shortfall of wheat production for Russia, Ukraine, and Australia. The market is on a short and intermediate term buy signal, but like all grains, wheat is vulnerable to sharp setback in the event weather turns for the better. Stand aside.
August crude oil lost $1.21 on volume of 542,783 contracts. Open interest declined by a massive 18,595 contracts. Although volume contracted by approximately 230,000 contracts from the day before, the open interest decrease was significantly above average in relation to volume. I would expect to see a continued rally up to the $90.00 level, which is near the 50 day moving average. The market remains on a short and intermediate term sell signal. Stand aside.
August gasoline lost 0.79 cents on volume of 124,971 contracts. Open interest declined by a massive 5,147 contracts. Although the range on July 2 was 6.98 cents, volume was approximately 7000 contracts higher than on June 29 when the range for August gasoline was 16.47 cents. Open interest in gasoline has declined 9 days in a row and the total for this period is 44,402 contracts. During this time frame, August gasoline has advanced 5 cents. This is bearish open interest action in relation to price. Despite this, I think gasoline will rally up to its 50 day moving average of $2.82. The market remains on a short and intermediate term sell signal. Stand aside.
September copper lost 2.75 cents on light volume of 56,803 contracts. Total open interest declined by 4,472 contracts. Open interest has declined for six days in a row and the total for this period is 14,711 contracts. During this time frame, September copper has advanced 15 cents. In the most recent Commitment of Traders Report, the stats showed that managed money speculators were short by a ratio of 1.49 to 1. I suspect that many of these shorts are aggressively covering positions as the commodity and equity markets adopt a “risk on” approach to financial assets. My target has been the $3.60 area for the implementation of bearish positions, but that number is not etched in stone. Ideally, I would like to see managed money shorts get blown out before entering bearish positions. The market remains on a short and intermediate term sell signal stand aside.
August gold lost $6.50 on volume of 110,205 contracts. Open interest increased by 622 contracts. Investors should consult with their investment advisor or broker regarding acquiring gold at lower prices for the long-term. Keep in mind that if the market penetrates and closes below $1523.90, the market will not find support until the $1470 area.
September silver lost 11.3 cents on extremely light volume of 27,728 contracts. Total open interest declined by 723 contracts. Relative to volume, the open interest decline was above average. The market continues to act unwell and until silver can prove its mettle (pun intended) by seeing increases of volume and open interest on advances, there is no reason to be involved in this market.
The September Euro lost 75 points on light volume of 224,018 contracts. Open interest increased by 441 contracts. The market remains loaded with speculative shorts, which makes it dangerous to be short. Any positive news out of Europe could cause the Euro to rally to the 1.28-1.29 area. Stand aside.
On July 2, the Australian dollar generated a short and intermediate term buy signal. The market is extremely overbought relative to its 50 day moving average of 100.33. Do not enter long positions until the market has corrected close to its 50 day moving average.
S&P 500 E mini:
The September S&P 500 E mini closed 1.00 point higher on volume of 1,689,324 contracts. Open interest declined by 3,405 contracts. On July 2 the S&P 500 E mini and S&P 500 cash index generated a short and intermediate term buy signal. As I pointed out in the July 1 Weekend Wrap, investors should consider long positions in Apple computer instead of the S&P 500 Index. On July 2, Apple closed at $592.52, which was the highest closing price since April 27 when it closed at $603.00. Today July 3, Apple generated a short-term buy signal. Since Apple is already on an intermediate term buy signal, the short-term buy signal indicates the market is likely to test the $644.00 high made on April 10, 2012. With respect to put protection on the S&P 500, investors should discuss this with their advisor or broker.