E-mail comments and questions to: garry@openinterestanalyst.com
Soybeans:
August soybeans closed 35.25 cents higher on light volume of 200,154 contracts. Open interest increased by 2,016 contracts. Although volume was light due to the July 4 holiday, the level of commitment as expressed by the open interest increase was significantly below average in relation to volume. Soybeans, as well as corn and wheat are being impacted by the severe drought conditions in parts of the Midwest. Based upon volume and open interest, when the market rallies speculators appear to be cautious.
For example on July 2, soybeans closed up 12.50 cents on volume of 203,872 contracts and open interest increased by 3,205 contracts. This contrasts with the action of July 3, when volume was fractionally lower, but soybeans closed up nearly 3 times the amount on July 2, however, open interest was 1,189 contracts lower than on July 2.
Another indication of speculators becoming increasingly cautious as prices move higher was the action on June 29 when soybeans closed higher by 35.50 cents (nearly equal to the increase on July 3), but in this case, volume was 239,053 contracts and open interest increased by 5,373 contracts. In relation to volume, the open interest increase on June 29 was twice as high as July 3 when the market closed up by the same amount.
In other words, even though the soybean market is rallying strongly, volume and open interest stats clearly indicate that speculators are increasingly becoming cautious as the market moves higher. I believe, as do many others, that markets correct not because there are smart short sellers at the top, but rather there is an absence of buyers at the top. The current action in soybeans is reminiscent of that of dynamic. Once the market runs out of new buyers, look out below. Investors should be consulting with their investment advisor or broker regarding taking full or partial profits on long positions. If weather forecasts become more favorable to the grains, a severe setback will undoubtedly occur, and much profit can be lost in this kind of move. There is nothing more dangerous to trade than a market that is driven by the weather. As I write this on July 5, August soybeans are 39.75 cents higher. It appears that the market is going parabolic, and a sign of a possible top could be a sharply higher market in the early going, and a reversal later in the day. Record-setting volume and open interest on any one day could indicate the market has found a temporary top. Do not short this market under any circumstances. Stand aside.
Soybean meal:
August soybean meal closed $11.90 higher on volume of 57,922 contracts. Open interest increased by a healthy 1,699 contracts. Interestingly, the open interest increase was the largest since June 25 when it increased 4,916 contracts. From June 25 through July 3, open interest has declined by 4,434 contracts when soybean meal advanced $28.20, or 6.83%. This is not the kind of market action that gives one confidence when the market is moving higher based upon weather.
Like soybeans, the bullish action in soybean meal is a product of the weather, and weather markets are unpredictable and extremely volatile. As I write this on July 5, soybean meal is $14.10 higher on the day. Investors should consult with their investment advisor or broker regarding taking full or partial profits on longs positions. Investors should keep in mind that unlike corn, this is not the critical window for damage to the soybean crop. This occurs during mid July to mid August. Undoubtedly some damage has taken place to soybeans, but not to the degree that is occurring in the corn crop. Do not short this market under any circumstances. Stand aside.
Corn:
September corn closed 21.75 cents higher on light volume of 282,852 contracts. Open interest increased by 3,937 contracts. Relative to volume, the open interest increase was below average, which shows a lack of commitment on the part of speculators. It is only in the past two trading sessions that open interest has increased. As it stands, during these two sessions, open interest has increased by a total of 8,803 contracts while corn has advanced 45.50 cents. Again, these numbers seem to indicate that speculators are becoming increasingly leery of ever-increasing prices. Additionally, if you calculate total open interest from the beginning of the rally, open interest is down significantly. Despite this, the damage to the corn crop could be extensive although at this point, it is too early to determine the full impact of the drought. The market is in the process of adding weather premium and discounting the damage. As I write this on July 5, September corn is 25.50 cents higher. Stand aside. Do not short this market under any circumstances. Stand aside.
Wheat:
September wheat closed 26.75 cents higher on relatively low volume of 109,092 contracts. Open interest increased by a massive 6,288 contracts. Relative to volume, the open interest increase for wheat was off the charts. Although the main driver for wheat has been drought conditions affecting corn, there is a great deal of concern about the extent of the crop in Russia, Ukraine and Australia. Even so, it is remarkable to see extremely bullish open interest action in wheat compared to corn on July 3. Although volume in wheat was about half of corn, the open interest increase was 50% greater than corn. This kind of open interest increase indicates there is a hefty commitment by longs and shorts, which indicates very strong ideas regarding the future direction of wheat prices. As I write this on July 5, September wheat is 28.50 cents higher on the day. Stand aside. Do not short this market under any circumstances. Stand aside.
Crude oil:
August crude oil gained $3.91 on heavier than normal volume of 648,233 contracts. Total open interest increased by 12,327 contracts. Relative to volume, the open interest increase was somewhat below average. The market remains on a short and intermediate term sell signal. Stand aside.
Gasoline:
August gasoline gained 9.90 cents on light volume of 119,381 contracts. Total open interest declined by 8,789 contracts. The technical action, based upon volume and open interest is abysmal and on two occasions, gasoline increased by of 15.45 cents (June 29) and 9.90 (July 3), yet open interest declined by 3,501 and 8,470 respectively on extremely light volume. This is bearish volume and open interest action in relation to price. Stand aside.
Copper:
September copper closed 7.10 cents higher on volume of 60,748 contracts. Total open interest declined by 614 contracts. Copper continues to trade in a bearish fashion, despite the fact it has rallied nearly 30 cents from the lows. As I have indicated previously, I want to see a rally to the $3.60 level. Stand aside.
Gold:
August gold closed $24.10 cents higher on volume of 128,020 contracts. Open interest increased by a massive 6,317 contracts. Relative to volume the open interest increase was at the very high end of the range, which indicates that longs and shorts both feel very strongly about the direction of gold prices. Investors should be consulting with their investment advisor or broker regarding accumulating gold for the long-term. If gold penetrates and closes below $1523.90, the next area support will be in the $1470 range.
Silver:
September silver rallied 78.1 cents on extremely light volume of 34,519 contracts. Open interest declined on the rally by 1,114 contracts. The market continues to act poorly. Stand aside.
Euro:
The September Euro closed 29 points higher on volume of 184,437 contracts. Open interest increased by 664 contracts. The European central bank lowered interest rates and as I write this on July 5 the Euro is down 2.21 cents. Stand aside.
S&P 500 E mini: On July 3 Apple Computer generated a short-term buy signal area
The S&P 500 E mini closed 10.50 points higher on volume of 1,048,431 contracts. Open interest increased by a mere 388 contracts. Since July 29, the S&P 500 E mini has rallied 45.50 points and open interest has declined by 24,843 contracts. Based upon open interest action, the investment community is not buying into the current stock market rally. As mentioned in the Weekend Wrap of July 1, I believe the best way to play a stock market rally is to be long Apple computer. As I write this on July 5, the S&P 500 E mini is 2.75 points lower and Apple Computer is $11.91 higher. On July 3, Apple generated a short-term buy signal which confirms the intermediate term buy signal, and in my view indicates that Apple will make a run at the April 10 high of $644.00. On June 6, US Department of Labor will release the monthly employment report, and this will provide direction for the market in the short term. Investors should be discussing with their investment advisor or broker maintenance of put protection on the S&P 500.
