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Because of the July 4th holiday, the Commitment of Traders Report will not be released until Monday afternoon.
Soybeans:
For the week, August soybeans advanced by 85.50 cents. In order to provide context to the current market, I thought it would be interesting to review the history of soybean trading during the month of July. Starting in 1973 through 2008, soybeans have made a contract high in the month of July in 13 out of a total of 35 years. Additionally, soybeans have made a new contract high in the month of June during 7 of those 35 years. During 4 of those 35 years, soybeans made a contract high in the month of May, and in August, 3 years. September trails with only 2 years of contract highs. When you add all of this together, statistics show that soybeans make their contract highs predominately during the months of May, June, July and August. Out of 35 years, the total number of contract highs during these four months totals 27 years. This is a remarkably important statistic when examining the probabilities of soybeans moving significantly higher from here. Below, I am listing the contract high dates from 1973 through 2008 for the month of July. There have been no contract highs after 2008 for the month of July.
Year Contract High Date
1973 July 26, 1973
1974 July 31, 1974
1976 July 7, 1976
1980 July 17, 1980
1981 July 28, 1981
1985 July 12, 1985
1989 July 5, 1989
1990 July 2, 1990
1993 July 19, 1993
1995 July 17, 1995
1996 July 12, 1996
2007 July 13, 2007
2008 July 3, 2008
During the past week, July soybeans made a high of $16.44 1/2, which was nearly 20 cents from the all-time high of $16.63 made on July 3, 2008. On May 29, 2008, August soybeans made a significant low at $13.12 1/2 and proceeded to rally all the way to $16.54 on July 3, 2008. This occurred within a span of 26 trading sessions. I decided to reverse engineer the current market by going back 26 trading sessions in order to compare it to the strength of the 26 session rally during late May to early July 2008. If we count back 26 trading days from July 6, May 31, 2012 is where we begin calculating the strength of the move. On May 31, August soybeans closed at $13.22 3/4 and closed at $15.67 1/4 on July 6. The total gain from the close on May 31 through July 6 (26 trading sessions) is $2.44 1/2. The total gain from May 29 2008 through July 3, 2008 (26 trading sessions) was $3.41 1/2, or approximately a 40% stronger move in 2008 than in 2012. This is not to say that the market cannot move higher, rather it is an exercise to show readers that although the current market is strong, it is far less so than in 2008.
Soybean meal:
For the week, August soybean meal advanced $32.00. On July 5, soybean meal made a historic move when it broke through the all-time high made on July 14, 2008 of $456.80 and closed at $466.50. Soybean meal was the last commodity to make all-time highs. As I have pointed out in previous posts, the open interest action has been abysmal. As the market was making a new all-time high, open interest declined by 1,070 on July 5. If this were a one day event, I would not be concerned. However, as I have indicated in previous posts, a pattern appears to be emerging that indicates a short-term top may be in the offing.
In order to provide some historical perspective, I am supplying the table below that puts the current market action of soybean meal in context. I examined markets starting in early May through the end of August. The percentage increase is based upon the calculation of the low to high move. For the year 2012, I calculated the high based upon the recent high made on July 5. For all years, I used the September contract.
In terms of similarity of return and time, the markets of 2009 and 2012 have much in common. The 2009 market had a longer duration from its low to high than 2012, and the percentage gain was greater than 2012, which had a shorter duration from low to high, along with a lower percentage return. The All-Star year was 1974, which saw soybean meal more than double in 29 trading days. Out of nine years, there were five years in which the average percentage gain per day was above 2012.
Year Low Date High Date % Gain Trading Days %Gain/day
1974 $105.00 June 18 $216.00 July 30 +105% 29 3.62%
1976 $141.00 May 3 $231.00 July 7 +64% 45 1.42%
1980 $172.90 June 3 $227.00 August 29 +31% 62 0.50%
1983 $170.00 June 29 $264.00 August 25 +55% 40 1.375%
1988 $201.80 May 4 $325.00 June 23 +62% 35 1.77%
2002 $151.20 May 3 $194.00 August 15 +28% 73 0.38%
2007 $202.80 May 1 $258.50 July 13 +27 51 0.53
2009 $285.00 July 16 $398.00 August 28 +39% 32 1.218%
2012 $365.40 June 1 $460.80 July 5 +26% 24 1.08%
Corn:
For the week, September corn advanced 66.75 cents. In order to put the current move in corn into perspective, I am providing statistics of large moves that occurred during the late spring and summer months going back to 1973. There have only been two years of drought during this time, 1983 and 1988. Nonetheless, I found two additional years when corn had significant moves: 1973, 1974. Below, I am providing the data from low to high and the percentage increase from low to high for September corn.
Year Low Date High Date Percentage Trading Days %Gain/Day
1973 1.61 1/2 April 30 3.47 3/4 August 14 + 115% 75 1.53%
1974 2.38 May 7 3.83 1/4 July 30 + 61% 59 1.03
1983 2.85 June 8 3.76 August 16 + 32% 49 0.65
1988 2.11 1/4 May 13 3.64 June 28 + 72.5% 33 2.20
2012 5.09 1/2 June 15 7.14 July 5 + 40% 14 2.86
In short, the current move in corn on a percentage basis and time frame is unprecedented. Obviously, it is impossible to determine how much further the move has to go. However, the records made in 2011 should provide some guidance. On July 5, 2012 the July corn contract (I am using the front month) made a new high for the move at 7.76 3/4. This broke the previous high of 7.65 1/2 for the September 2011 contract on August 29, 2011. On April 11, 2011, the May contract reached a high of 7.83 3/4. On June 10, 2011, the July 2011 contract reached the all-time high price of 7.99 3/4. In essence, corn made a double top (some what irregularly) on April 11 and June 10. This should provide formidable resistance.
I suspect the market will have a major battle to move to the upper $7.00 level and will have a difficult time of staying there. Corn just started adding open interest on July 3 and 5. If the market is able to attract new buyers to pay ever higher prices, it is likely that this will be short lived and the trap will be set for the new longs. It is important to keep in mind that sales of corn have been dismal for a number of months. And the current high prices will have a major negative impact on already moribund export sales. Keep in mind, that dollar strength will negatively impact all grains.
Wheat:
For the week, September wheat advanced 49 cents. The move in wheat has been nothing short of spectacular and during the past 35 sessions, September wheat has moved from a low of $6.06 3/4 on May 14 to a high of $8.40 3/4 on July 5, or a move of 38.5%.
In order to put this move in perspective, I examined other years when wheat advanced during the late spring and early summer months. Between May 1, 1979 and June 22, 1979, September wheat rose from a low of $3.46 3/4 to a high of $4.96 on June 22, 1979, or an advance from low to high of approximately 43%. After reaching the high on June 22, the market collapsed by over 80 cents, or 16.38% by July 31, 1979.
During 1988, September wheat made a low of 3.13 1/4 on May 6 and rose to a high of $4.20 3/4 on June 16th, or a move of 34%. Wheat then made a secondary high of $4.21 on July 5 and proceeded to collapse to 3.51 1/2 by July 26 or approximately 16%.
Crude oil:
For the week, August crude oil declined by 51 cents. Stand aside.
Gasoline:
For the week, August gasoline advanced 8.42 cents. Stand aside.
Copper:
For the week, September copper declined by 8.70 cents. Stand aside.
Gold:
For the week, August gold declined by $25.10. The market doesn’t seem to get much traction on rallies and it is a distinct a possibility that gold will penetrate the $1523.90 level. On June 22, August gold generated a short-term sell signal and the market remains on an intermediate term sell signal.
Silver:
For the week, September silver declined by 69.2 cents. Stand aside.
Euro:
For the week, the September Euro declined by 3.85 cents. The market made a new low of 1.2271, which broke the old low made on June 1 of 1.298. What’s even worse is that the Euro closed at 1.2283, which is below the previous low of June 1. Unless the European Central Bank pulls a rabbit out of its hat, the Euro looks to go lower and perhaps significantly so. Stand aside.
S&P 500 E mini:
For the week, the September S&P 500 E mini declined by 4.60 points. Much fear remains in the market and the latest sentiment reading from the American Association of Individual Investors supports this. For example, the current reading indicates that only 32.6% of persons surveyed by the Association are bullish, compared with 33.3% bearish, and 34.0% neutral. The stats also show that for the past three weeks neutral and bearish readings have exceeded bullish readings.
AAII Sentiment Last Week Previous Week Three Weeks Ago
Bullish 32.6% 28.7% 32.9%
Bearish 33.3% 44.4% 35.9%
Neutral 34.0% 27.0% 31.2%
There is a much trepidation about events in Europe and this along with unfavorable domestic economic statistics, as well as the apparent slowing of the world economies is weighing on the minds of investors. The Institute of Supply Management on their website provided proof that the global manufacturing sector is slowing down.
“A composite index produced by J.P. Morgan and Markit in association with ISM and IFPSM-fell to a three-year low of 48.9 in June, a reading below the neutral 50.0 mark for the first time since November 2011.”
“Manufacturing production declined for only the second time in the past three years. Although the rate of contraction was only moderate, it was nonetheless the fastest since May 2009. Growth slowed sharply in the US to its weakest in the current 37 months sequence of expansion. Rates of decline gathered pace in China, Brazil and Vietnam, while Japan, South Korea and Taiwan all fell back into contraction.”
It is, therefore surprising that the indices have held up as well as they have. If the components of the Dow Jones industrial average are examined, it is remarkable to see that some of the components are at all-time highs. For example, Walmart, Disney and Coca-Cola are at all-time highs. Johnson & Johnson is only $4.46 from its all-time high and Verizon is within $2.00 of breaking the high of $46.40 set in February of 2002. IBM is within 8.77% of its all-time high, and Travelers Insurance made its all-time high on May 3 and is currently within 2.34% of that high. Home Depot made a high of $53.28 on June 19, 2012, which is its highest price since May 21, 2001. American Express is within 4.21% of its high made on May 1, which is the highest price for the company since October 2007.
I bring this up because very often markets send conflicting signals. During the past two weeks in the Weekend Wrap, I have listed global markets where the 50 day moving average has crossed below the 200 day moving average. This is bearish along with much of the fundamental data coming out of Europe and parts of Asia. However, it appears that the market has discounted this and is trading higher based on other factors. Stocks of the Dow 30 that are near their all-time highs, or trading at several year highs have one thing in common. Their yield is significant compared to anything obtainable in the money market and they are well capitalized blue-chip companies with a steady flow of revenue, earnings and dividends.
The all-time closing high for the Dow Jones industrial average was 14,164.53 on October 9, 2007. On July 6, the DJIA closed at 12,772, which is only 11% from the all-time closing high. On July 6, the market had every reason to close significantly lower. The highly negative employment report combined with a sharply higher dollar and sharply lower metals, petroleum and grain markets should have pounded the S&P E-mini more than 9.75 points lower at the close. Keep in mind that on July 5, the S&P 500 E mini had made a new high for the move at 1375.00. In other words, the market appears to be resilient in the face of bad news.
As I have indicated on a number of occasions, I believe the safest way to play any rally in the broad indices is to be long Apple Computer. The stock has shown that it has an ability to withstand downdrafts in the market and yet is able to bounce back even when broad market conditions are unfavorable. Investors should be discussing with their investment advisor or broker, the advisability of entering a trade in Apple and the maintenance of long put protection in the S&P 500.
