Soybeans: On August 17, November soybeans generated a short term buy signal, but remains on and intermediate term sell signal.
November soybeans advanced 8.75 cents on light volume of 118,179 contracts. Volume was the weakest since August 8 when the November contract gained 10.50 cents on volume of 120,025 contracts and total open interest declined by 1,017. On August 17, total open interest declined again, this time by 1,703 contracts, which relative to volume is approximately 40% below average and a total open interest decline on yesterday’s advance is bearish. The September contract accounted fora loss of 2,299 of open interest.
As this report is being compiled on August 18, November soybeans are pulling back, which is typical after the generation of a buy signal. The fundamentals for soybeans are not bullish and though the market may continue to rally, we discourage the initiation of bullish positions. According to the latest COT report, managed money remains long soybeans by a ratio of 6.18:1 and as a consequence, rallies will be met by the sellers of long positions who are looking to trim losses. This will keep a lid on advances. Stand aside.
Live cattle: October, but not December live cattle will generate a short term sell signal on August 18. This reverses the short term buy signal of August 1. October cattle remains on an intermediate term sell signal and the December contract remains on a short term buy signal and intermediate term sell signal.
October live cattle lost 1.00 cent on light volume of 30,319 contracts. Though volume was light, the total open interest increase was heavy, up to 2,503 contracts, which relative to volume is approximately 230% above average meaning that aggressive new short sellers entered the market in substantial numbers. The August contract accounted for a loss of 782 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in August and increase total open interest substantially.
As this report is being compiled on August 18, the October contract is trading 45 points lower and has made a new low for the move of 111.800, which is the lowest print since 111.800 made on July 27. As the August 11 research note confirms, we recommended that bullish positions NOT be entered until we saw a favorable moving average cross, which has now occurred, but also positive open interest action, which has NOT taken place. During this time, we recommended a stand aside posture.
However, we do think live cattle will have a substantial rally, but it may be a couple of weeks away at minimum. The key will be how the October contract trades now that it is on a short term sell signal and whether the December contract generates a short term sell signal. The October contract is approximately 6.525 cents above its contract low of $105.250 and though we think it is possible to test this low made on July 21, we think it is likely that this area will hold.
From the August 11 research note on live cattle:
“It appears likely that yesterday’s low will hold, but as we’ve said before, we need to see positive open interest action relative to price advances and declines. Yesterday’s open interest increase on the price decline was negative. The 20 day moving average stands at 112.534 and the 50 day at 112.965. We want to see the 20 day cross above the 50 day and positive open interest action before recommending bullish positions.”
WTI crude oil:
September WTI crude oil advanced 21 cents on very heavy volume of 1,329,160 contracts. Volume was the strongest since July 13 when crude oil lost $2.05 on volume of 1,447,908 contracts and total open interest declined by 483. On August 17, total open interest declined again, this time by 43,567 contracts, which relative to volume is approximately 20% above average. The September contract lost 58,912 of open interest, which means there was little in the way of open interest increases in the forward months.
For the past four days, the September contract has gained $ 3.30 while total open interest has declined by a massive 91,081 in this time frame, a major concern now that WTI crude oil is on a short term buy signal. On August 15, September and October WTI crude oil generated short term buy signals and typically markets pullback once the buy signal is generated. Instead, crude oil has continued to move higher and the problem is that total open interest has not been increasing during the past four days of the rally, which makes the entire move suspect.
The rally that began on August 11 through August 17 has been fueled solely by shorts covering their positions and they have been driving prices higher, not new buying. As this report is being compiled on August 18, remarkably for the sixth day in a row, the September contract is trading higher, up $1.31 and has made a new high for the move of $48.24, which is the highest print since 48.94 made on July 7. At this juncture, clients should not consider bullish positions when crude pulls back, because the short term buy signal is suspect due to poor open interest action. Stand aside.
Dollar index: On August 17, the September and December dollar index generated intermediate term sell signals after generating short term sell signals on August 1.
Euro: On August 17, the September and December euro generated intermediate term buy signals after generating short term buy signals on August 1.
December gold lost $8.10 on volume of 185,751 contracts. Total open interest declined by 2,291 contracts, which relative to volume is approximately 45% below average. The December contract lost 2,890 of open interest. For the past two days, December gold has gained $1.30 and total open interest has declined by a substantial 10,110 contracts. We consider this to be very negative open interest action, but gold continues to trade firmly and is only slightly less than $30.00 from its contract high of 1384.40 made on July 6.
Remarkably, after topping on July 6, the low for December gold has been $1318.50 made on July 21 and on July 21, the 50 day moving average stood at 1299.70. In other words, from July 6 through August 18, the December contract has not gotten close to correcting down to its 50 day moving average, which would be expected during a period of consolidation in a six week time frame.
On August 18, the 50 day moving average stands at 1333.70 and the 20 day moving average, 1348.60. As we have indicated before, the 50 WEEK moving average on the gold continuation chart has crossed above the 100 WEEK moving average which puts gold in solid longer-term bull market territory.Tomorrow, the COT report will be released and tabulated on Tuesday (August 16). We would not be surprised to see the net long position of managed money reduced for the fourth week in a row.
According to the last report, managed money was long gold by a ratio of 7.77:1, which was down from the previous week of 8.53:1 and the ratio two weeks ago at 8.89:1. The net long position of managed money is the lowest in at least six weeks, which means that a considerable amount of selling pressure has already been squeezed out of the market.
As stated before, we think clients should begin to position themselves on the bullish side of the market with the caveat that December gold has NOT made a low above OIA’s pivot point, which would indicate that a much higher move is ahead. For this to occur, the low of the the day must be above OIA’s key pivot point for August 18 of 1355.90. The low thus far on August 18 has been 1351.20.