November soybeans lost 8.50 cents on volume of 195,176 contracts. Total open interest declined by 4,105 contracts, which relative to volume is approximately 20% below average. The August contract accounted for a loss of 2,949 of open interest and there were additional open interest declines in the forward months. As this report is being compiled on August 3 the November contract is trading unchanged on the day and has made a daily low of 9.50, which is above yesterday’s low for the move 9.43.
Interestingly, the last time that total open interest increased on a price decline occurred on July 19 when soybeans lost 34.25 cents and total open interest increased by 642 contracts and November beans made a low of 10.23 and closed at 10.27 3/4, or 74.75 cents above yesterday’s close of 9.53. This clearly indicates a reluctance on the part of potential market participants to get overly bearish on soybeans. On the other hand, we know that speculative longs are digging in and refusing to liquidate.
In other words, potential short-sellers are not bold enough to enter short positions and longs are reluctant to liquidate, which indicates both camps think prices are going to rally from here. As we pointed out many times before, the market is massively oversold and overdue for rally and usually there is at least one weather scare that sends prices higher, if only temporarily during the crucial growing stage in August. We recommend a stand aside posture for speculative accounts.
September corn lost 1.50 cents on heavy volume of 392,586 contracts. Volume was the strongest since July 5 when September corn lost 9.25 cents on volume of 408,467 contracts and total open interest declined by 2,854. On August 2, total open interest increased by a very sizable 11,686 contracts, which relative to volume is approximately 10% above average meaning aggressive new short-sellers were entering the market in substantial numbers and driving prices to a new contract low of 3.9 1/2. The September contract accounted for a loss of 9,605 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline of open interest in the September contract and increase total open interest above average.
In contrast to soybeans, market players in corn have no reluctance about entering short positions aggressively at lows last seen in the September-October 2014 time frame. While we think this is unwise, it nonetheless reflects the bearish mindset in corn versus the bullish or friendly mindset in soybeans. For speculative accounts, stand aside.
Live cattle: On August 2, December 2016 live cattle generated a short term buy signal, and remains on an intermediate term sell signal. On August 1, October live cattle generated a short term buy signal and currently remains on and intermediate term sell signal.
October live cattle advanced 50 points on volume of 42,670 contracts. Total open interest declined by 596 contracts, which relative to volume is approximately 40% below average. The August contract accounted for a loss of 1,452 of open interest and October lost 974. When combining the action from August 1 and 2, October live cattle advanced 2.85 cents while total open interest during the two day time frame gained only 354 contracts. This is an abysmal open interest increase compared to the strong advance.
As this report is being compiled on August 3, the October contract is continuing to advance and trading up 87.5 points and has made a new high for the move of 115.550, which takes out the June 30 print of 115.325 and is actually the highest price for the October contract since 117.050 made on June 13. Despite the move higher, we continue to recommend that clients wait for the pullback and based upon the unimpressive total open interest action relative to the two day price advance, this should occur shortly. Do not chase the market higher at this juncture.
WTI crude oil:
September WTI crude oil lost 55 cents on volume of 848,714 contracts. Though the September contract made a new low for the move and 39.26 on August 2, which was below the August 1 print of 39.82, volume actually decreased from August 1 when 916,762 contracts were traded and total open interest increased by 21,439 while the September contract lost $1.54.
On August 2, total open interest increased again, this time by 7,371 contracts, which relative to volume is approximately 55% below average, but a total open interest increase indicates that short-sellers continue to pile into crude oil. The September contract accounted for a loss of 5,918 of open interest.
From July 25 through August 2 total open interest increased everyday and the total gain was 102,350 contracts while September crude oil lost $4.68 in this time frame. The only rally that occurred in this period was on July 29 when the September contract gained 46 cents on volume of 789,315 contracts and total open interest increased by 13,187. In short, market participants are extremely bearish on crude oil and this tells us that the downside is likely limited from here. Continue to hold the short call position.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.4 million barrels from the previous week. At 522.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 3.3 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 1.2 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.3 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 2.1 million barrels last week.
Gold: December 2016 gold will generate a short term buy signal on August 3 if the daily low remains above OIA key pivot point for August 3 of $1357.20. The December contract remains on an intermediate term buy signal.
December gold gained $13.00 on surprisingly light volume of 187,709 contracts. On July 29, the December contract advanced $16.70 on volume of 253,414 and total open interest increased by 5,186 while the December contract made a high of 1362.00. On August 2, total open interest increased by a massive 12,547 contracts, which relative to volume is approximately 160% above average meaning aggressive new buyers were entering the market in substantial numbers and driving prices to a new high for the move of 1374.20.
As this report is being compiled on August 3, the December contract is trading $8.30 lower and has made a daily high of 1373.40, which is below yesterday’s print. Now that gold is likely to generate a short term buy signal on August 3, the market should pull back from 1-3 days and this would ideally be the time to enter bullish positions. It should be noted that August is a strong month for gold on a seasonal basis and during the past 20 years the average gain has been 1.4% and the best performing month for gold is September with a gain of 2.4%. The only month that performs better than August aside from September is January (+ 1.8% ) and November with a gain of 2.1%.
The employment report issued by the US Department of Labor will be released this Friday and it is always a major market mover for equities and the precious metals. Keep this in mind when entering bullish positions. A disappointing jobs number is likely to be bullish for gold and equities because it would indicate that the Federal Reserve will keep interest rates lower for longer, which is bullish for gold and equities. Looking at the moving averages, currently the December contract is trading approximately $18.00 above its 20 day moving average of 1346.40 and nearly 56.00 above its 50 day moving average of 1308.70.
The gold volatility index (GVZ) is trading at the low end of its three month range and is currently printing 16.25, which is above the low for the past three months of 15.09 made on May 27 and substantially below the high of 24.57 made on June 15. This means that options are priced inexpensively, which makes options a relative bargain.
British pound: The September and December British pound will generate a short term buy signal on August 3. Both contracts remain on intermediate term sell signals.
The September British pound advanced 1.57 cents on light volume of 95,181 contracts. Total open interest declined by 2,189 contracts, which relative to volume is approximately 10% below average, but with total open interest declining, it confirms that short-sellers were powering the market higher, which is no surprise considering that managed money is massively short the British pound. According to the latest COT report leveraged funds are short the pound by ratio of 4.00:1, which is up from the previous week of 3.98:1 and nearly double the ratio two weeks ago of 2.22:1.
This week the Bank of England will announce whether or not it is going to lower interest rates and the consensus is that it will lower rates by at least a quarter of a percent and possibly more. The effect of this would be negative on the pound and likely cause a reversal of the buy signal. If on the other hand interest rates are not lowered, a s sharp rally in the pound could be expected due the massive short position by speculators who were expecting an interest rate decrease. August is the worst-performing month for the British pound, therefore the seasonal factor will likely dampen any advance. We have no recommendation.