November soybeans advanced 2.25 cents on volume of 150,018 contracts. Volume was the weakest since March 18 when 128,879 contracts were traded and the November contract closed at 9.09 3/4. On August 3, total open interest increased just 968 contracts and the August contract accounted for a loss of 1,772 of open interest. As this report is being compiled on August 4, the November contract is trading 6.25 cents above yesterday’s close on very light volume. For speculative accounts we recommend a stand aside posture.
September corn gained 0.75 cents on light volume of 281,519 contracts. Volume was the lowest since August 1 when the September contract lost 8.75 cents on volume of 257,825 contracts and total open interest increased by 10,153. On August 3 total open interest declined by 8,823 contracts, which relative to volume is approximately 15% above average. The September contract, which enters first notice day in a few weeks lost 16,606 of open interest. As this report is being compiled on August 4, the September contract is trading 1.00 cent lower and has made a daily low of 3.21, which is the lowest print since the contract low of 3.19 1/2 made on August 2. For speculative accounts, stand aside.
October live cattle gained 62.5 points on volume of 43,494 contracts. Total open interest increased just 214 contracts, which relative to volume is approximately 75% below average. However, the August contract lost 2,245 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in August and increase total open interest slightly.
From August 1 through August 3, October live cattle advanced 3.475 cents while total open interest during the three day time frame increased only 568 contracts. This is an abysmal number relative to the strong advance. It confirms that very little new buying is supporting prices and that many would be market participants are sitting on the sidelines. This makes live cattle vulnerable to a setback, and we encourage clients to remain on the sidelines until such time that the corrective activity has occurred.
As this report is being compiled on August 4, the October contract is continuing to advance and trading up 60 points and has made a new high for the move of 116.350, which is 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 three day price advance, this should occur shortly.
WTI crude oil: On August 4, we recommend that the short call positions in WTI originally recommended in the June 21 report be liquidated.
September WTI crude oil advanced $1.32 on heavy volume of 1,058,599 contracts. Volume was the strongest since July 14 when crude oil advanced 93 cents on volume of 1,200,000 and total open interest increased by 11,133 contracts. On August 3, total open interest exploded higher, up by 25,370 contracts, which relative to volume is average, and is a strong number, especially considering the magnitude of the advance. Even the September contract (which expires shortly) gained open interest and increased by 5,688.
In yesterday’s report, we commented on the massive increase of open interest on the decline for the past several days and said this is a sign that market participants are getting increasingly bearish, which is usually a bad sign for a continued move lower.
Yesterday, the September contract made a low of 39.19, which is the lowest print since 38.67 made on April 5. We think it is highly likely the April 5 low will hold and that the bearish trade has been played out for now. This is not to say that a test of yesterday’s low will not occur, rather that the easy money has been made. The trade we recommended on June 21 has proven to be lucrative with very low risk.
As this report is being compiled on August 4 the September contract is trading sharply higher, up $1.02 or +2.5% and has made a daily high of 42.08, which is the highest print since 42.22 made on July 28. For the September contract to generate a short term buy signal, the low of the day must be above OIA key pivot point for August 4 of $44.62. We recommend that clients move to the sideline.
From the August 2 research note on crude oil:
“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 September dollar index advanced 53.7 points on volume of 13,179 contracts. Total open interest declined by 82, which is minuscule and dramatically below average. As this report is being compiled on August 4, the dollar index has advanced 12.3 points primarily on the sharply lower British pound. The dismal open interest action confirms the downtrend in the dollar index. On August 1, OIA announced that the September and December dollar index generated short term sell signals, but they remain on intermediate term buy signals.We have no recommendation.
British pound: On August 3, the September and December British pound generated short term buy signals, but remain on intermediate term sell signals.
The September British pound lost 32 pips on light volume of 65,456 contracts. Total open interest increased by 941 contracts, which relative to volume is approximately 40% below average and a total open interest increase on yesterday’s decline confirms that short-sellers were entering the market and driving prices lower.
As this report is being compiled after the announcement by the Bank of England to lower their interest rate by one quarter of a point and increase quantitative easing by 60 billion dollars, the pound is trading sharply lower, down 2.08 cents or -1.56%. Although the pound is trading sharply lower on August 4, in order for a new short term sell signal to occur, which would reverse yesterday’s short term buy signal, the high of the day must be below OIA’s key pivot point for August 4 of 1.3091. We have no recommendation.
From the August 2 research note on the British pound:
“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.”
Gold: On August 3 December 2016 gold generated a short term buy signal, which reversed the July 26 short term sell signal. December gold remains on an intermediate term buy signal.
December gold lost $7.90 on light volume of 160,980 contracts. Total open interest increased by 1,700 contracts, which relative to volume is approximately 50% below average. It should be noted that for the past three days volume has averaged 157,295 contracts, which is considerably below average daily volume for the past couple of months. Additionally, the gold volatility index (GVZ is trading at multi-month lows. These two factors generally do NOT accompany, nor support higher gold prices.
Overnight, the December contract made a low of 1355.10, which takes out yesterday’s print of 1360.60 and is the lowest since 1353.70 made on August 2. We want to see more downside action in gold before feeling comfortable making a recommendation. Tomorrow, is the employment report, which is released by the US Department of Labor at 5:30 AM Eastern daylight Time. This is a major market mover for precious metals, interest rates and equities. We recommend a stand aside posture at least until after the report.