On August 12 at 11: a.m. Central daylight Time, the USDA will release its monthly WASDE report. For speculative accounts, we recommend a stand aside posture prior to the report.
November soybeans advanced 10.50 cents on volume of 120,025 contracts. Volume declined from August 5 when the November contract gained 17.75 cents on volume of 127,870 contracts and total open interest declined by 3,707. On August 8, total open interest declined by 1,017 contracts, which relative to volume is approximately 55% below average, but a total open interest decline on yesterday’s advance is bearish. The August contract accounted for a loss of 666 of open interest.
During the past two days, the November contract has gained 28.25 cents while total open interest has declined by 4,724 contracts. In summary, short-sellers are powering the market higher and longs are liquidating on the way up. This is exactly the scenario we have been discussing during the past couple of weeks as soybean prices have continued their decline while managed money remains heavily net long.
As this report is being compiled on August 9, the November contract is trading 9.25 cents higher and has made a new high for the move of 9.99 1/4, which is the highest print since 10.00 made on August 1. Currently, the November contract is trading approximately 50 cents above the low of 9.43 made on August 2. The rally could continue to OIA’s key pivot point for the generation of a short term buy signal of 10.22 1/4. For a short term buy signal to occur, the daily low must be above the pivot point. For speculative accounts we continue to recommend a stand aside posture.
September corn gained 1.00 cent on strong volume of 399,689 contracts. Total open interest increased by a massive 13,742 contracts, which relative to volume is approximately 25% above average meaning a battle ensued between buyers and sellers and buyers were able to edge the market slightly higher. The September contract accounted for a loss of 29,041 of open interest. Based upon the recent COT report, we suspect that commercial interests were on the buy side and speculators on the short side.
As this report is being compiled on August 9 the September contract is trading 1.75 lower and has made a daily low 3. 22 1/4 which is slightly above yesterday’s print of 3. 22 1/2. The upcoming USDA report will determine whether corn breaks decisively below the September-October 2014 low of 3.18. For speculative accounts, we recommend a stand aside posture.
October live cattle lost 87.5 points on light volume of 38,888 contracts. Volume declined from August 5 when the October contract gained 75 points on volume of 47,043 contracts and total open interest declined by massive 7,725. Additionally, volume was the lowest since July 29 when the October contract lost 37.5 points on volume of 37,454 contracts and total open interest increased by 2,329, a bearish reading. In summary, the contraction in volume on August 8 is positive and expanding volume on rallies is positive.
On August 8, total open interest declined by 1,910 contracts, which relative to volume is approximately 95% above average meaning liquidation was extremely heavy on the decline. This is positive open interest action relative to the price decline. The August contract accounted for a loss of 1,961 of open interest and October lost 882. As this report is being compiled on August 9, the October contract is trading 50 points above yesterday’s close and has made a daily high of 115.825, which is slightly below yesterday’s print of 115.900.
As we said in yesterday’s report, cattle is going to consolidate its recent gains after making its contract low approximately two weeks ago. We want to see relatively strong open interest increases on rallies along with increasing volume and the 20 day moving average to cross above the 50 day moving average. Continue to stand aside.
WTI crude oil:
September WTI crude oil advanced $1.22 on heavy volume of 1,197,395 contracts. Volume exceeded the prior three days when WTI advanced strongly. On August 8, total open interest declined by 17,964 contracts, which relative to volume is approximately 40% below average and this is the first negative open interest reading that has occurred since the rally began on August 3. The September contract accounted for a loss of 73,995 of open interest and there were sufficient open interest increases in the forward months to whittle down the loss in the September contract, but not enough to increase total open interest.
As this report is being compiled on August 9, the September contract is trading 40 cents lower after making a new high for the move of $43.52, which takes out yesterday’s print of 43.39. September crude remains on short and intermediate term sell signals. Stand aside.
Natural gas: Though September natural gas is trading sharply lower on August 9, it will not generate a short term sell signal on August 9. This will likely occur in tomorrow’s trading.
September natural gas lost 2.4 cents on relatively heavy volume of 435,600 contracts. Total open interest increased by a massive 18,562 contracts, which relative to volume is approximately 60% above average meaning that aggressive short-sellers were entering the market in large numbers and driving prices lower (2.705). The September contract lost 26,355 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in the September contract and increase total open interest substantially.
As this report is being compiled on August 9, the September contract is trading sharply lower, down 12. 00 cents or -4.37% and has made a new low for the move of $2.626, which is the lowest print since 2.625 made on July 21. A short term sell signal will occur if the daily high is below OIA’s key pivot point for August 9 of $2.704 and an intermediate term sell signal will occur if the daily high is below OIA’s key pivot point for August 9 of 2.583. We expect that a short term sell signal will be generated in tomorrow’s trading.
In prior reports, we said that natural gas is going to be a terrific opportunity on the long side once the seasonal weakness dissipates. The three weakest months for natural gas are January with a 20 year average decline of 4.5%, July with a 20 year average decline of 3.7% and August, a decline over 20 years averaging 2.2%. The decline during July 2016 was 10.5 cents or -3. 5% which is consistent with historic norms.
However, after the dog days of summer disappear, natural gas on a seasonal basis explodes upward during the months of September and October. For example, the average gain during the past 20 years for the month of September has been 12.3% and October +8.6%. The longer-term moving averages are in a bullish set up with the 50 day moving average above the 100 day moving average, which is above the 200 day moving average. The 50 day moving average stands at 2.716 and the 100 day moving average of 2.516. The year to date moving average for the September contract is 2.442. Stand aside.
British Pound: The September and December British Pound will generate short term sell signals on August 9. This reverses the short term buy signals of August 3.Both contracts remain on intermediate term sell signals.