August soybeans gained 5.75 cents on lighter than usual volume of 244,465 contracts. Volume was the weakest since July 13 when the August contract gained 20.25 cents and total open interest increased by 2,885 contracts while volume traded was 232,060 contracts. On July 18, total open interest increased by 1,376 contracts, which relative to volume is approximately 70% below average. The August and September 2016 contracts along with the May 2017 and July 2017 contracts lost a total of 2331 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in these delivery months and increase total open interest slightly.
Yesterday’s rise of open interest indicates there are some market participants who do not realize the bull move in soybeans is over for now. As we have said in previous reports, we expect periodic rallies and more sustained moves may occur if a spell of hot dry weather begins to descend on the Midwest. However, barring this the trend is down. On July 6, OIA announced that August, September and November soybeans generated short term sell signals and the August contract will generate an intermediate term sell signal is the daily high is below OIA key pivot point for July 19 of 10.72 1/4. Thus far on July 19 the high has been 10.79.
As this report is being compiled on July 19 the August contract is trading sharply lower, down 33.50 and has made a daily low of 10.44, which is a new low for the move and takes out the previous low for the move of 10.45 1/2 made on July 8. As we said in yesterday’s report, we recommend the use of put options in the November contract and clients should wait for a rally to the 10.72 1/4 area basis the November contract before initiating new bearish positions.
September corn advanced 4.75 cents on very light volume of 238,220 contracts. Remarkably, volume was the weakest since May 6 when 212,554 contracts were traded and the September contract closed at 3.79 1/2. The extremely low volume on yesterday’s advance confirms the internal weakness of the corn market. Additionally, total open interest declined substantially on the advance, decreasing by 9,603 contracts, which relative to volume is approximately 55% above average meaning liquidation was extremely heavy on yesterday’s rally. This confirms that both longs and shorts are liquidating on the advance.
As this report is being compiled on July 19 the September contract is trading sharply lower, down 13.75 cents from yesterday’s close and has taken out the July 12 low of 3.42 1/2 and is headed toward the contract low 3.39 made on July 6. On June 22 OIA announced that September corn generated a short term sell signal and an intermediate term sell signal on June 30. We have no recommendation.
WTI crude oil:
August WTI crude oil lost 71 cents on light volume of 718,308. Volume was weakest since July 1 when the August contract gained 66 cents on volume of 728,579 contracts and total open interest increased by 8,784. On July 18, total open interest declined by 10,020 contracts, which relative to volume is approximately 45% below average. The August contract accounted for a loss of 25,899 of open interest. The market continues in its liquidation phase on July 19 and the September contract is trading 35 cents below yesterday’s close.
Now that gasoline and heating oil are on short and intermediate term sell signals, product price support has been removed from crude and the path of least resistance continues lower. Additionally, the dollar index is trading sharply higher, up 54.8 points on July 19 and has made a new multi-month high for the move of 97.185, which takes out the previous print of 96.865 made on June 27. This is pressuring crude oil on July 19 and commodities in general. On June 27, OIA announced that the September dollar index generated short and intermediate term buy signals. Continue to hold the short call position in WTI recommended on June 20.
Heating oil: On July 18, August and September heating oil generated intermediate-term sell signals after generating short term sell signals on July 8. We have no recommendation.
S&P 500 E-mini:
The September S&P 500 E-mini gained 7.25 points on extremely light volume of 1,207,085 contracts. Volume was the weakest since June 23 when the September contract gained 29.00 points on volume of 1,317,133 contracts and total open interest declined by a bearish 11,281. The rally in the S&P 500 E-mini and the S&P 500 cash index began on July 8, based upon a favorable employment report and from July 8 through July 18, the September E-mini advanced 68.00 points, however in this time frame, total open interest DECLINED by 21,749 contracts. In other words, as the market has rallied strongly and broken out into new high territory, both longs and shorts have been liquidating on the way up.
We reprinted some of the research provided in the July 15 report (see below) and our view of the S&P 500 looking into the future is not very optimistic. Unless and until the other major indices listed below begin to break out into new all-time highs, the current rally is suspect. The real tale to be told will occur after earnings season which concludes for the most part by the end of July.
After this, on a seasonal basis, the E-mini approaches its weakest time of year. If talk begins anew about the Federal Reserve raising interest rates, we could see the major indices rollover. Additionally, as we have discussed before, the situation with the Italian banking system remains hazardous and in our view could cause contagion in Europe which could easily spread to US markets. As a result, we cannot recommend bullish positions, but because the E-mini is on short and intermediate term buy signals, we cannot recommend bearish positions.
From the July 15 research note on the S&p 500 E-mini:
“For example the Russell 2000 made its 52-week high on July 16, 2015 at 1275.90 and closed on Friday at 1205.31. The NASDAQ Composite Index made its 52-week high of 5231.94 on July 20, 2015 and closed on Friday at 5029.59. The NASDAQ 100 index made its 52-week high of 4739.75 on December 2, 2015 and closed on Friday at 4589.83. Finally, the New York Composite Index made its 52-week high on July 16, 2015 at 11,032.61 and closed on Friday at 10,773.11.”
“Additionally, the majority of sectors that make up the S&P 500 index have not advanced with the index. For example, only consumer staples, industrials and materials made new all-time highs along with the S&P 500 index. The laggards are financials, healthcare, energy, technology, and consumer discretionary. All the aforementioned sectors made their highs in 2015.”