Soybeans: August, September and November soybeans will generate intermediate term sell signals on July 20 after generating short term sell signals on July 6.
August soybeans lost 34.25 cents on slightly elevated volume of 269,463 contracts. Volume was below that of July 14 when the August contract lost 39.00 cents on volume of 295,969 contracts and total open interest increased by 1,203, a bearish reading. On July 19, total open interest increased again, this time by 642 contracts, which is dramatically below average. However, the August and September 2016 contracts lost a total of 4,617 of open interest while March and May 2017 contracts lost 1,458, which means there were enough open interest increases in the forward months to offset the decline in the 4 delivery months and increase total open interest slightly.
As this report is being compiled on July 20, the August contract Is trading down 9.50 cents and has made a daily low of 10.31 3/4, which breaks below the May 24 print of 10.41 3/4. As we said in earlier reports, the very lopsided long position of managed money is overhanging the market and according to the latest COT report released last Friday managed money is long soybeans by ratio of 7.52:1, which represents a considerable amount of potential selling pressure.
Looking at the moving averages the 20 day moving average of 11.0 4 1/2 has slipped beneath the 50 day moving average of 11.08 1/8. However, longer-term moving averages remain in a bullish setup with the 100 day moving average of 10.27 3/8 comfortably below the 50 day moving average. The 200 day moving average stands at 9.58 5/8 and the year-to-date moving average is 9.87 5/8. The market clearly is oversold and due for a bounce, and as we pointed out in yesterday’s report, we recommend waiting for a rally basis the November contract to 10.72 1/4 area.
From the July 15 research note on soybeans:
“As of the latest report, managed money is still heavily long soybeans by a ratio of 7.52:1, which is only down from 8.19:1 the ratio from the previous week. Two weeks ago soybeans reached a record high ratio of longs to shorts of 17.09:1.”
“To put the current soybean ratio in perspective, out of the 30 commodities that we track in the weekly COT report there are only 4 commodities that have ratios higher than soybeans. They are: soybean meal-7.80:1, sugar-14.88:1, gold-8.01:1 and silver-13.07:1.”
“With huge numbers of speculators remaining long soybeans, when it rallies, large numbers of speculators will be looking to take profits or trim losses and will sell into the rally, which will keep a lid on advances.”
September corn lost 15.25 on surprisingly light volume of 272,129 contracts. Although volume was above that of July 18 when the September contract gained 4.75 cents on volume of 238,220 and total open interest declined by 9,603, it was substantially below that of July 15 when the September contract lost 5.50 cents on volume of 307,691 contracts and total open interest declined by 1324.
On July 19, total open interest increased by a massive of 11,195 contracts, which relative to volume is approximately 60% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices to 3.41 1/2, the lowest print since 3.40 1/2 made on July 7. The remarkable aspect of yesterday’s massive open interest increase is that it occurred on a strong price decline near the contract low of 3.39, which indicates that new short-sellers were confident of entering sell orders at historically low prices.
Their decision on July 19 has been validated on July 20 as the September contract has now broken to a new contract low of 3.35 3/4.Looking at the monthly continuation chart, there is no support for corn until the 3.18-319 area which was the bottom of the market during September and October 2014. This area of support goes back until October 2009. No recommendation for speculative accounts.
WTI crude oil:
September WTI crude oil lost 49 cents on lighter than normal volume of 850,417 contracts. Total open interest declined by 13,117 contracts, which relative to volume is approximately 40% below average. The August contract accounted for a loss of 38,457 of open interest. As this report is being compiled after the release of the EIA report, which was somewhat friendly to the market, the September contract is trading 53 cents above yesterday’s close. Gasoline continues to make multi-month lows on July 20 and as we said before, product weakness is dragging crude oil down. Crude, gasoline and heating oil remain on short and intermediate term sell signals. Continue to hold the short call position recommended on June 20.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.3 million barrels from the previous week. At 519.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 0.9 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 0.2 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.1 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 2.6 million barrels last week
Natural gas: August natural gas will generate a short term sell signal if the daily high is below OIA’s key pivot point for July 20 of $2.716.
The September dollar index advanced by a very strong 52.1 points on volume of 24,753 contracts. Total open interest exploded higher, up 3,314, which relative to volume is approximately 450% above average, an off the charts number, which means aggressive new buyers were entering the market in very large numbers and were driving prices to a new high for the move of 97.185, which has been taken out on July 20 with another new high of 97.370, the highest print since mid-March 2016.
Currently, the September dollar index is trading 5.64% above its 52 week low of 92.000 and only 3.72% below its 52 week high of 100.950. In short, the dollar index is much closer to its 52-week high than its 52 week low. Additionally, on July 20, the September contract has made a daily low of 97.010. In the July 15 research note (see below), we mentioned for the dollar index to resume its rally in earnest, it had to take out 96.865, but also make a daily low above it, which has occurred on July 20.
Leverage funds continue to be heavily short the dollar index and they have been on the wrong side of this trade ever since the index bottomed in early May. This class of speculator will cover short positions as the dollar index continues its move higher. The impact of a higher dollar index is depressing commodity prices and though it hasn’t been any impact on equity markets, if it continues its advance, this will change. On June 27, OIA announced that the September dollar index generated short and intermediate term buy signals. We have no recommendation.
From the July 15 research note on the Dollar Index:
“The COT report reveals that leverage funds remain heavily short the dollar index by a ratio of 4.67:1, though this is down from 5.30:1 the previous week, but up from the ratio two weeks ago a 4.17:1. As this report is being compiled on July 18 the dollar index is trading nearly unchanged.”
“The moving average setup is potentially bullish with the 20 day moving average standing 95.847, 50 day 95.185, which is likely to cross above the 100 day moving average of 95.231. The 200 day moving average stands at 96.741 and the high for the move during the past three months has been 96.865 made on June 27. For the dollar index to resume its rally in earnest, it not only must take out 96.865, it must make a daily low above it.”
August gold is getting close to generating a short term sell signal and this will occur if the daily high is below OIA’s key pivot point for July 20 of 1315.30. The rally will resume if the August contract makes a daily low above OIA’s key pivot point for July 20 of 1340.20. If the dollar index continues its advance, we expect a sell signal to be generated during the next day or two.