Soybeans: On July 20, August, September and November soybeans generated intermediate term sell signals after generating short term sell signals on July 6.
August soybeans lost 17.00 cents on surprisingly light volume of 238,690 contracts. Volume was substantially below that of July 19 when the August contract lost 34.25 cents on volume of 269,463 contracts and total open interest increased by 642, a bearish reading. Additionally, volume was the lightest since July 13 when the August contract gained 20.50 on volume of 232,060 contracts and total open interest increased by 2,885 contracts. The low volume on yesterday’s decline confirms that market participants are not panicking even though prices moved to their lowest level since May 9 (10.21 1/4).
On July 20, total open interest declined only 310 contracts. The August contract accounted for a loss of 3,186 of open interest. Again, this confirms that longs are not panicking. As this report is being compiled on July 21 the August contract is having a little bit of a bounce, up 7.00 cents and has made a daily high of 10.42 1/2. There are huge numbers of longs who are now showing losses, some horrifically so, and will use any rally to unload these positions to trim losses.
Therefore, unless there is a major weather scare, rallies will not likely get far. Soybeans are massively oversold and we recommend against initiating new bearish positions for speculative accounts at current levels. Wait for a rally and use put options instead of futures.
September corn lost 4.25 cents on surprisingly heavy volume of 349,746 contracts. Volume was stronger than July 19 when the September contract lost 15.25 cents on volume of 272,129 contracts and total open interest increased by 11,195, a very bearish reading. Additionally, volume was the strongest since July 14 when the September contract lost 4.25 cents on volume of 357,221 contracts and total open interest increased by 1,918.
On July 20, total open interest increased by 2,794, which relative to volume is approximately 60% below average, and the total open interest increase on yesterday’s decline is bearish. Yesterday, the September contract made a new contract low of 3.35 and this has been taken out on July 21 with another new contract low of 3.32 3/4. As we pointed out yesterday’s report, there is no support for the September contract until it reaches near the September-October 2014 lows of 3.18-3.19. September corn remains on short and intermediate term sell signals. We have no recommendation for speculative accounts.
On July 21 August live cattle has made a new contract low (107.475), which takes out the previous contract low of 108.175 made on July 12. We are reprinting part of the research note written on July 11 and extract of an extensive report written on April 25 the research note.
From the July 11 research note on live cattle:
“As this report is being compiled on July 12 the August contract has made a new contract low of 108.175, which remarkably is takes out the July 2011 print of 109.200. Now that the July low has been taken out the next area of support is 100.750.
From April 25: Live Cattle- A Technical Analysis
“On Friday, April 22, June live cattle made a new contract low of 113.900 and closed at 114.650 down 2.25. [Interestingly, the June 2015 contract bottomed on April 22, 2015 (145.175) then rallied to a high of 154.975 on May 14, 2015.] The low made Friday was slightly above the April 2012 and May 2012 prints of 112.300 and 112.225 respectively.We think these will be penetrated and the next area of major support is the May and June 2011 lows of 101.625 and 100.750 respectively.We tend to think that May and June 2011 support will likely hold for the following reason: When commodities break through their former all-time highs, those highs become areas of support.”
On July 21, October lean hogs has made a new contract low of 61.775, which takes out the previous contract low of 62.125 made on November 10, 2015. On June 30, OIA announced that October lean hogs generated a short term sell signal and an intermediate term sell signal on July 7.
WTI crude oil:
September WTI crude oil advanced 21 cents on volume of 917,390 contracts. Total open interest declined by 7,267 contracts, which relative to volume is approximately 55% below average. The August contract accounted for a loss of 17,183. As this report is being compiled on July 21 the September contract is trading lower again, down 71 cents or -1.55% and has made a daily low of 44.80, which is above yesterday’s print of 44.55. Maintain short call positions recommended in the June 20 report.
Natural gas: August and September natural gas will likely generate short term sell signals on July 21. Both contracts remain on intermediate term buy signals. For the sell signal in the August contract to occur, the high of the day must be below OIA key pivot point for July 21 of $2.711 and the high thus far has been 2.710.We have no recommendation now, but think there will be some real fireworks on the upside this winter. The longer term moving average set-up is bullish.
August gold lost $13.00 on volume of 266,587 contracts. Volume was the highest since July 14 when the August contract lost 11.40 on volume of 304,181 contracts and total open interest declined by 12,815. On July 20, total open interest declined only 2,990 contracts, which relative to volume is approximately 50% below average. The August contract lost 21,065 of open interest, which means approximately 90% of the open interest decline in August was offset by open interest increases in the forward months. We view this as negative because it indicates that new short-sellers were piling in the forward months as prices declined to a new low for the move of 1312.50, which is the lowest print since 1315.30 made on June 30.
As this report is being compiled on July 21, the August contract is trading 10.50 higher and has made a daily high of 1332.30, which is below yesterday’s print of 1338.80 as the equity market begins to correct its strong move of the past two weeks. For the August contract to generate a short term sell signal, the daily high must be below OIA’s key pivot point for July 21 $1317.30 and the rally will resume is the daily low is above OIA’s pivot point for July 21 of 1341.90. We continue to recommend a stand aside posture.
The September dollar index advanced 15.5 points on volume of 22,824 contracts. Total open interest exploded higher, up 3,796 contracts, which relative to volume is approximately a massive 525% above average meaning aggressive new buyers were entering the dollar index in substantial numbers and driving prices to a new high for the move of 97.370.
This is the second day in a row in which prices advanced and open interest increased massively. On July 19 the September contract gained 52.1 points and total open interest increased by 3,314 contracts. As this report is being compiled on July 21 the September contract is pulling back, down 12.3 points on the day. The September dollar index generated short and intermediate term buy signals on June 27. We have no recommendation.
10 Year Treasury Note: The September 10 year treasury note will generate a short term sell signal on July 21 if the daily high remains below OIA’s key pivot point for July 21 of 132-095.
S&P 500 E-mini:
The September S&P 500 E-mini advanced 8.75 points on very light volume of 1,140,512 contracts. Volume fell below that of July 19 when the September contract lost 1.25 points on volume of 1,152,964 and total open interest increased by 2,199 contracts. On July 20, total open interest declined again on the rally, down 5,480, which relative to volume is minuscule and dramatically below average, but it continues a pattern of negative open interest action on price advances that we have seen since the beginning of the rally on July 8.
As this report is being compiled on July 21 the S&P 500 E-mini is having its biggest pullback since the July 8 employment report and it would be healthy to see a couple of more days of corrective activity. We remain concerned about the state of the Italian banking system and its potential effect on the rest of Europe. If trading the E-mini, we recommend the use of options instead of futures due to potential volatility. Another factor weighing on equity prices will be the dollar index: if it continues to advance, this will not only dampen commodity prices, but begin to affect equity as well. The September contract remains on short and intermediate term buy signals. We have no specific recommendation at this juncture,
From the July 18 research note on the S&P 500 E-mini:
“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.”
“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.”