Soybeans: August, September and November soybeans will generate short-term sell signals on July 6. These contracts remain on intermediate buy signals.
August soybeans lost 54.25 cents on volume of 271,682 contracts. Volume was the strongest since June 30 when 403,513 contracts were traded and total open interest increased by 14,685 while soybeans advanced 33.75 cents. On July 5, total open interest declined by a massive 19,377 contracts, which relative the volume is approximately 185% above average meaning large numbers of market participants were liquidating. The November contract accounted for a loss of 17,816 of open interest.
The relatively light volume on yesterday’s decline indicates to us that more liquidation is ahead and as this report is being compiled on July 6 the August contract is trading sharply lower again, down 37.75 or -3.40%. Now that soybeans are on a short-term sell signal, they should experience a counter trend rally lasting 1-3 days and this would be the opportunity to initiate bearish positions.
From the June 20 research note on soybeans:
“Although we think a short-term sell signal is likely in the not-too-distant future, for the market to reverse its current trading pattern and move higher, the July contract must make a daily low above OIA’s pivot point for June 21 of 11.64 3/4. A short-term sell signal will be generated if the daily high is below OIA’s key pivot point for June 21 of 11.14 7/8. We recommend that sell parameters be in place and strongly advise against initiating new long positions at current levels.”
From the June 17 research note on soybeans:
“In summary, both position limit traders (managed money) and commercial interests were increasing their short exposure as prices were rising. This is the canary in the coal mine and reveals a loss of momentum. As this report is being compiled on June 20, the July contract is trading 13.50 lower or -1.14%. We think that soybeans are headed for a short-term sell signal and this will occur when the daily high is below OIA’s key pivot point for June 20 of 11.11 5/8.”
Heating oil: August and September heating oil may generate short-term sell signals on July 6. For the August contract (the current month) to generate an short-term sell signal, the daily high must be below OIA’s key pivot point for July 6 of 1.4723. We have no recommendation.
WTI crude oil:
August WTI crude oil lost $2.39 on heavier than normal volume of 1,042,159 contracts. Volume was the strongest since June 24 when the August contract lost 2.47 on volume of 1,096,908 contracts and total open interest declined by 21,775. On July 5, total open interest increased by 3,645, a minor number. As this report is being compiled on July 6 the August contract is trading 82 cents higher on the day and has made a daily high of 47.45, which is considerably below yesterday’s print of 48.75. Continue to hold the short call positions recommended in the June 20 report, which was compiled on June 21. The August contract remains on a short term sell signal and an intermediate term buy signal.
August natural gas lost 22.3 cents heavy volume of 450,102 contracts. Total open interest declined by 9,984, which relative to volume is approximately 10% below average, but a total open interest declined on yesterday’s major loss is positive open interest action. The August contract accounts for a loss of 11,055 of open interest. As this report is being compiled on July 6 the August contract has made a daily low of $2.697, which is below yesterday’s print of 2.752.
As we have mentioned in prior reports, we think natural gas is the sleeper commodity of 2016 and it is amazing the financial press has not written about or discussed the strong move of this commodity since bottoming in February. There could be some real fireworks this winter and the moving average set up is bullish with the 50 day moving average trading above the 100 and 200 day averages.
The COT report released last Friday still shows that managed money remains short natural gas and this class of trader liquidated 9,865 of their long positions and also liquidated 11,579 of their short positions. Commercial interests added 55,851 to their long positions and also added 48,985 to their short positions. As of the latest report, commercials are LONG natural gas by a ratio of 1.07:1 and managed money is SHORT by a ratio of 1.13:1. However this is down from the ratio of 1.27:1 made three weeks ago. August natural gas remains on short and intermediate term buy signals. Natural gas has a tendency to decline into late summer and early fall. We recommend a stand aside posture at this juncture
The September euro lost 64 pips on volume of 183,132 contracts. Total open interest increased by massive 12,247 contracts, which relative the volume is approximately 160% above average meaning aggressive new short-sellers were entering the market in substantial numbers and driving prices lower (1.1091). As this report is being compiled on July 6, the September contract is trading 18 pips above yesterday’s close and has made a daily low of 1.1059. We have no recommendation. The September contract remains on short and intermediate term sell signals.
The September British pound lost 2.56 on volume of 173,980 contracts. Total open interest increased by a massive 9,081 contracts, which relative to volume is approximately 105% above average. As this report is being compiled on July 6 the September contract has made a new contract low of 1.2806 and is currently trading 92 pips lower on the day. The market is obviously massively oversold and overdue for a substantial short covering rally, but this could come from lower levels. Stand aside.
August gold advanced $19.70 on huge volume of 393,410 contracts. The volume compiled for trading on July 5 also encompassed trading activity during the July 4 holiday. Total open interest for July 4-5 increased by 12,156 contracts, which relative the volume is approximately 10% above average. As this report is being compiled, the August contract is trading $9.70 above yesterday’s close and has made a new contract high of 1377.50.
With huge numbers of new longs recently added during the past week, gold is vulnerable to a sharp setback, especially if the employment report released this Friday is bullish for equities. Do not enter new bullish positions at current levels.
September silver advanced 31.9 on extremely heavy volume of 181,404 contracts. Similar to gold, the trading activity reported on July 5 encompassed July 4 holiday trading. However, the open interest action in gold and silver is a tale of two very different cities. Unlike gold, which saw a major increase in open interest, surprisingly total open interest declined in silver by 3,321, which relative the volume is approximately 25% below average, but keep in mind that during the July 4 holiday shortened session, September silver rocketed to a multi-year high of $21.225.
As this report is being compiled on July 6 the September contract is trading 27.8 cents higher on the day and has made a daily high of $20.585, which is fractionally above yesterday’s print of 20.550. We have been reluctant to recommend bullish positions in silver due to the abysmal open interest action even though price action has been outstanding. The market is massively overbought and vulnerable to a severe correction. We strongly recommend a stand aside posture.
10 Year Treasury Note:
The September 10 year treasury note advanced 26 points on volume of 1,121,544 contracts. Total open interest increased by 31,013 contracts, which relative the volume is average. As this report is being compiled on July 6, September contract is trading 7 points lower, but earlier made a daily high of 134-075, which is fractionally above 134-070 made on June 24. As we pointed out in yesterday’s report on the S&P 500 E-mini, the interest rate on the 10 year note has fallen to new record lows even though equities trade within 2% of their all-time highs. This dissonance means that either credit is predicting something very negative or equity is predicting something far less negative. We have no recommendation.
S&P 500 E-mini:
September S&P 500 E-mini lost 13.50 points on volume of 1,866,391 contracts. Total open interest increased by 26,344 contracts, which relative the volume is approximately 40% below average, but July 5 is the third day in a row in which open interest action relative to price advances and declines have been negative. As this report is being compiled on July 6 after the release of the Federal Reserve minutes, the September contract is trading 5.25 points higher and has made a daily high of 2090.00, which is below yesterday’s print of 2099.75.
We continue to be concerned about the state of the Italian banking system and its potential contagion effects on the rest of Europe. On July 6, the Deutsche Bank ADR has broken sharply to a new low of $12.50, which takes out the previous all time low made yesterday at 13.34. On July 1 the September Emini generated an intermediate-term buy signal, but will not generate a short-term buy signal on July 6. For a short-term buy signal to occur, the low of the day must be above OIA’s key pivot point for July 6 of 2088.81. We have no recommendation, but encourage clients to maintain a cautious stance.