When evaluating the possibility of a bottom, or temporary bottom in the grains, the focus should be less on price than the imbalance of supply and demand for futures contracts.
August soybeans lost 24.75 cents while the November contract declined by 9.25 cents on total volume of 166,539 contracts. Total open interest declined by 308 contracts, which is minuscule and dramatically below average. However, the main event in yesterday’s trading was the open interest decline in the 2014 delivery months. For example, July lost 1,189 of open interest, August -1,292, September -495 and new crop November -1,213. Open interest increased in the January 2015 through January 2016 contracts, which is why total open interest declined by a minor amount. As we pointed out in yesterday’s report, there will continue to be pressure on soybeans due to the extraordinarily large long position of managed money. As of July 1, managed money was net long by 55,454 contracts and a good portion of these must be liquidated before an interim low can be made.
From July 2 through July 7 (3 trading days), total open interest increased each day and totaled 10,145 contracts. In short, managed money has been digging in and refusing to liquidate. The total open interest decline on July 8 is the first since July 1 when total open interest declined as soybean prices fell. As this report is being compiled on July 9, August soybeans are trading 13.75 cents lower while the November contract is trading -10.75 on the day. Both are making new lows for the move. For soybeans to make an interim low, the liquidation pressure must abate and managed money should be net short. Stand aside.
September corn lost 2.25 cents on volume of 236,478 contracts. Total open interest increased by 8,525 contracts, which relative to volume is approximately 40% above average meaning that new short sellers were initiating positions and driving prices to new contract lows (3.96 3/4) as this report is being compiled on July 9, September corn is down 7.25 cents and trading on the lows. Like soybeans, we need to see managed money go from a net long to a net short position before there is a possibility of an interim low. As of the July 1 COT report, managed money is net long corn by 119,284 contracts and in the “Other Reportables“ category, this class of trader is net long by 335 contracts. In short, there is a significant amount of selling pressure coming from longs and they must get blown out of the market before corn can make an interim low. Stand aside.
September Chicago wheat lost 0.50 cents on total volume of 64,574 contracts. Total open interest increased by 3,702 contracts, which relative to volume is approximately 130% above average meaning that aggressive new short sellers were initiating positions, and though Chicago wheat made a new contract low at $5.55 1/2, the market closed only fractionally lower. As this report is being compiled on July 9, September Chicago wheat has taken another dive and is trading 7.50 cents lower and has made a new contract low. The Kansas City contract is being hit hard and is down 2.03% versus Chicago wheat which is down 1.39%. As we pointed out in yesterday’s report, managed money remains long KC wheat by a ratio of 2.29:1, or a net long position of 23,226 contracts. Like other grains mentioned in today’s report, longs need to get blown out of the market and we want to see managed money become net short KC wheat before an interim low can be made. Stand aside.
August live cattle lost 1.425 cents on heavy volume of 81,016 contracts. Volume was the heaviest since May 13 when a total of 87,675 contracts were traded and August live cattle closed at 1.37850. On July 8, total open interest declined by 3,659 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy on the decline. The August contract accounted for loss of 10,160 of open interest. As this report is being compiled on July 9, August live cattle is trading 2.125 cents lower after making a high of 1.55375 earlier in the session, which is only slightly higher than yesterday’s high of 1.55325 and below the all-time high of 1.56475 made on July 7. It appears that cattle is having a key reversal day on July 9. Stand aside.
WTI crude oil:
August WTI lost 13 cents on heavy volume of 581,928 contracts. volume was the heaviest since June 25 when a total of 617,233 contracts were traded and August WTI crude oil closed at $106.50.On July 8, total open interest declined by 9,425 contracts, which relative to volume is approximately 35% less than average. The August contract lost 14,474 of open interest. As this report is being compiled on July 9, August WTI crude oil is trading down $1.25 and has made a new low for the move at 102.10, which is the lowest print since 101.89 made on June 9. As the June 30 report stated: “If the August contract significantly violates yesterday’s low, WTI could take another leg down to the 50 day moving average of 102.24.” August WTI crude oil is testing the 50 day moving average on July 9 and is down sharply despite a stock decline in this week’s EIA report.
On July 3, August WTI crude oil generated a short-term sell signal and as of July 9 will not generate an intermediate term sell signal. Stand aside.
From the July 7 report:
“With gasoline now on a short-term sell signal, we expect to see WTI prices decline significantly from here, especially since managed money remains long WTI crude oil by ratio of 9.33:1, which is down only slightly from the previous week of 9.53:1. In short there is a surplus of managed money longs who will need to liquidate as prices move lower. Stand aside and wait for a rally before initiating bearish positions.”
From the June 30 report:
“Yesterday, August WTI made a spike low of $104.66 on heavy volume of 14,614 contracts on the 15 minute chart.This was the lowest price since June 12 when the low of 103.59 was made and August WTI closed at 105.78.If the August contract significantly violates yesterday’s low, WTI could take another leg down to the 50 day moving average of 102.24. However, if yesterday’ low holds, August WTI may attempt to test the June 13 high of 107.68.”
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.4 million barrels from the previous week. At 382.6 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 0.6 million barrels last week, and are in the middle of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 0.2 million barrels last week but are near the lower limit of the average range for this time of year. Propane/propylene inventories rose 3.8 million barrels last week and are in the upper half of the average range. Total commercial petroleum inventories increased by 4.6 million barrels last week.
August natural gas lost 2.1 cents on heavy volume of 299,137 contracts. Volume was the highest since June 19 when 366,960 contracts were traded and August natural gas lost 7.5 cents while total open interest declined by 1,441 contracts. On July 8, total open interest declined by 7,209 contracts, which relative to volume is average. The August contract lost 9800 of open interest. On July 8, August natural gas made a new low for the move at $4.129, which is the lowest print since January 21, 2014 (4.061). Stand aside.
The September euro gained 2 pips on volume of 100,856 contracts.Total open interest declined by 577 contracts, which relative to volume is approximately 70% below average. As this report is being compiled on July 9, the September euro is trading 15 pips higher and is made a high of 1.3647, which is the highest print since 1.3668 made on July 3. The September euro remains on a short-term buy signal, but an intermediate term sell signal. Stand aside.
The September Swiss franc gained 3 pips on volume of 24,624 contracts. Total open interest declined by 999 contracts, which relative to volume is approximately 55% above average meaning that liquidation was heavy on a fractionally higher close. As this report is being compiled on July 9, the September Swiss franc is trading 8 pips higher and has made a high of 1.1232. This is the highest print since July 3 (1.1260).
In the July 3 report, we recommended the initiation of bullish positions in the September Swiss franc and to use the July 3 low of 1.1155 as an exit point for these positions. Additionally, we recommended the initiation of bullish positions in the Swiss franc-euro cross ( CHFEUR) and to exit the trade at .8217. Continue to hold the positions.
August gold lost 50 cents on volume of 163,994 contracts. Total open interest declined by 1,274 contracts, which relative to volume is approximately 60% below average. Remarkably, this is the first total open interest decline since June 20 when gold gained $2.50 on volume of 172,822 contracts and total open interest declined by 483 contracts. As we pointed out in yesterday’s report, we are very concerned about the very large open interest build while prices are essentially unchanged from June 20 through July 8.We advise a great deal of caution at current levels.
From the July 7 report:
“We are becoming concerned about the price and open interest action in gold. For example since June 20, the day after the major rally through July 7, total open interest has increased by 25,000 contracts. However, the price of the August contract is essentially unchanged in this time frame.”
“On June 20 , August gold closed at 1316.60 and by July 7 closed at 1317.00. In short there has been a massive increase of open interest, but it is not moving prices higher. We suspect this is the result of trade selling, and therefore recommend that clients take defensive measures if holding long gold positions. This could take the form of writing out of the money calls or buying out of the money puts along with stop placement at the June 25 low of 1305.40. Additionally, clients may want to consider taking partial profits on positions. This is not to say that gold is entering a bear market, but rather a market that is in the process of forming a bottom.We have no recommended position in gold.”
September silver closed unchanged on volume of 45,003 contracts. Total open interest increased by 1582 contracts, which relative to volume is approximately 40% above average meaning that there was a battle between longs and shorts, and neither side was able to move the market. However, the open interest action on July 8 highlights our concern about the possibility that prices are in the process of making an interim top. As a consequence, we are advising caution and in yesterday’s report recommended that “clients should take defensive measures to protect profits. This can take the form of writing out of the money calls, or buying out of the money puts, taking partial profits. We strongly encourage clients to place stops at or below the June 25 low of 20.760.”