Soybeans: On August 22 September soybeans generated an intermediate term buy signal, which confirms the short-term buy signal generated on August 19.
September soybeans lost 11 cents while the November contract lost 17.25 on volume of 202,546 contracts. Total open interest increased by 9,078 contracts, which relative to volume is approximately 75% above average, meaning that new longs and shorts were aggressively entering the market, but shorts were in control. The September contract lost 297 of open interest. On August 19, November soybeans generated a short and intermediate term buy signal and on the same day September beans generated a short-term buy signal. As this report is being compiled on August 23, September beans are trading 41.25 cents higher while the November contract is trading+ 39.00. Since generating a short and intermediate term buy signal in the November contract and a short-term buy signal in the September contract, the market had one setback, which occurred on August 20 when November and September each lost 12.75 cents. From a risk point of view, we are hesitant to recommend bullish positions at current levels because we think a setback is inevitable.
September soybean meal lost $8.20 on volume of 86,643 contracts. Total open interest increased by 1,988 contracts, which relative to volume is approximately 5% below average. The September contract lost 2,325 of open interest. On August 12, September meal generated an intermediate term buy signal and generated a short-term buy signal on August 19. As this report is being compiled, September meal is trading $19.00 higher and has already touched limit up. Like soybeans, it has been difficult to get long meal because the market has not setback sufficiently in order to limit risk on new long positions. Usually, after the generation of buy signals, the market corrects for more than one day, however the only setback took place on August 20 when September meal lost $6.50. Obviously, the momentum is very strong however the market remains vulnerable to a decent size correction. We discourage clients from chasing the market higher.
September corn lost 10.50 cents on volume of 279,596 contracts. Total open interest declined by 14,300 contracts, which relative to volume is approximately 100% above average, meaning that liquidation was extremely heavy. On August 20, corn declined 9.50 cents on volume of 219,649 contracts and open interest declined by another massive 14,420 contracts. In short, massive liquidation is occurring regardless of the corn’s direction. This tells us that market participants have little conviction about their positions. As this report is being compiled on August 23, September corn is trading 11.25 cents higher and the market has made a new high for the move at $5.00. Corn remains on a short and intermediate term sell signal, and we advise a stand aside posture. The COT report will be released today and it will be interesting to see whether managed money has increased their net short position.
September Chicago wheat lost 8.25 cents while KC lost 5.25. Chicago volume was 92,727 contracts. Total open interest in the Chicago contract declined by 3,251 contracts, which relative to volume is approximately 40% above average meaning that liquidation was fairly heavy on a rather modest decline. Adding to the open interest decline was the September contract which lost 7,654 of open interest. As this report is being compiled on August 23, KC wheat is trading 2.75 cents higher while the Chicago contract is trading 5.00 higher.
Cotton: On August 22, December cotton generated a short and intermediate term sell signal.
December cotton lost 6 points on volume of 27,211 contracts. Total open interest declined by a massive 6423 contracts, which relative to volume is approximately 720% above average, meaning that for the third day in a row liquidation was at astoundly high. For the past 3 days beginning on August 20, open interest has declined 23,612 contracts while December cotton has fallen 8.68 cents. In accordance with our protocols, we should see a rally in cotton, but perhaps a short one duration due to the carnage of the past 3 days. Cotton should be traded from the short side only.
October live cattle lost 77 points on light volume of 33,874 contracts. Open interest declined 97 contracts while August lost 495 of open interest. We see the market in a corrective mode, and look for cattle to trade sideways to lower. There is a gap between the August 7 high of 1.2542 and the August 8 low of 1.2640, which is likely to be filled. Once this occurs, it may be an opportune time to contemplate the initiation of bullish positions. Cattle remains on a short and intermediate term buy signal.
October crude oil gained $1.18 on very light volume of 457,856 contracts. Volume was the lightest since August 5 when 408,075 contracts were traded and crude oil lost 30 cents. On August 22, total open interest declined by 2,281 contracts, which relative to volume is 75% below average, but is very negative considering the magnitude of the advance. The October and November contracts, which account for much of the speculative interest lost 5,464 of open interest. The low volume accompanied by a decline of open interest on the advance is bearish, however, the situation in Syria is serious and it appears that the United States may become involved. This, undoubtedly is a factor causing the petroleum sector to advance on August 23.
As this report is being compiled on August 23, October crude oil is trading $1.53 higher and has made a new high for the move at $106.94. On August 16, we recommended that clients write out of the money calls in crude and today are recommending that these positions be closed. While we think crude is headed lower, perhaps significantly so, the weekend upon us and potential military action in Syria combined with the chaos in Egypt makes it unwise to continue to hold positions.
September natural gas advanced 8.5 cents on heavier than normal volume of 368,568 contracts. Volume was the highest since August 14 when natural gas advanced 5.7 cents on volume of 391,154 contracts and open interest increased by 4,843 contracts. On August 22, total open interest declined by 9,099 contracts, which relative to volume is average. The September contract lost 21,524 of open interest. Natural gas remains on a short and intermediate term sell signal.
December gold advanced 70 cents on volume of 156,188 contracts. Open interest declined by 3,071 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on August 23, December gold is trading $24.70 higher and has made a new high for the move at $1398.70. On August 9, December gold generated a short-term buy signal, but has not generated an intermediate term buy signal, but it is getting close. Open interest action along with volume is telling us that market participants don’t believe in the rally. The market has not presented an opportunity to get long at a reasonable price relative to risk. We discourage clients from chasing the market higher and advise a sideline stance at this juncture.
September silver gained 7.2 cents on volume of 67,421 contracts. Open interest declined by 346 contracts. As this report is being compiled on August 23, September silver is trading 85 cents higher and has made a new high for the move at $23.90, which is the highest price for September silver since mid-May. We think the market will run into resistance at 24.23 and $24.82. The performance of silver has been nothing short of spectacular, however it is dangerous to chase this market because a normal correction could take silver $1.50 lower. Keep in mind, the 50 day moving average on the continuation chart is $20.34 and 20.38 on the September chart.
The September euro lost 22 points on volume of 202,784 contracts. Open interest increased by 2,204 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on August 23, the September euro is trading 32 points higher and has made a high of 1.3412. We have advised clients to move to the sidelines after the big open interest increase on August 20 of 12,178 when the euro advanced 77 points on volume of 246,279 contracts. On that day the market made a new high for the move at 1.3454, and this was a signal that the euro had likely reached a temporary top.
S&P 500 E mini:
The S&P 500 E mini advanced 18.25 points on volume of 1,565,533 contracts. Open interest declined by 3,009 contracts, which is minuscule and dramatically below average. The fact that the S&P had a decent size rally and yet open interest declined on the move, confirms our bearish view of the market. We continue to advise long put protection if it has not been initiated already.