August soybeans lost 43 cents on volume of 162,535 contracts. Interestingly, volume actually declined by 7,410 contracts from July 11 when August soybeans advanced 7.25 cents and open interest increased by 2,360 contracts. On July 12, total open interest declined by 2,694 contracts, which relative to volume is approximately 35% less than average. The July contract accounted for loss of 449 of open interest. Considering the magnitude of the decline and the below average decline of open interest, market action was reasonably positive, especially because the price decline was much larger than usual. The 50 day moving average on the August chart is $14.11, therefore the market relieved some of its overbought condition. As this report is being compiled on July 15, August soybeans are trading 15.75 cents higher and has made a high for the day at $14.58. Although the soybean balance sheet is extremely tight, it is important to keep in mind that July is a month when soybeans tend to top out. Soybeans remain on a short and intermediate term buy signal.
August soybean meal lost $15.10 on volume of 82,491 contracts. Total open interest declined by 3,949 contracts, which relative to volume is approximately 75% above average, meaning that liquidation was heavy on the decline. The July contract accounted for loss of 163 of open interest. We are surprised at the heavy decline of open interest considering that soybean meal is outperforming soybeans, and that soybeans are being crushed because of very heavy meal demand. Although soybeans may top out during the next couple of weeks, we think it is possible that meal will top out in August. Soybean meal remains on a short and intermediate term buy signal.
September corn lost 15.25 cents on light volume of 194,011 contracts. Volume was the lightest since July 8 when corn gained 7.50 cents on volume of 175,376 contracts and open interest declined by 6,073 contracts. On July 12, total open interest declined by 542 contracts, which relative to volume is minor and dramatically below average. The July contract lost 580 of open interest. As this report is being compiled on July 15, corn is trading 8.75 cents lower and has made a new low for the move at $5.34 1/2. Although corn can certainly move lower from here, especially since it’s on a short and intermediate term sell signal, we encourage a very cautious approach on the short side, and prefer to avoid it altogether. Even though the short position may be sound from a technical and longer-term fundamental point of view, the fact remains that a weather scare can occur at any moment, which can vaporize profits.
September wheat lost 2 cents on volume of 72,144 contracts. Volume was the lightest since July 5 when 67,480 contracts were traded and corn declined by 5 cents while open interest declined 796 contracts. On July 12, open interest declined by a massive 6,449 contracts, which relative to volume is approximately 250% above average, meaning that both longs and shorts were liquidating at an extraordinarily high rate. The July contract lost 312 of open interest. We think that wheat is transitioning from a bear to a bull market and that it has more work to do on the downside before it is in a position to generate a short-term buy signal. Please review the July 14 Weekend Wrap for more information on the fundamental situation in wheat.
December cotton gained 34 points on volume of 12,927 contracts. Total open interest declined by a massive 1,425 contracts, which relative to volume is approximately 340% above average, meaning that liquidation was extraordinarily heavy on the very minor advance. The fundamentals for cotton are poor and the technical action is bearish. We recommend initiating bearish positions around the 86.00 level.
October live cattle lost 35 points on heavy volume of 69,191 contracts. Volume was the highest since before June 27 when cattle generated a short-term buy signal. On June 12, open interest increased by 2,338 contracts, which relative to volume is approximately 30% above average. The August contract lost 8,877 of open interest, which makes the total open interest increase much more impressive. For the past 5 trading sessions beginning on July 8, volume has been above the average daily volume year to date of 54,854 contracts, and significantly above the average daily volume for June of 41,566. The increase of volume is a measurement of market participation and indicates that cattle may be on the verge of making a major move. It is likely that October cattle will generate an intermediate term buy signal on July 15. For those looking to initiate bullish positions, we recommend using the July 12 low of 1.2540 as an exit point. This was the lowest price for October cattle since June 26.
August WTI crude oil advanced $1.04 on volume of 647,156 contracts. Volume was the lowest since July 5 when 615,153 contracts were traded and August crude advanced $1.98 while open interest increased by 8,416 contracts. Additionally, volume declined precipitously from July 11 when 934,688 contracts were traded and WTI declined $1.61 while open interest increased 16,649 contracts. The point being made here is that volume declined precipitously on the advance of July 12 compared to the price decline on July 11 when volume increased dramatically. In a healthy market, volume should decline as price declined and would increase as prices advanced.
On July 12, open interest increased by a massive 30,856 contracts, which relative to volume is approximately 85% above average, meaning that new longs and shorts were entering the market aggressively and the longs were in control. The August contract lost 12,251 of open interest, which makes the total open interest increase that much more impressive. In the July 14 Weekend Wrap, we wrote about the high level of the current long to short ratio of managed money and compared it to past periods when crude oil traded at or near the July 9 close. The massive open interest increase on July 12 may signal that managed money is piling in to WTI. At some point, this will make WTI vulnerable to significant declines when the market finally heads south. Although crude oil remains on a short and intermediate term buy signal, the dismal fundamentals caution us to take a stand aside posture.
Brent crude oil:
August Brent crude oil advanced $1.08 on volume of 694,616 contracts. Volume declined from 797,051 contracts traded on July 11 when Brent crude declined 78 cents and open interest declined 25,545 contracts. On July 12, total open interest increased by 14,121 contracts, which relative to volume is approximately 20% below average. Compare this price, volume and open interest action to that of WTI, and it is readily apparent that market participants have fallen in love with WTI. Brent remains on a short and intermediate term buy signal.
Heating oil: On July 12, both heating oil and gasoline made new highs on heavy volume and major increases of open interest. This indicates that market participants are getting bullish at the high-end of the range.
August heating oil gained 3.44 cents on heavy volume of 164,463 contracts. Volume was the highest since June 25, 2013 when 167,612 contracts were traded. On July 12, total open interest increased by a massive 7,801 contracts, which relative to volume is approximately 80% above average, meaning that both longs and shorts were aggressively entering the market and the longs were in control. Adding to this was the fact that the August contract lost 3,363 of open interest, which makes the total open interest increase much more impressive.
August gasoline advanced 9.61 cents on extremely heavy volume of 261,463 contracts. Volume was the highest for 2013 and was higher than the volume traded on July 10 of 218,688 contracts when gasoline advanced 8.89 cents and open interest declined 3,499 contracts. On July 12, open interest increased 6,488 contracts, which relative to volume is average. However, the open interest increase was the largest since June 5 when it increased 7,121 contracts on volume of 111,522 while gasoline advanced 0.48 cents. The August contract lost 3,315 of open interest, which makes the total open interest increase more impressive. The market made a new high for the move at $3.1455 which took out the February 20 high of 3.1184.
August natural gas gained 3.1 cents on volume of 220,433 contracts. Total open interest increased by 8,423 contracts, which relative to volume is approximately 50% above average meaning that new longs and shorts were entering the market aggressively, but longs had a slight edge. Making the total open interest increase more impressive was the August contract which lost 6,235 of open interest. Natural gas remains on a short and intermediate term sell signal. From a seasonal point of view, natural gas tends to bottom in July and the rise into fall. Although the market action has been dismal for the past 2 months, this conforms to a seasonal downturn in demand. We are actually fairly bullish natural gas because we think the market is transitioning from one of burdensome supply to an ever-increasing demand market.
The September euro lost 38 points on volume of 220,762 contracts. Open interest declined by 3144 contracts, which relative to volume is approximately 40% less than average. The euro remains on a short and intermediate term sell signal.
S&P 500 E mini:
The S&P 500 E mini gained 0.25 points on very low volume of 1,146,562 contracts. Although the E mini made a new high for the move at 1674.25, volume was the lowest since April 1, 2013 when 1,136,712 contracts were traded. On July 12, open interest declined by 12,309 contracts, which relative to volume is approximately 50% below average, and this indicates a lack of confidence on the part of new participants.
From July 5 through July 12, the E mini has advanced 61.25 points while open interest has increased only 31,561 contracts. This is terrible open interest action when compared to the price advance during 6 sessions. As we have mentioned before, that average daily volume for July 5 through July 11 was 1,450,510 contracts. This compares to year to date average daily volume of 1,988,093 contracts and average daily volume for June of 2,644,807 contracts. Volume on July 15 as this report is being compiled has not even reached 850,000 contracts and the E mini is trading 7.50 points higher. The cash market closes in 30 minutes. Dismal volume and open interest increases during the rally shows that many market participants are on the sidelines and are unwilling to make commitments at ever-increasing prices. As we said last week, it appears inevitable that the E mini is going to make an attempt to test the May 22 high of 1685, but we are skeptical of its ability to move much beyond this. In any event, we would avoid the long side of the market and if clients have long positions in equities, put protection should be in place. July, August and September have a history of negative performance.