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August soybeans closed 22.25 cents higher on very light volume of 165,658 contracts. Volume on Friday was the lowest going back to June 4 when 148,901 contracts were traded. On that day, the market closed at $13.19 3/4 and on June 1 soybeans made their low at $13.00 1/2. In other words, the decreasing volume at the top of the market nearly matches the decreasing volume at the bottom of the market. Open interest decreased by 861 contracts, which in relation to volume was a below average decline. I attribute this to normal profit-taking, which one would expect on a Friday. Soybeans are in the process of discounting damage to the crop and although the market looks very strong at these levels, the decreasing volume is a signal that fewer participants are involved in the soybean market. Having experienced weather markets before, one phenomena I have observed is that the market all of a sudden will start turning down even though the weather forecasts remain bullish. After this occurs, it is likely the market will retest the old high once more. Investors should realize they are not going to get out at the top, and the correction could be devastating. Anyone long soybeans should be speaking with their investment advisor or broker regarding exit strategies for long positions. For more information on soybeans, please see the July 15 Weekend Wrap. Do not short the market.
August soybean meal closed $7.40 higher on light volume of 57,970 contracts. Volume was the lightest since July 6 when 56,300 contracts were traded and August soybean meal closed at $461.50. Open interest increased by 1,848 contracts, which in relation to volume was significantly above average. Much of what I said about soybeans is applicable to soybean meal and the other grains. In order for these to move higher, new longs must be willing to enter the market at ever-increasing prices. However, at some point, fewer and fewer longs are willing to enter the market, which sets the stage for a correction. As I have said before, markets correct or experience major downtrends, not because there are smart sellers at the top, rather because there is an absence of buyers at the top. Another phenomena to look for is a day where there is a major upside move on very heavy volume and a lower close. Often this is a signal that a major top is in. Investors investors should be consulting with their investment advisor or broker regarding exiting any long positions. Please review the July 15 Weekend Wrap about soybean meal. Do not short the market.
September corn closed 9.25 cents higher on volume of 318,729 contracts. Volume was approximately 1,000 contracts less than the volume on July 12 when corn closed 27.25 cents higher. Open interest increased by 6,807 contracts, which in relation to volume was an average open interest increase. One factor to keep in mind is that nonreportable positions (small traders) indicate that small speculators are still massively short the corn market with 81,395 contracts sold short, versus their long positions at 83,752 contracts. The long to short ratios of small speculators versus managed money tells the story. The long to short ratio of nonreportable positions is 1.03 to 1 and the managed money long to short ratio is 7.15 to 1. It is likely that the market will not top out until a good portion of these nonreportable spec positions are liquidated. These speculators already have massive losses and continued margin calls will eventually force these players out of the market. In the meantime, the massive potential buying power of these short specs could power corn beyond its all-time high of $7.99 3/4 made last year. Conceivably, corn could touch the $7.99 area and back off from it, then retest that high, have a rally failure, or push right through $7.99 it to make new highs. Please see the July 15 Weekend Wrap for historical long to short ratios of corn. Do not short this market.
September wheat closed 1 cent higher on light volume of 88,762 contracts. Volume was the lightest since July 2 when 83,101 contracts were traded. Open interest declined by 1,052 contracts, which in relation to volume was below average. Wheat has the same set up as corn with regards to the short positioning of nonreportable speculators (small speculators). As of the latest report, small specs hold a short position of 38,412 versus a long position of 20,449 contracts. Using long to short ratios, nonreportable traders are short by a ratio of 1.88 to 1, whereas managed money speculators are long by a ratio of 1.96 to 1. Like corn, small spec shorts are going to get blown out of the market. When this category of speculators switches to a net long position, then a top will likely be in place. Please see the Weekend Wrap about historical long to short ratios for wheat. Do not short this market.
August crude oil gained $1.02 on volume of 511,859 contracts. Open interest increased by 12,409 contracts, which in relation to volume is an average open interest increase. For the past three sessions, August crude oil has advanced $3.19 and open interest has increased 31,194. Relative to volume, the three-day open interest increase is slightly below average. Beginning on July 5, the market has been well supported, however crude oil remains on a short and intermediate term sell signal. Stand aside.
August gasoline increased by 0.99 on light volume of 122,332 contracts. Open interest increased by 3,230 contracts, which in relation to volume is an average open interest increase. It appears that gasoline may generate a short-term buy signal today. However, if it does, I am less than enthusiastic on long side because open interest action from June 29 through July 13 has been abysmal. The 200 day moving average is at $2.84 on the continuation chart, and as I write this on July 16, August gasoline is trading at $2.8460 up 2.99 cents. This is the highest price for August gasoline since May 16. The summer driving season is still with us and therefore the market should continue to move higher. If open interest action over the past two weeks had been positive, I would be more friendly to gasoline.
September copper gained 8.90 cents on light volume of 50,352 contracts. Open interest declined by 182 contracts. The market continues to act in a bearish fashion, and I would like to see more work done at the $3.50-$3.60 level before suggesting that bearish positions be implemented. The ETF that tracks copper is ticker symbol JJC.
August gold gained $26.70 on light volume of 146,991 contracts. Open interest declined by 1,771 contracts. What was there to dislike about gold trading on July 13? Everything! The market had a strong move to the upside on low volume and open interest declined on the advance. Contrast gold trading on July 13 to the July 12 session. On July 12 gold declined $10.40 on heavy volume of 201,797 contracts, and open interest declined by 737 contracts. On July 11, gold declined by $4.10 and volume was 176,560 contracts while open interest increased by 4,203 contracts. The point is gold has light volume on upside moves and heavy volume on downside moves. Additionally, it has a pattern of declining open interest on advances and increasing open interest on declines. This is bearish. If there is a swoon in the equities market, I expect gold to move right along with it.
September silver closed 20.8 cents higher on light volume of 29,137 contracts. Open interest declined by 720 contracts. Nothing new here. Stand aside.
The September Euro gained 45 points on light volume of 227,236 contracts. Open interest declined by 4,106 contracts. Stand aside.
S&P 500 E mini:
The S&P 500 E mini closed 22.50 points higher on volume of 1,761,363 contracts. Open interest increased by 8,751 contracts. Relative to volume, the open interest increase was terrible. For example, if open interest increased by 34,000 contracts, this would be considered an average open interest number. Another important point: with volume at 1,761,363 contracts, the S&P E mini recorded its lowest volume since July 9 when 1,474,934 contracts were traded. The advance on Friday was the largest advance since June 29 when the market gained 34.00 points on volume of 2,491,509 contracts. On that day, open interest declined by 21,826 contracts. In short the market action is lackluster and the lack of participation by speculators indicates a low level of enthusiasm. I have suggested that investors discuss with their investment advisors or brokers the feasibility of being long Apple Computer. However, caution must be exercised prior to the earnings report which is due out on July 24. Also, investors should be consulting their investment advisor or broker regarding the maintenance or implementation of put protection.