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August soybeans gained 44.50 cents on volume of 266,410 contracts. Volume was the highest since July 11 when 361,033 contracts were traded. On the 11th, soybeans retested its high of $16.25 and reversed intraday to make a low at $15.05 1/4 and closed down 19 cents. The previous volume high was on July 5 when soybeans gained 53.50 cents and volume traded was 303,332 contracts. Open interest increased on the 18th by 4,866 contracts, which in relation to volume is below average. Soybeans made a new contract high at $16.85 1/2, and as I write this on July 19, August soybeans are trading 40.50 cents higher. Soybeans, like other grain markets have gone parabolic, which makes them very dangerous to trade. One signal of a top, whether this is short or long-term is to watch total daily volume. If there is a volume spike of perhaps 400,000 contracts or more at new contract highs, the chances are more than reasonable the market has reached a top, if only temporarily. If this is the case, a reaction on the downside could be in the neighborhood of $2.00 -$3.00, followed by an attempt to retest the old contract highs. If one examines all the great tops ever made in the commodity markets going back 40 years, you can see this pattern. When the secondary attempt is made to retest the previous contract high, a rally failure ensues in every instance that I have ever examined. Do not enter long or short positions. Stand aside.
August soybean meal closed up the $20.00 limit on volume of 133,616 contracts. I reviewed my records going back two months and couldn’t find volume higher than Wednesday’s. The second highest volume during the past two months occurred on June 19 when soybean meal traded 131,286 contracts. Open interest on Wednesday increased by 3,744 contracts, which in relation to volume was an average increase. Soybean meal continues to be the leader as it has been all year. Many of the comments I made about soybeans are applicable to soybean meal. Do not enter long or short positions. Stand aside.
September corn closed 15.50 cents higher on volume of 334,300 contracts. From July 12 through July 18, volume per day averaged 330,024 contracts. During the five-day period, corn advanced 91 cents. Even though the five session advance is large by any standard, the volume accompanying the advance was disappointing. For example, the average daily volume for June 2012 was 382,236 contracts, and the average daily volume for June 2011 was 392,706 contracts. Last June, corn reached its all-time high of $7.99 3/4, and this was the all-time high until today when corn made a new all-time high of $8.16 3/4. On a year to date basis for 2012, average daily volume has been 331,186 contracts. In other words the average daily volume for the past five days when corn advanced 91 cents, is below the average daily volume year to date. Additionally, even though corn has currently moved up to the level of last June, volume per day has not increased or matched the average daily volume of June 2011. This is not to say that corn cannot continue to move higher, rather it is a commentary on the amount of participation by speculators at elevated prices.
The open interest increase of 9,348 contracts was an average increase relative to volume. The comments I made regarding a top in soybeans based upon a volume spike is applicable to corn as well. Based upon the dismal volume on the recent advance, a spike high in volume would indicate that all the Johnny-come-lately’s are now piling into the market. Again, investors should be watching volume as an indicator of a possible top or temporary top. Do not enter long or short positions stand aside.
September wheat gained 18.25 cents on volume of 107,815 contracts. From July 12 through July 18, volume in wheat has averaged 104,802 contracts per day. During this time, wheat advanced 77 cents. Like corn, volume in wheat has been disappointing when compared to the following benchmarks: average volume per day during June of 2012 was 154,518 contracts, average volume per day of 129,872 contracts during June of 2011 and average daily volume on a year to date basis of 119,166 contracts. Although volume has been disappointing, the open interest increase has been impressive. On the 18th, open interest increased by 6,363 contracts, which in relation to volume is off the charts. For the past week, wheat’s open interest relative to volume is much stronger than corn when both close higher. Although there is speculation that lower grades of wheat (feed wheat) not fit for human consumption will be fed to livestock. This will be problematic because wheat in its unadulterated form is difficult for cattle to digest. Usually soybean meal is mixed with wheat to feed livestock. However, the price of soybean meal is now off the charts, which makes it fairly expensive to use in combination with wheat as a substitute for corn. In other words, the use of feed wheat may not be the economical source of protein that many people think. Do not enter new long or short positions. Stand aside.
August crude oil gained 33 cents on volume of 550,320 contracts. Open interest declined by 7,158 contracts. For the past three trading sessions, crude oil has advanced $2.07 and open interest has declined by 48,294 contracts. This is bearish open interest action in relation to price. As I write this on July 19, crude oil has advanced $2.38 on potential problems with Iran. It is likely that a short-term buy signal will be generated in crude oil, however and intermediate term buy signal is still several dollars away. Stand aside.
August gasoline gained 3.84 cents on relatively high volume of 168,190 contracts. Open interest increased by a healthy 5,388 contracts, which in relation to volume was somewhat above average. This is the first day that gasoline’s market action based upon price, volume and open interest has been positive in conjunction with past couple of days trading. Volume on the advance was the highest since July 5 when gasoline traded 174,776 contracts, closed 4.19 cents higher and open interest increased by 8,139 contracts. On July 16, gasoline generated a short-term buy signal.
September copper gained 1.85 cents on very low volume of 38,089 contracts. Open interest increased by 230 contracts. Stand aside.
August gold declined by $18.70 on volume of 155,474 contracts. Open interest increased by 3,613 contracts.. As indicated in previous posts, the market is not acting well and investors should have stops at the December 29, 2011 low of 1523.90.
September silver lost 22.1 cents on extremely light volume of 26,537 contracts. Open interest increased by 771 contracts. Stand aside.
The September Euro declined by 25 points on volume of 216,027 contracts. Open interest increased by 1,848 contracts. Stand aside.
S&P 500 E mini:
The S&P 500 cash index generated an intermediate term buy signal on July 18, which reversed the sell signal generated on July 12. The S&P 500 e-mini is already on a short term buy signal.
The S&P 500 E mini closed 8.75 points higher on volume of 1,799,903 contracts. Open interest increased a minuscule 3,030 contracts. During July 18, July 17, and July 13, the S&P E mini advanced 42.25 points and open interest during the three sessions increased by only 6,475 contracts. This kind of market action tells me old longs and shorts are trading their positions to new longs and shorts. The three day open interest increase in relation to volume is essentially an unchanged number, which indicates a very low level of enthusiasm on the part of market participants. Although it is quite possible the market will continue to move higher, if the dismal open interest numbers continue, the rally will become highly suspect. It is likely that a very favorable earnings report from Apple could move the indices higher, but the negative economic crosscurrents could certainly derail it. On the other hand, if economic weakness continues and the market perceives that QE3 (or some other form of money printing) is going to be implemented, the market would likely move higher. Investors should consult their investment advisor or broker about implementing long positions in Apple via a stock purchase or the acquisition of long options.