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August soybeans gained 28.25 cents on light volume of 219,800 contracts. During the past three days, we have seen successively decreasing volume. The big surprise was the massive decline of open interest despite the move higher. Open interest declined by 33,562 contracts, and relative to volume the increase was the biggest decline ever seen during the entire bull market. Open interest has declined for five consecutive days bringing the total to 72,262 contracts. During the past five days, August soybeans have declined by 73.50 cents. The decline of open interest accompanying the price decline is a very healthy sign and confirms the strength of the bull market.
Going forward, the weather is going to be far more critical to soybeans than to corn. Although the corn numbers can get worse, the overwhelming amount of damage has already occurred. It is highly likely that soybeans may take another leg higher based upon the overall market action thus far. I suggest readers review the June 22 Weekend Wrap that discusses soybeans and corn during the droughts of 1983 and 1988. During 1983 and 1988 the move in soybeans took a far longer period of time to reach its peak than corn. The massive liquidation during the pullback means there are longs who have significant profits and will likely put these to work once soybeans breaks above its contract high of $17.77 3/4.
August soybean meal gained $8.90 on volume of 92,231 contracts. The pattern of volume during the past three days is different from soybeans. For example on July 25 107,084 contracts were traded and on the 26th 88,339 contracts, but on July 27 the volume increased to 92,231 contracts. Interestingly, on the 26th soybeans fell $11.00 and open interest declined by 1,935 contracts. However, on July 27 with soybeans advancing, open interest declined by a massive 6,596 contracts, and in relation to volume the increase was at the very high end of the range. However, it was significantly less than soybeans. During the past five days, open interest has declined by 17,502 contracts. Although it was troubling that open interest declined by 380 contracts on July 25 when August meal closed up the $20.00 limit, now that I have additional data, my view is that soybean meal is acting in a constructive manner. The liquidation is positive and like soybeans, there are a significant number of longs with good profits that have already been taken. If the market breaks above the old high ($552.00), there will be a larger pool of fresh new longs looking to put their profits to work.
September corn closed 17.25 cents higher on very light volume of 227,292 contracts. Like soybeans, and soybean meal, corn exhibited light volume on the 27th as speculators may be growing cautious about being long at the current level. Open interest declined for the second day in a row by 6,763 contracts which in relation to volume was somewhat above average. The two-day decline of open interest amounts to 10,505 contracts and during this time, corn advanced by 4 cents. The liquidation in soybeans and soybean meal has been huge in comparison to the liquidation in corn, meaning there are a huge number of speculative corn longs with large paper profits. When they decide to liquidate, this will be a significant force in driving corn prices lower. According to the 1983 and 1988 drought statistics, corn tops out long before soybeans. I encourage readers to review the June 22 Weekend Wrap to gain some perspective.
September wheat gained 14 cents on very light volume of 99,874 contracts. Volume was the lightest since July 13 when wheat traded 88,762 contracts. Open interest declined by 2,209 contracts, which in relation to volume was on the low side of an average number. During the past two days, open interest has declined by 2,473 contracts which is a below average number in relation to two days volume. Open interest in wheat has been acting as well and in many cases, better than corn.
The ongoing drought in the Black Sea region continues to prop up the wheat market, and if there were to be an export ban, the price of wheat would likely take another leg higher. If the market continues to consolidate and move lower, this could provide the time frame for the implementation of bullish positions. However, any bullish news could send the market sharply higher. The Commitment of Traders Report show that managed money is long wheat by a ratio of 2.30:1, but this is sharply below the corn, soybean, soybean meal ratios (see July 29 Weekend Wrap). This means there could be a significant number of new longs that could enter the market once the supply situation in Australia and the Black Sea region is clarified.
September crude oil gained 74 cents on light volume of 416,190 contracts. In the July 29 Weekend Wrap, I discussed the recent low volume in crude oil as the market has been moving higher. On July 27, open interest increased by a mere 820 contracts, which in relation to volume is an extremely low number. For example, if the open interest increase was an average number, crude oil open interest would have increased by over 8,000 contracts. On July 24, there was a massive open interest increase of 33,673 on light volume of 496,638 contracts while crude advanced only 34 cents. Subsequent market action has not provided a any kind of clue regarding that massive increase. On July 19, a short-term buy signal was generated, however, an intermediate term confirmation signal has not been generated. Stand aside.
September gasoline advanced by 5.97 cents on light volume of 121,094 contracts. Even though gasoline made a high of $2.8000 and closed significantly higher than the day before, volume contracted from the previous day of 131,532 contracts and gasoline advanced 2.08 cents while open interest declined by 6,149 contracts. In other words, as the market accelerated higher on Friday and closed significantly higher than July 26, volume declined. This shows a lack of speculative interest. On the 27th, open interest declined by 2,771 contracts and this was the fourth day in a row that open interest declined, which brings the total to 16,597 contracts. During this time, gasoline advanced by 4.01 cents. This is bearish open interest action relative to price. On July 16, gasoline generated a short-term buy signal, and on July 24 it generated in intermediate term sell signal. This means in the short term we may get a bounce, (since July 16 gasoline has advanced 5.9 cents) but further down the road gasoline’s performance will be subpar. Stand aside.
September copper advanced 3.25 cents on volume of 57,165 contracts. Open interest increased by 1,395 contracts and this was the first day since July 19 that copper advanced and open interest increased. If the risk on trade continues, perhaps the market will move to the $3.55-$3.60 level where bearish positions can be implemented. Stand aside.
August gold gained $2.90 on extremely heavy volume of 335,400 contracts. Open interest declined by 5,015 contracts, and relative to volume, the open interest decline was significantly below average. Even though the open interest decline was not a large one, it is disappointing to see the market move to a new high for the move on very heavy volume, yet open interest declines. In relation to its 50 day moving average of $1591.36, gold is somewhat overbought. On July 27, October gold generated a short-term buy signal, but as of today July 30, gold has not generated an intermediate term buy signal. This would be confirmation of the bull trend and would signal that investors should look for a spot to implement bullish positions.
One word of caution: very often when a short and/or intermediate term buy signal is generated, the market is overbought and perhaps extremely so. Therefore, when a buy signal (s) is generated investors must be careful about entering new positions and anticipate that a pullback is likely in the near term. One final point: very often when the market makes a new high for a move on extremely heavy volume, it can signal a temporary top. Obviously this is not always the case, but it is something to watch for, especially because of the overbought situation.
September silver gained 5.2 cents on very light volume of 36,634 contracts. Open interest declined by 766 contracts. Please review the July 29 Weekend Wrap on silver. In this analysis, the case is made for the possibility of silver coming out of its doldrums and moving higher. Don’t miss it.
The September Euro gained 24 points on relatively heavy volume of 349,752 contracts. Volume was the highest since July 5 when 404,368 contracts were traded and the market declined by 2.21 cents while open interest increased by 17,541 contracts. The market has moved higher due to happy talk from European technocrats, but as of July 30, the September Euro is down 50 points. A stand aside position is being suggested because it is unwise to underestimate the will of the technocrats to talk up the Euro. Ideally, a blowout of the shorts would make it more palatable to implement bearish positions. Stand aside.
S&P 500 E mini:
The September S&P 500 E mini gained 27.75 points on very heavy volume of 2,498,064 contracts. Volume on Friday edged out the high volume on June 29 of 2,491,509 contracts when the S&P 500 E mini gained 34.00 and open interest declined by 21,826 contracts. The previous high volume occurred on June 21 when 2,714,669 contracts were traded and the market fell by 32.50 points while open interest increased by 30,014 contracts. On the 27th, open interest declined by 17,166 contracts. This is the third day in a row when the S&P 500 E mini advanced and open interest declined. For the three day period, open interest has declined by 51,125 contracts while the S&P 500 E mini advanced by a total of 54.00 points. In a number of previous reports, I have expressed reluctance about being long the S&P 500 E mini due to the poor showing of open interest as the market moved higher. The open interest action has been abysmal for at least a couple of weeks, and although the market is on a short and intermediate term buy signal, investors should steer clear of the E mini.
As an alternative, I have suggested being long Apple Computer and although the market took a hit on its recent earnings report, it has recovered nicely. Apple never generated a short or intermediate term sell signal during the earnings debacle and as I write this on July 30, Apple is trading $9.55 higher. If so inclined, a sell stop can be placed beneath the low of $570.00 made on July 25, or below the June 28 low of $565.61 made on June 28.