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Note: The December gold contract is being used because of much higher volume when compared to October.
August soybeans gained 41.50 cents on light volume of 184,252 contracts. For four consecutive days, volume has been successively lower each day. Considering the magnitude of the increase in prices on July 30, it was somewhat surprising that volume could not surpass the previous day’s volume of 219,800 contracts when soybeans closed 28.50 higher. The lackluster volume is supported by dismal open interest action. On July 30, open interest declined by 1,004 contracts, which in relation to volume was significantly below average. However, this is the sixth consecutive day that open interest has declined bringing the total to 73,266 contracts. During the six day period, August soybeans have declined by 32.00 cents. Granted, the open interest decline is attributable to the August contract and on Monday, open interest in the August contract declined by 4,616 contracts. The problem is there was not enough buying to offset that decline.
For the next couple of weeks, soybeans will be in a crucial stage of development and any significant ongoing dryness will further damage the crop. However, at the end of the day the driver of soybean futures prices will be the supply and demand for the contracts. The question is: are soybean speculators willing to pay up at current levels to get long at lofty prices? If soybeans pull back and consolidate at lower levels, it seems more than likely there would be a retest of the old contract high of 17.77 3/4 made on July 20, if deterioration continues to accelerate. The other unknown is the effect of any announcement from the Federal Reserve regarding possible quantitative easing, for good or bad. At this juncture, it is better to stand aside until there is more clarification on the near-term direction of the market.
August soybean meal gained $18.60 on fairly light volume of 70,035 contracts. Volume declined by 22,196 contracts from the day before when soybean meal gained $8.90. In other words, on July 30, soybean meal gained more than twice as much than July 27, but volume declined by approximately 24% from the day before. This is very telling about the level of enthusiasm on the upside. Open interest declined by 3,527 contracts, which in relation to volume was a hefty decline and about double an average number. The decline of open interest in the August contract amounted to 5,414 contracts, but there was enough buying in the forward months to offset the decline. Both soybeans and soybean meal appear that they want to consolidate and the best course of action is to stand aside and watch the market.
September corn gained 21.50 cents on volume of 252,788 contracts. Volume increased by 25,496 contracts from the July 27th session, which is positive. Open interest increased by 7,208 contracts which in great part offsets the two-day decline of open interest of 10,505 contracts. Corn made a high of $8.23, which was the highest price since July 23 when corn reached $8.24. Since July 20, September corn has not been able surpass its all-time high of $8.28 3/4. Corn has experienced a massive flood of new participants and the number of speculative longs has increased dramatically, especially in the managed money category.
In the June 22 Weekend Wrap, I projected a price level and time frame that investors could use as a frame of reference for the current corn market. This was based upon my analysis of the droughts of 1983 and 1988. The projected date for corn topping out was August 7 or 8,, and the projected price was $9.50 1/2. It is important for investors to know that the projection does not have to include both the date and price to be valid. In other words, it is quite conceivable that corn could top out by August 7 or 8, but not reach the $9.50 level. I encourage readers to review the June 22 Weekend Wrap for some historical perspective on two previous markets that may be relevant to the current corn market.
One final point to consider: The corn market made a top of $7.99 3/4 on June 10, 2011 (July contract) and, the September contract made a new all-time high ($8.28 3/4) that is a mere 29.00 cents above the high of last year. Last year, corn was in a demand driven market and this year corn is a supply driven market. In our view, it is quite possible that the top has been made, if only temporarily. All the bad news concerning corn is in the market and the next shoe to drop will be on the demand side. Last week, for the first time, export sales declined for the current crop year and 2013. The danger to speculators is that they may cling to the current drought narrative and dismiss or ignore the implications of high prices and their effect on demand. Stand aside.
September wheat gained 16.50 cents on very light volume of 81,680 contracts. Volume on Monday declined by 18,194 contracts from Friday, July 27. Open interest increased by 3,519 contracts, which in relation to volume was approximately 50% higher than average. Wheat will continue to follow corn and if it continues to move sideways to lower, there may be a terrific opportunity to get long in the next 30 days. Stand aside.
September crude oil lost 35 cents on very light volume of 390,132 contracts. Volume declined by 26,058 contracts from the day before. Open interest increased by 1,785 contracts which in relation to volume is a significantly below average number. There is very little enthusiasm for crude oil on the long side and volume and open interest statistics underscore this. The market remains on a short-term buy signal and an intermediate term sell signal. Stand aside.
September gasoline gained 2.17 cents on volume of 140,782 contracts. Volume increased by 19,688 contracts from the day before when gasoline advanced 5.97 cents. Open interest declined by 4,894 contracts which in relation to volume was above average. This is the fifth consecutive day that open interest has declined, which brings the total to 21,491 contracts. During this time. Gasoline advanced by 6.18 cents. Gasoline made a new high for the move at $2.858, which was the highest price since July 23 when gasoline reached $2.8474 and then reversed to close 8.07 cents lower on volume of 130,835 contracts. The market continues to act in a very bearish fashion and the summer driving season lasts another 30 days. The market remains on a short term buy signal and an intermediate term sell signal. Stand aside.
September copper lost 1 cent on volume of 51,893 contracts. Open interest increased by 573 contracts. Stand aside.
December gold closed $1.30 higher on volume of 172,891 contracts. Although the market made a new high for the move at $1630.00, volume fell 162,509 contracts from the day before. Open interest declined by 4,646 contracts, which was the second day in a row that open interest declined, which brings the total to 9,909 contracts. As I pointed out in yesterday’s report, when a market makes a new high on extremely heavy volume and open interest declines on the move, it often signals a top, or temporary top. The decline of open interest during the past two days indicates the move has little credibility. As pointed out in previous reports, the market is somewhat overbought and needs to do some backing and filling. It will be interesting to see how the market reacts to the Federal Reserve announcement on August 1 and the announcement of more money printing from Europe the following day. Gold generated a short-term buy signal on July 27 and remains on an intermediate term sell signal.
September silver advanced 53.5 cents on very low volume of 34,822 contracts. It was disappointing that volume on July 30 was 1,812 contracts less than on the 27th when silver advanced 5.2 cents and open interest declined by 766 contracts. One positive was that open interest increased by 540 contracts, which in relation to volume is below average. However, the fact that open interest rose when the price advanced is a rare event. The last time this occurred was on July 12 when silver advanced 13.8 cents and open interest increased by 688 contracts while 46,113 contracts were traded. Another positive was that silver broke through and closed above its 50 day moving average ($27.74) on the silver continuation chart for the first time since mid-March. Based upon the very low volume and weak open interest action, the market needs to do some more backing and filling before speculators can be convinced that silver is headed higher. As of July 31, silver has not generated a short or intermediate term buy signal.
The September Euro lost 48 points on very light volume of 182,560 contracts. Open interest increased by 1,204 contracts. Stand aside.
S&P 500 E mini:
The September S&P 500 E mini lost 2.00 points on very light volume of 1,488,828 contracts. Volume dropped over 1 million contracts from July 27 when the S&P 500 E mini closed 27.75 points higher and open interest declined by 17,166 contracts. Volume was the lowest since July 9 when 1,474,934 contracts were traded and the S&P 500 E mini closed 2.00 points lower while open interest increased 1,696 contracts. Although on July 30 the E mini made a fractional new high at 1387.50, the extremely low volume indicated that participants were not following through on the move from July 27. On July 30, open interest declined by a massive 45,266 contracts, which in relation to volume is a slightly above average number. However, in the context of usual open interest increases or decreases, the decrease was much larger than normal. July 30 was the fourth day in a row that open interest declined, which brings the total to 96,391 contracts while the S&P 500 E mini advanced by 56.00 in this time frame. This is bearish open interest action in relation to price. Although the S&P 500 E mini is on a short and intermediate term buy signal, Apple Computer is the preferred long position and stops can be placed $570.00 and $565.00, which are the lows for July 25 and June 28 respectively.