September soybeans gained 62.50 cents and November advanced by 61.50 on total volume of 359,207 contracts. Volume was the highest since February 22, 2013 when 393,491 contracts were traded and September soybeans closed at $13.18. Remarkably, total open interest declined by 3,995 contracts, which relative to volume is approximately 50% below average. The September contract accounted for loss of 5599 of open interest. During the past 2 trading sessions, September soybeans have advanced $1.05 3/4, but total open interest has declined by 2,652 contracts. This is very bearish open interest action relative to a large advance over 2 days. In short, it signifies that market participants are unwilling to make new commitments at ever-increasing prices. Clients must always be aware of spikes in volume and/or open interest, and the volume on August 26 indicated a lot of participation but the dominant action was one of liquidation. The market is overbought by any stretch, and we expect it to setback, perhaps sharply, however, the move probably is not over. If soybeans continue to advance as we expect, we will look for a massive increase of open interest on a new high for the move, which may signify a top. As this report is being compiled on August 27, September beans are trading 0.25 cents higher and the November contract, 3.00 lower. The September contract has made a new high for the move at $14.49 while November’s high is $14.0 9 1/2. Soybeans remain on a short and intermediate term buy signal. Do not chase the market higher.
September soybean meal advanced $25.40 on total volume of 113,680 contracts. Total open interest declined by 5,043 contracts, which relative to volume is approximately 70% above average, meaning that liquidation was very heavy on one of the biggest advances in months. The September contract made a new high for the move at $463.20, and as this report is being compiled on August 27 December meal has taken out the high with a move to 470.60. Like soybeans, we think the move has further to go and the fact that market participants are not making commitments indicates a degree of skepticism about the rally. This leads us to believe that soybean meal is headed higher and perhaps will touch the highs made in August. Soybean meal remains on a short and intermediate term buy signal.
December soybean oil gained 1.88 cents on big volume of 151,784 contracts. Volume was the 2nd highest of the year and was only exceeded by the 158,451 contracts traded on February 20 when December soybean oil closed at 51.74. On August 26, total open interest increased only 140 contracts, which is minuscule and dramatically below average. The September contract accounted for loss of 2,673 of open interest. December oil made a high of 45.32, which is its highest price since July 23 when the December contract made a high of 45.55. It is possible that soybean oil may generate a short-term buy signal on August 27, but we will not know until the market has closed. We know that managed money is massively short soybean oil, and if a short-term buy signal is generated as we expect, the market could move significantly higher. It appears that market participants who hold short positions are digging in on the largest rally in at least several months.
December corn advanced 30.50 cents on very heavy volume of 445,229 contracts. Volume slightly exceeded the high made on June 28, 2013 when 443,821 contracts were traded and September corn closed at $5.11. On August 26, total open interest declined by 8,488 contracts, which relative to volume is approximately 20% below average. The September contract accounted for loss of 8,968 of open interest. Remarkably, open interest has declined every day since August 16. We know that managed money is heavily net short, and therefore we expect the rally to continue for possibly another 50 cents. Like soybeans and soybean meal, we are looking for a large spike increase of open interest on a new high for the move, which may signal the top or temporary top in corn. The grain markets are being powered by hot dry weather, and if there is any rainfall in the headlines, the markets will fall sharply. Weather markets are extremely difficult to trade and we discourage clients from being involved. Corn is likely to generate a short-term buy signal on August 27, but will not generate an intermediate term buy signal.
December Chicago wheat advanced 20.75 cents while KC wheat increased 16.00. Volume in Chicago wheat was 137,816 contracts and open interest declined on the advance by 10,718 contracts, which relative to volume is approximately 210% above average, meaning that liquidation was extremely heavy on the advance. As this report is being compiled on August 27, December Chicago wheat has not taken out yesterdays high of $6.76 1/2 and the KC high of 7.23 3/4. Although, we believe wheat will be a turnaround story going forward, both Chicago and KC wheat remain on short and intermediate term sell signals.
December cotton gained 82 points on very light volume of 13,224 contracts. Volume was the lightest since August 6 when 11,306 contracts were traded. On August 26, open interest declined by 1,312 contracts, which relative to volume is approximately 300% above average. During the past 5 sessions beginning on August 20, open interest has declined by 28,837 contracts. The fact that open interest declined substantially on yesterday’s minor rally indicates those that remain long are looking to exit the market. This will keep a lid on any significant rally Cotton generated a short and intermediate term sell signal on August 22, and we think the market is headed to test the 78 cent level. Although it is conceivable to see a larger than usual rally, clients can initiate bearish positions with an exit point above yesterdays high of 85.54 basis December.
October live cattle gained 45 points on volume of 42,354 contracts. Open interest increased by 1,352 contracts, which relative to volume is approximately 25% above average. The August contract accounted for loss of 329 of open interest. As this report is being compiled on August 27, October cattle is trading 50 points lower. We continue to advise waiting for a further pullback before initiating bullish positions.
October crude oil lost 50 cents on very light volume of 297,359 contracts. Open interest increased by 2,517 contracts, which relative to volume is approximately 50% below average. The October contract accounted for loss of 1,995 of open interest. In last Friday’s report, we advised clients to move to the sidelines due to the increasingly tense situation in Syria and Egypt and the likelihood of the United States launching an attack, which could precipitate a worse crisis in the region. As this report is being compiled, October crude is trading $3.07 higher and has made a new high for the move at $109.32. The fundamentals for crude remain negative, but the psychological impact of a potential attack is ratcheting prices higher. Continue the stand aside posture. Crude remains on a short and intermediate term buy signal.
October natural gas advanced 3.2 cents on volume of 160,684 contracts. Total open interest declined by 159 contracts, and the September contract accounted for loss of 5,506 of open interest. Although we thought was possible that natural gas would generate a short-term buy signal on August 27, this is not going to happen. However, it is likely to occur sometime this week.
Gold: On August 26, December gold generated an intermediate term buy signal, which confirms the short-term buy signal generated on August 9.
December gold lost $2.50 on light volume of 108,967 contracts. Open interest increased by 1,548 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on August 27, December gold is trading $26.40 higher and has made a new high for the move at $1424.00, which is the highest level for the December contract since June 6, 2013. The market is overbought, and yet open interest increases have been minimal, which means the market may move much higher before it corrects. We will be watching for a massive increase in open interest and/or volume accompanied by a new high for the move, which may signal a temporary top.
December silver gained 27.4 cents on volume of 81,871 contracts. Open interest declined by a hefty 5,153 contracts, which relative to volume is approximately 140% above average. Like gold, there is a great deal of skepticism about the move in silver and the abysmal open interest increases on rallies confirms this. Also, like gold, the market is massively overbought, only much more so and will likely have a very sharp correction. As this report is being compiled on August 27, December silver is trading 65 cents higher and has made a new high for the move at $24.765.
The September euro lost 10 points on volume of 96,323 contracts. Open interest declined by 1,208 contracts, which relative to volume is approximately 45% less than average. Although the euro remains on a short and intermediate term buy signal, we have advised clients to move to the sidelines based upon the 12,178 massive spike of open interest on August 20 when the euro made its high for the move at 1.3454.
S&P 500 E mini:
The S&P 500 E mini lost 7.25 points on volume of 1,219,737 contracts. Open interest increased on the decline by 5,706 contracts which is approximately 85% below average. Price and open interest action continues to act in a consistently bearish fashion. As this report is being compiled on August 27, the E mini is trading 20.75 points lower on heavier than normal volume, and has taken out the previous low of 1631.15 made on August 22. Undoubtedly geopolitical concerns are weighing on the market as well as a number of economic issues that will be surfacing in the next month or two. The market has looked weak for some time and has been in a topping process. We expect prices to head lower and it is imperative that clients to have long put protection if they hold long equity positions. It is likely that the E mini will generate a short-term sell signal on August 27.