September soybeans lost 13.75 cents and the November contract lost 19.00 on total volume of 281,100 contracts. Total open interest increased by 4,993 contracts, which relative to volume is approximately 25% less than average. The September contract accounted for loss of 2,828 of open interest. Both September and November beans made new highs for the move at $14.49 and 14.09 1/2 respectively. As mentioned in yesterday’s report, it is apparent based upon price and open interest action that market participants do not believe in the rally, which leads us to believe that soybeans are headed higher. Although the Brazilian crop promises to be a large one, the US crop looks to be smaller than previously anticipated. Additionally, there is short-term tightness with respect to current available US supplies. Soybeans remain on a short and intermediate term buy signal.
September soybean meal lost $2.70 on heavy volume of 120,580 contracts. Total open interest declined by 346 contracts, which is minuscule and dramatically below average. The September contract accounted for loss of 3,095 of open interest. September meal made a new high for the move at $470.60, and we believe that September meal will maintain its strength past 1st notice day. Keep in mind though, the soybean complex is especially sensitive to weather related events, and any indication that rain is in the forecast could send the complex sharply lower. We are not advocating bullish positions even though soybean meal remains on a short and intermediate term buy signal.
Soybean oil: On August 27, December soybean oil generated a short-term buy signal, but remains on an intermediate term sell signal.
December soybean oil lost 36 points on volume of 125,430 contracts. Total open interest declined by 977 contracts, which relative to volume is approximately 65% below average. The September contract accounted for loss of 5,377 of open interest. It is been at least several months since soybean oil was on a short and/or an intermediate term buy signal. This is going to add additional support to the complex and gives further credence to higher prices. One important factor in favor of soybean oil is the very large short interest of managed money, and thus far we have seen very little inclination for this group of speculators to cover their positions. We expect higher prices in the short-term.
December corn lost 3 cents on heavy volume of 290,731 contracts. Total open interest declined by 22,176 contracts, which relative to volume is approximately 210% above average, meaning that liquidation was extremely heavy. Accounting for much of this liquidation was the September contract, which lost 21,057 of open interest. Although it has come close, December corn has not generated a short-term buy signal as of yet.
December Chicago wheat lost 3 cents while KC wheat lost 2.25. Volume in Chicago wheat totaled 97,339 contracts and total open interest declined by 7339, which relative to volume is approximately 195% above average. Accounting for a large portion of the open interest loss was the September contract losing 10,531 of open interest. Both KC and Chicago wheat remain on short and intermediate term sell signals.
December cotton lost 75 points on volume of 14,513 contracts. Open interest declined by a massive 2,015 contracts, which relative to volume is approximately 350% above average. During the past 6 sessions beginning on August 20, open interest has declined by 30,852 contracts, which represents a huge collapse of total open interest. In yesterday’s report, we recommended that bearish positions be initiated and that the August 26 high of 85.54 be used to exit short futures positions. We think cotton is headed much lower.
October live cattle lost 42 points on light volume of 23,976 contracts. Total open interest declined by 796 contracts, which relative to volume is approximately 25% above average. Although the market has had numerous opportunities to break lower, it is failed to do so on a number of occasions. It is difficult to ascertain when cattle will begin to take another leg higher, but we feel this is inevitable. Our preference would be to wait for a pullback to the 1.2560 area.
October WTI crude oil advanced by a massive $3.09 on fairly heavy volume of 700,944 contracts. October Brent advanced $3.63 on very heavy volume of 945,870 contracts. Volume in Brent was the highest since April 16 when 1,133,673 contracts were traded. Although volume was dramatically higher in Brent than WTI, the open interest increase (+11,641) was less than 50% of the increase in WTI even though Brent advanced by a greater amount than WTI. Due to the escalating crisis in Syria and the Middle East in general, both WTI and Brent made new highs for the move over night at $112.24 and 117.34 respectively. As this report is being compiled, October WTI is trading 90 cents higher while Brent is + $1.38.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.0 million barrels from the previous week. At 362.0 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.6 million barrels last week and are in the upper half of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.3 million barrels last week and are near the lower limit of the average range for this time of year. Propane/propylene inventories increased by 0.2 million barrels last week and are in the middle of the average range. Total commercial petroleum inventories increased by 2.2 million barrels last week.
From the August 23 report:
“Clearly there is a lack of enthusiasm for the upside in crude oil, and we suspect the only thing holding it up is the potential, for greater tension throughout the Middle East. On Friday, we suggested that clients cover any out of the money calls that may have been written. Although, crude oil continues to perform poorly, the unknown elements of an attack on Syria and what this could portend, suggests a stand aside posture. Crude remains on a short and intermediate term buy signal.”
October natural gas advanced 2 cents on light volume of 238,902 contracts. Total open interest declined 9,775 contracts, which relative to volume is approximately 55% above average. The September contract accounted for loss of 11,636 of open interest. We are warming to natural gas, and think it will generate a short term signal within the next couple of days. This will not occur on August 28, however, the signal could be generated tomorrow when the underground storage report is released Thursday by the Energy Information Administration. Although, open interest has not been acting well with respect to price, we expect this to change once it becomes apparent the market has turned.
December gold advanced $27.20 on volume of 176,268 contracts. Volume was the highest since August 16 when 190,341 contracts were traded and gold advanced $9.90 while open interest declined 10,937 contracts. On August 27, open interest increased only 2,647, which relative to volume is approximately 40% below average. As we pointed out yesterday’s report, open interest has been acting negatively with respect to the price advance. We expect this to change, once becomes apparent that gold has seen the lows and that a new bull market is in the offing. On August 9, December gold generated a short-term buy signal and on August 26 generated an intermediate term buy signal. The market is overbought and we are waiting for a setback before recommending the initiation of bullish positions.
December silver advanced 64.5 cents on extremely heavy volume of 127,792 contracts. Volume was the highest since June 26, 2013 when 156,507 contracts were traded and December silver closed at $18.658, which was within a day or two of the low for the move. Although silver made a new high for the move at $24.765on the 27th, open interest declined by 2,378, which relative to volume is approximately 25% less than average. Like gold, there does not seem to be the willingness by market participants to make commitments at ever-increasing prices. This increases the likelihood of a very sharp decline. Silver has come along way, without a meaningful correction and once this occurs a reasonable buying opportunity should present itself. Both gold and silver have much backing and filling to do before the mass speculators realize the precious metals are in a new bull market.
The September euro advanced 12 points on volume of 208,610 contracts. Open interest declined by 973 contracts, which relative to volume is approximately 75% below average. We have advised clients to move to the sidelines ever since the euro made its high for the move on August 20 at 1.3454 and open interest spiked dramatically higher at 12,178 contracts. As this report is being compiled on August 28, the September euro is trading 56 points lower.
S&P 500 E mini: On August 27, the September E mini generated a short-term sell signal, but has not yet generated an intermediate term sell signal.
The S&P 500 E mini lost 26.00 points on heavy volume of 2,264,171 contracts. Volume was the highest since August 15 when 2,408,334 contracts were traded and the E mini closed at 1655.75. On August 27, open interest increased by 36,183 contracts, which relative to volume is approximately 40% below average. However, we have seen a consistent pattern of negative open interest action relative to price advances/declines. This is another factor that confirms the downtrend. We have been saying for quite some time, that the market is in the process of topping, and that lower prices are ahead. Accordingly, we have been advising long put protection, and this trade has been working well. Continue to hold these positions, and for those who have not yet implemented this, we suggest you do so immediately.