September soybeans advanced 19 cents while the November contract gained 2.25 on total volume of 199,173 contracts. Total open interest increased by 10,181 contracts, which relative to volume is approximately 100% above average, meaning that new longs were aggressively entering the market and pushing prices slightly higher. The September contract lost 3,064 of open interest. It is positive to see a large open interest increase, but, the advance was modest. As this report is being compiled on August 29, September soybeans are trading 20.50 cents higher and the November contract, +8.25. The September contract has made a new high at 14.53 3/4 while the November contract is approximately 28 cents from the high it made on August 27. The market clearly wants to go higher, and we expect to see strength in the September contract after 1st notice day. September soybeans generated a short-term buy signal on August 19 and an intermediate term buy signal on August 22. The November contract generated a short and intermediate term buy signal on August 19.
September soybean meal gained $7.40 while the October contract lost 60 cents on total volume of 85,837 contracts. Total open interest declined by 388 contracts, which relative to volume is approximately 80% below average. The September contract accounted for loss of 3,760 of open interest. As this report is being compiled on August 29, September meal is trading $8.60 higher while the October contract is trading +7.50. September soybean meal generated an intermediate term buy signal on August 12 and a short-term buy signal on August 19.
December soybean oil gained 26 points on volume of 102,639 contracts. Total open interest declined by 1,540 contracts, which relative to volume is approximately 40% below average. The September contract accounted for loss of 4300 of open interest. On August 27, December soybean oil generated a short-term buy signal, and as this report is being compiled on August 29, December oil is trading 65 points lower. While the short-term buy signal was not what we would consider strong, we will monitor soybean oil to determine if this was a false signal. Although soybean oil was trading close to its 50 day moving average when it generated the buy signal, it certainly is entitled to a pullback. No positions have been recommended for soybean oil or the rest of the complex.
December corn lost 5.50 cents on volume of 226,720 contracts. Total open interest declined 11,835 contracts, which relative to volume is approximately 100% above average meaning that liquidation was very heavy. The September contract accounted for loss of 15,322 of open interest. Despite the recent positive price action, corn remains on a short and intermediate term sell signal. This could change if the weather continues hot and dry.
December Chicago wheat lost 4.25 cents while KC lost 0.75. Volume in Chicago wheat totaled 61,102 contracts and total open interest declined 4,623 contracts, which relative to volume is approximately 210% above average, meaning that liquidation was extremely heavy on a relatively minor decline. Wheat remains on a short and intermediate term sell signal.
December cotton lost 40 points on volume of 16,636 contracts. Open interest declined by 1,204 contracts, which relative to volume is approximately 180% above average. During the past 7 sessions beginning on August 20, open interest has declined by 32,056 contracts, which is a major collapse of total open interest. In the report of August 26, we recommended that bearish positions be initiated and that futures traders use the August 26 high of 85.54 as an exit point. As this report is being compiled on August 29, December cotton is trading 37 points lower and has made a low for the move at 83.27. Stay with bearish positions.
October live cattle gained 20 points on volume of 31,752 contracts. Total open interest declined by 530 contracts, which relative to volume is approximately 30% less than average. The August contract accounted for loss of 434 of open interest. Cattle has been trading in a sideways pattern for over two weeks. We would prefer to initiate bullish positions around the 1.2560 area.
October crude oil advanced $1.09 on volume of 669,695 contracts. Total open interest declined by 560 contracts, which is minuscule and dramatically below average. The October contract lost 9,204 of open interest. Considering the magnitude of the advance and range, the open interest action is extremely negative. Confirming the negative open interest action in WTI is the Brent crude oil contract which traded total volume of 949,126 contracts, and took out the high of 945,870 traded on August 27. The volume on August 28 was the highest since April 16 when 1,133,673 contracts were traded. Open interest in Brent increased only 1,815 contracts which is minuscule and dramatically below average. In short as prices moved to their highest level in approximately 18 months, open interest increased at a rate that was dramatically below average in Brent and an outright decline in WTI. It appears that a top has been established, and clients should use the high of 117.34 and 112.24 in Brent and WTI respectively as likely points of resistance once the attack in Syria begins. The actual fundamentals of the crude market are bearish, and once the attack begins, if there doesn’t appear to be any blowback in the region, we could see Brent and WTI decline in earnest.
October natural gas advanced 9 ticks on light volume of 231,599 contracts. Total open interest increased by 3,861 contracts, which relative to volume is approximately 30% below average. The September contract accounted for loss of 6,353 of open interest. Although natural gas has not yet generated a short-term buy signal, we are seeing a consistent pattern of natural gas pulling back slightly and then closing slightly negative or positive. We perceive that natural gas is ready to generate a buy signal. The low for the October contract on August 28 was $3.511 and the low on August 29 is 3.510, or one tick below yesterday’s low. As this report is being compiled on August 29, October natural gas made another new high for the move the $3.655. We think a reasonable approach to natural gas would be to use the low of August 29 as an exit point for long futures positions for clients are looking to initiate bullish positions. A short-term buy signal will most likely be generated today.
The report issued by the Energy Information Administration released on Thursday August 29 showed working gas in storage was 3,130 Bcf as of Friday, August 23, 2013, according to EIA estimates. This represents a net increase of 67 Bcf from the previous week. Stocks were 235 Bcf less than last year at this time and 45 Bcf above the 5-year average of 3,085 Bcf. In the East Region, stocks were 107 Bcf below the 5-year average following net injections of 49 Bcf. Stocks in the Producing Region were 95 Bcf above the 5-year average of 978 Bcf after a net injection of 16 Bcf. Stocks in the West Region were 58 Bcf above the 5-year average after a net addition of 2 Bcf. At 3,130 Bcf, total working gas is within the 5-year historical range.
December gold lost $1.40 on heavier than normal volume of 184,947 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. Gold made a new high for the move at $1434.00, but sold off and closed modestly lower. As we have been saying for the past couple of reports, the market is overbought, and market participants do not believe in the rally. Gold has much work to do on the downside before market participants are likely to believe that a major low is in for the metal.
December silver lost 26.1 cents on extremely heavy volume of 153,668 contracts. Volume was the highest since June 26 when 156,507 contracts were traded and December silver closed at $18.658. On August 28, total open interest declined by 2,085 contracts, which relative to volume is approximately 45% less than average. Silver made a new high for the move at $25.16 on a major volume spike, which in conjunction with the decline of open interest indicates that silver has found a temporary top. Like gold, we think silver has much more work to do on the downside before bullish positions should be considered.
The September euro lost 47 points on volume of 213,743 contracts. Open interest declined by 1,825 contracts, which relative to volume is approximately 50% less than average. In our report of August 20, we advised clients to move to the sidelines after the euro made a new high for the move at 1.3454 and open interest spiked 12,178 contracts higher. As this report is being compiled on August 29, the euro is trading 95 points lower and has made a new low for the move at 1.3219. The euro remains on a short and intermediate term buy signal.
S&P 500 E mini:
The S&P 500 E mini advanced 4.00 points on volume of 1,659,373 contracts. Open interest increased by 4,852 contracts which is minuscule and dramatically below average. We continue to advise the initiation of long put protection if this is not been done already.