May corn closed 3/4 cents higher on light volume of 331,461 contracts. Open interest declined by 9,891 contracts. Corn reached 6.61 1/2, which was the highest price for May corn since January 12, 2012. As I indicated in my previous post, corn should be traded from the long side. My concern is that open interest action combined with price has been very negative on the rally. For example, since February 24 through February 29, open interest has declined by 53,198 contracts. During this period, corn’s low was 6.36 1/2 and its high was 6.61 1/2, or a $.25 move from low to high. In other words, speculators on the long and short side are liquidating as the market moves higher. This is bearish price and open interest action. This is not to say that the market cannot continue to move higher, but it means that speculators should approach the market with caution and use tight stops. May corn’s 50 day moving average is: 6.38 5/8, 150 day moving average, 6.65 5/8, 200 day moving average, 6.70. With the 50 day moving average considerably under its 150 and 200 day moving average, caution on the long side is in order. Having said that, corn’s performance on Wednesday was outstanding during the rise of the dollar index, and the downdraft in precious metals, crude oil, and the equities market. In other words, there are contradictory signals in the market. I want to present both pro and con in order to let speculators evaluate the market, which should help them in the decision-making process should they choose to enter the market.
May soybeans closed 7 1/2 cents higher, despite the sharply higher dollar index, on volume of 220,713 contracts. Open interest increased by a healthy 8,517 contracts. The market reached a new high for the move at 13.24 1/4. From February 24 through February 29, open interest in beans has declined 1,649 contracts and price has advanced over $.50 from the low made on February 24. Although the open interest action is far more favorable in beans than it is in corn, it still leaves a lot to be desired. As I have pointed out in numerous previous posts, the market is extremely overbought and is subject to a severe correction. It might be wise at this point to take partial profits on positions acquired at significantly lower prices. If the market continues higher, you’ll have additional profits on any remaining positions. In any event, make sure that stops are being moved up to protect profits and capital.
May sugar closed 32 points lower on good volume of 141,156 contracts. Open interest increased on the decline by 7,247. The range for sugar on Wednesday was 80 points and the 21 day average true range is 53 points. Additionally, sugar made a low of 24.62, which was the lowest price since February 23. The past two trading sessions have seen sugar declined by 105 points from its high on February 28 to the low on February 29, yet open interest has increased by 15,368 contracts. I would be more enthusiastic about the market, if open interest had decreased on the decline. The build in open interest on the decline is a cautionary flag and the next key pivot point to be penetrated on the downside is 24.15. The market was certainly due for a pullback due to its overbought condition. I previously suggested that new longs could be entered on a 75 to 100 point decline from the high of 25.81 made on February 27. If long, sell stops should be based upon risk tolerance and sound money management principles.
April crude oil closed $.52 higher at 107.07 after reaching a low of 104.84, which was the lowest price since February 21 when crude oil reached 104.61. Open interest increased by a very healthy 25,614 contracts. The volume was light considering that the range for Wednesday was $2.59, which is higher than the 21 day average true range of $2.28 and that the market spent most of the day on the downside, which indicated volume did not pick up on the downdraft. This is positive. The market was able to recover from the lows, despite the carnage in the precious metals, the sharply higher dollar index and a weak equities market. Wednesday’s action was very positive for crude, and although I think the market is going higher, it is precarious to be long because of the possibility that tensions with Iran could ease.
April gasoline closed 3.25 cents higher on heavier than usual volume of 143,947 contracts. Open interest decreased by 3,822 contracts. The open interest declined on an increase in price, contrasted to crude oil in which open interest increased with price. It is interesting to note that heating oil, which closed 1.42 cents lower, had volume considerably higher than gasoline at 229,526 contracts. Though the market may continue to move higher based upon Iran tensions and the price of crude oil, it’s potentially dangerous to enter into new long positions after having a rather minor correction.
Bloomberg News reported that in 2011, the U.S. exported more crude oil, gasoline, diesel and other fuels than it imported for the first time since 1949. I have written in previous posts about the new paradigm shift that is occurring in petroleum products; namely that if the United States has ample supplies of crude oil and derivative products, they will be exported. This will keep prices elevated and it is a contrast to the markets of the past, whereby ample supplies were stored domestically, which pressured prices.
April gold closed $77.10 lower on extremely heavy volume of 366,754 contracts. Open interest declined by a very healthy 17,303 contracts. The reason for the decline as discussed in many different media venues was that Ben Benanke downplayed the possibility of QE3. What is most interesting is that the major stock indices pulled back, but the damage was nowhere in the same league as it was in precious metals. The market reached a low of 1688.40, which is extremely close to its 50 day moving average of 1681.14. I might add that its 150 day moving average is 1713.11 and the 200 day is 1669.82. In other words, gold is trading down into solid value territory. The gold volatility index, ticker symbol GVC gained 13.82%, but the high of 22.94 on February 29, is still lower than the 2012 high of 23.31, which occurred on January 4. The market may consolidate for couple of days because the magnitude of the decline was unexpected and it shook up speculators. The decline in gold and silver prices on Wednesday is an object lesson of what can happen when markets become overbought. Speculators should keep that in mind when evaluating any commodity market, especially petroleum products. Two key pivot points were penetrated on Wednesdays move: 1709.50 and 1695.60, but the market was able to close above those pivot points, which is positive The third key pivot point of 1679.40 was not penetrated. In previous posts, I have suggested buying pullbacks, and I reiterate that point of view. If entering long positions, speculators should use the February 29 low of 1688.40 for April gold as an exit point.
May silver closed $2.56 lower on heavy volume of 127,562 contracts. Open interest declined by 1,039 contracts. Silver is extremely volatile and if it is to be traded at all, my suggestion is to use silver ETFs.
The March euro closed 1.19 cents lower on volume of 351,274 contracts. Open interest continued its bearish pattern by increasing 3,945 contracts. The market made a high on Wednesday of 1.3487 but could not penetrate the 1.3488 high made on February 24. As I have said before, the Euro’s low has to be above my key pivot point of 1.3408 before a change in trend occurrs. The market has tried to move above that pivot point during the daily session but the low is always below 1.3408. Until that reverses, the trend is down.
S&P 500 E mini:
The March S&P 500 E mini closed 10.50 points lower on unusually heavy volume of 2,297,361 contracts. Open interest increased on the decline by 41,586 contracts. This is bearish price and open interest action. The volume in the futures and cash market expanded dramatically on the decline, which is bearish. I continue to believe that the market is in a topping process and that long put protection should be in place.
10 Year Treasury Notes:
March 10 year notes declined 14 points on volume of 2,000,555 contracts. Open interest declined by 6,799 contracts. Volume declined on declining prices while open interest declined as well. This is positive market action. Continue to stand aside.