May Chicago corn closed to cents higher on extremely light volume of 181,237 contracts. Open interest declined by 1,705 contracts. The market reached a high of $6.52 per bushel, but couldn’t hold the gains and closed at 6.46 1/2. The volume was extremely light and is the lowest volume print for 2012. The May-July bull spread is still working with may selling it at 2 cent premium over July. On Friday, May Chicago wheat is selling at a 7 3/4 cent premium to May corn. Wheat went to a premium over corn on March 22. On March 30, the USDA will release its prospective plantings and stocks report. Speculators who are not long at significantly lower levels should stand aside.
May Chicago soybeans closed 16 1/4 cents higher on volume of 178,236 contracts. Open interest increased by 13,902 contracts. The setbacks in soybeans been very shallow, and this is a testament to the underlying strength of the market. Despite that, unless speculators are long from significantly lower levels, they should stand aside and wait until the USDA report is released on March 30.
May New York sugar lost 28 points on light volume of 81,470 contracts. Open interest declined by 189 contracts. Sell stops on long positions should be at 25.21 or 25.04 cents. As I am writing this on March 26, sugar is lost 55 points and has made a low of 25.00. Therefore longs should be out of the market. Sugar is still on a buy signal and the first pivot on the downside is 24.33 cents per pound. I will monitor sugar to look for another entry point on the long side.
May crude oil rallied $1.52 on extremely low volume of 509,366 contracts. Open interest declined by 1,560 contracts. The price, volume and open interest action action in crude was decidedly bearish. Not only that, but the range for crude on Friday was $3.09, which is at the very upper end of the trading range for the past 30 days and still the volume was low. The 21 day average true range for crude is $2.28. The market reached a high of $108.25 per barrel, but couldn’t hold the gains and closed at $106.87. As I am writing this on March 26, the market is unchanged on the day. As I have said before, the market looks tired and the consistent low volume shows a lack of speculative interest. Stand aside.
May gasoline closed 4.32 cents higher on volume of the 149,527 contracts. Open interest declined by 4,991 contracts. The range on Friday was 8.61 cents, which is significantly above the 21 day average true range of 5.74 cents. The market reached a new high for the move at $3.4118 per gallon, but couldn’t hold the gain and closed off the high at $3.3689. Stand aside.
April New York gold closed $19.90 higher on volume of 178,021 contracts. Open interest declined on the rally by 526 contracts. As I am writing this on March 26, gold is up $21.30 on a sharply lower dollar. Speculators should be looking to position themselves on the long side, but as I said in the weekend wrap, there is going to be considerable resistance in the low 1700s.
May silver closed $.92 higher per ounce on light volume of 42,963 contracts. Open interest declined 129 contracts. Silver’s performance continues to be lackluster. Stand aside.
The June Euro closed 82 points higher on volume of 241,187 contracts. Open interest declined on the rally by 12,922 contracts. The market made a new high for the move at 1.3300, which was the previously mentioned exit point for all bearish positions. Although open interest declined on the rally, which is bearish, the market looks like it wants to go higher. The next key pivot point on the upside is 1.3371. For the market to go on a buy signal, the low for the day has to be above the pivot point.
S&P 500 E mini:
The June S&P 500 E mini closed higher by 5.00 points on volume of 1,561,798 contracts. Open interest declined by 1,090 contracts. In the weekend wrap of March 25, I wrote about the divergence between the Dow Jones Transportation Index and Dow Industrials. I consider this to be a negative factor in the intermediate term.
As I am writing this on March 26, there is a piece on Bloomberg.com titled: Hedge Funds Capitulating Buy Most Stocks Since 2010. The article goes on to state:
“The gauge of hedge fund bullishness measuring the proportion of bets that shares will rise climbed to 48.6 last week from 42 at the end of November 2011, the biggest increase since April 2010 according to data compiled by the International Strategy and Investment group.”
“Money managers struggling to catch up with the gains have contributed to the rally that pushed the S&P 500 up 27% since October as economic reports beat estimates. Market bulls say they are a continuing source of cash and can move stocks higher. Bears say capitulating hedge funds are further evidence that equities have risen too far, too fast as economic growth remains sluggish, warning that the pool of potential buyers is being depleted.”
“ISI’s index based on a survey of 36 mostly US hedge funds with about 89 billion under management, tracks net exposure on a zero through 100 scale. Readings of zero show maximum short selling, while 100 means maximum bullish bets. At 50 hedge funds are deploying a normal ratio of long to short investments according to ISI.
“There should be a pullback, there’s been too much enthusiasm, says Bruce McCain who helps oversee more than 20 billion as chief investment strategist at the private banking unit of KeyCorp in Cleveland, said in a March 22 phone interview. One of the last parts of the rally is when people thrown the towel and buy into it, and there is that risk for the hedge funds right now.”
In essence, we have hedge funds piling into the market in order to meet or beat their benchmarks. The rubber band is being stretched as a result, and as I’ve said before, markets decline not because there are smart sellers at the top, but because there is a dearth of buyers at the top. This will occur when hedge funds have finished gobbling up stocks. If you review the March 11 Weekend Wrap, I stated that if the cash S&P 500 Index reached 1390, the market would move another leg higher. The next major point of resistance is at 1440 basis the S&P 500 cash index.
The June 10 year treasury note closed 10 points higher on volume of 1,017,129 contracts. Open interest increased by 17,425 contracts. The market reached a high of 129-09.5, which should have provided ample opportunity to take up bearish positions. I had previously recommended that bearish positions be implemented between the 128-28 and 129-15 area. I have looked at the charts and there is not a reasonable place to put a stop. My suggestion is to use a money stop, which is a stop based upon the amount of funds the speculator is willing to risk on the trade. If we see a sharp decline of the indices, treasury notes will likely rally.