May corn closed 6 3/4 cents lower on volume of 255,338 contracts. Open interest declined by 1,951 contracts. The decline of open interest along with price is positive. The sharply higher dollar negatively affected a variety of commodities as well as the equities market. My concern at this point is the potential of a severe slide in the wheat market. In the March 4 weekend wrap, I mentioned that there was a huge speculative net short position in wheat. The huge number of speculative shorts was providing fuel for the week rally. From February 27, when wheat reached a low of 633, to March 5 when wheat made a high of 677 3/4, open interest declined by 12,629 contracts. This is bearish. Additionally, wheat is entering its period of seasonal weakness. I believe this will have the effect of bringing down corn prices, despite the bullish fundamentals corn. Key pivot points to watch for in May corn are: 646 1/2, 639 1/2, 632 1/8. As I’ve mentioned in previous posts, sell stops should be rather tight, and based upon risk tolerance and solid money management principles. I will be monitoring the price of wheat to determine when short positions or any combination of options on wheat should be implemented.
May soybeans closed 10 1/4 cents higher on volume of 214,297 contracts. Open interest increased by 10,236 contracts. Normally, an open interest increase of this magnitude would be bullish, especially on a day when the dollar rose sharply. However, in this case, it may be a sign of a temporary top. The last time open interest increased by an equal or greater amount, was on February 13, 2012, when soybeans brokeout. If you review my posts prior to February 13, I was suggesting that speculators enter into long positions with stops at 1214 basis March. In my mind, the massive increase in open interest at the top of the trading range is a sign that Johnny-come-lately is entering the market when the market is massively overbought and is due for a correction. In the past few posts, I suggested that partial profits be taken on long positions and that stops be moved up to protect profits and capital. At this juncture, it is becoming too risky to be long. One reason, is the Euro has re-entered its bearish trend, which means a continued rally in the dollar. This is bearish for all commodities and the equities market. I suggest that all long positions be liquidated and that speculators stand aside until further notice.
May sugar closed 63 points lower on fairly light volume of 117,454 contracts. Open interest declined by 3,854 contracts. The 50 day moving average from May sugar is at 23.76 and therefore the market can correct back down to that level. The key pivot point to watch for in May sugar is 23.63. If the market’s daily high does not exceed the pivot point number, a sell signal will be generated. If long, stops should be placed based upon risk tolerance and sound money management principles.
April crude oil closed $2.02 lower on volume of 737,533 contracts. Open interest increased by 24,256 contracts. The impact of the sharply higher dollar on crude took oil down to 104.51, which broke the old low made on February 29 of 104.84. The market certainly could pullback to its 50 day moving average of 101.74. With all of the geopolitical uncertainty concerning Iran, there is no reason to be involved in crude.
April gasoline closed lower by 2.81 cents on healthy volume of of 162,647 contracts. Open interest increased on the decline by 11,745 contracts. During the past two days, April gasoline has declined by 4.22 cents, and open interest has increased by 16,946 contracts. With the large number of speculative longs in the market, it would be normal to see open interest declined with price. The market action of the past two days reinforces my view that speculators should stand aside and wait for lower prices. It never pays to chase a market because eventually you are going to be wrong, and when that happens, you are going to get killed. With the 50 day moving average for April gasoline down at 3.03, the market could have a significant correction, especially if the dollar continues to rally, and the equities market continues to decline, both of which I expect to happen.
April gold closed $31.80 lower on substantial volume of 272,862 contracts. Open interest declined by 1,166 contracts. The market reached a low of 1663.40, which was the lowest price for April gold since January 25 when it reached 1652.20. It is readily apparent that the rally in the dollar had a significant negative impact on precious metals. In a previous post, I suggested for those who are long, that stops should be placed at 1688.40. Therefore, all speculators should be out of the market. If the market’s daily high does not exceed the pivot point of 1681.40, a sell signal will be generated.
May silver closed $.91 lower on volume of 72,982 contracts. Open interest declined by 1,401 contracts. As I have suggested before, due to the volatility of silver and lack of liquidity in the futures contract, it would be wise to use silver ETF’s as a substitute if you want to trade silver. I suggest that speculators stand aside at this juncture.
The March Euro closed 1.21 cents lower on volume of 293,372 contracts. The bearish price and open interest action continues. A sell signal in the euro was generated on March 5. Therefore, speculators should look to acquire long puts, and/or short calls, and/or outright short positions. Loss parameters should be based upon risk tolerance and sound money management principles. A good stop loss point on the upside would be at the key pivot point of 1.3254.
S&P 500 E mini:
The March S&P 500 E mini closed 22.50 points lower on heavy volume of 2,569,184 contracts. Open interest increased by a substantial 62,290 contracts. As I have said numerous times before, I think the market is in a topping process and that the risk is on the downside. Long put protection should be in place.
10 Year Treasury Notes:
June 10 year treasury notes closed 17 1/2 points higher on light volume of 943,508 contracts. Open interest increased by a very healthy 33,708 contracts. The market exhibits schizophrenic behavior from a price and open interest standpoint The market continues to consolidate in a narrow range. stand aside.