Chicago wheat: July and September Chicago wheat will generate short-term sell signals on June 21, and remain on intermediate term buy signals.
July corn lost 16.50 cents on substantial volume of 480,633 contracts. Volume was the strongest since June 14 when the July contract gained 6.50 cents on volume of 544,940 contracts and total open interest declined by 13,016 contracts. On June 20, total open interest declined by 9,879 contracts, which relative to volume is approximately 20% below average. The July contract accounted for a loss of 25,569 of open interest.
As this report is being compiled on June 21 the July contract is trading sharply lower, down 22.00 or -5.22% on very heavy volume.We have been warning clients for the past couple of days that corn appeared to be in a topping process and the massive increase of net long positions of manage money in the latest COT report confirms that there are huge numbers of speculative longs in the market who will be forced to liquidate as prices move lower. According to the COT report, managed money is long corn by ratio of 4.62:1, which is the high ratio going back for the past several months. A short-term sell signal will occur if the daily high is below OIA’s key pivot point for June 21 of 4.13.
From the June 17 research note on corn:
“Though Friday’s open interest increase was impressive, the lack luster volume compared to previous days indicates that many would be participants were sitting on the sidelines. Additionally, the July contract is encountering formidable resistance at the 439 level and with managed money heavily long and the seasonal tendency for corn to top, at least temporarily in the late June early July time frame, it appears that the path of least resistance is lower for now.”
“The first sign that corn is likely to generate a short-term sell signal would be if the daily high is below OIA’s pivot point for June 20 of 4.26 3/8. July corn will generate a short-term sell signal if the daily high is below OIA’s key pivot point for June 20 of 4.12 1/2.We continue to advise a stand aside posture with respect to new positions and those who are long from lower levels should have appropriate sell parameters in place.”
July soybeans lost 16.00 cents on surprisingly light volume of 193,686 contracts. Volume was the weakest since May 31 when the July contract lost 8.00 cents on volume of 216,550 contracts and total open interest declined by 322. On June 20, total open interest declined by 6,143 contracts, which relative to volume is approximately 10% above average. The July contract lost 12,337 of open interest. Yesterday’s tepid volume on a strong decline indicates that many would be participants were sitting on the sidelines and are not panicking.
Although we think a short-term sell signal is likely in the not-too-distant future, for the market to reverse its current trading pattern and move higher, the July contract must make a daily low above OIA’s pivot point for June 21 of 11.64 3/4. A short-term sell signal will be generated if the daily high is below OIA’s key pivot point for June 21 of 11.14 7/8. We recommend that sell parameters be in place and strongly advise against initiating new long positions at current levels.
From the June 17 research note on soybeans:
“In summary, both position limit traders (managed money) and commercial interests were increasing their short exposure as prices were rising. This is the canary in the coal mine and reveals a loss of momentum. As this report is being compiled on June 20, the July contract is trading 13.50 lower or -1.14%. We think that soybeans are headed for a short-term sell signal and this will occur when the daily high is below OIA’s key pivot point for June 20 of 11.11 5/8.”
WTI crude oil:
August WTI crude oil advanced $1.40 on surprisingly light volume of 753,194 contracts. Volume fell substantially from the previous day June 17 when the August contract gained $1.82 on volume of 872,247 contracts and total open interest declined by 1,093. Additionally, volume was the lowest since June 6 when WTI advanced 1.07 on volume of 736,460 contracts and total open interest increased by 23,261.
On June 20, total open interest declined again, this time by a substantial 12,038 contracts, which relative to volume is approximately 40% below average. The July contract accounted for a loss of 41,646 of open interest, which means there were insufficient open interest increases in the forward months to offset the decline in July.
Yesterday’s action was very bearish and follows the bearish action on June 17. In summary, for the past two sessions, August WTI advanced $3.22 while total open interest declined each day for a total of 13,131. Additionally, open interest action in the products was bearish as well: August gasoline advanced 7.52 cents on volume of 189,117 and total open interest declined by 4,783. Relative to volume this is an average number, but confirms the short term bearish set up for gasoline, which remains on a short term sell signal. Gasoline will reverse the intermediate sell of June 16 on June 21. Heating oil advanced 4.60 cents on volume of 132,023 contracts and total open interest declined by 1,379, which relative to volume is approximately 50% below average. Heating oil is on a short-term sell signal and an intermediate term buy.
Due to relatively high volatility, while crude is on a short-term sell signal and open interest action for the past two days confirms the bearish set up along with substantially reduced volume on the advance, we recommend writing out of the money calls in the nearby month. If crude oil continues to rally, volatility will decrease, which benefits option sellers and if price declines as we expect, the option benefits as well. If August WTI reverses the short-term sell signal, we would exit the short call positions. A short term buy signal will be generated if the daily low is above OIA’s key pivot point for June 21 of 49.68. Subscribers to OIADirect, please call for further strategies.
August gold lost $2.70 on volume of 211,454 contracts. Total open interest declined by 794 contracts. The October contract lost 1,235 of open interest, February 2017 -787. Yesterday’s total open interest decline was the first since June 6 when gold advanced 4.50 on volume of 173,489 contracts and total open interest declined by 3,611.
As this report is being compiled on June 21, the August contract is trading $20.10 lower on the day and has made a daily low of 1268.10, which is the lowest print since 1267.30 made on June 10. From June 13 (first trading day after June 10) through June 17, total open interest has increased by 36,607 contracts, which means if these positions have not been liquidated, they are currently underwater. This will add selling pressure as prices continue to move lower.
As we have pointed out in previous reports, we think gold declines regardless of what occurs on June 23. The market is massively loaded with speculative longs who will be looking to exit losing positions on any advance. Additionally, the only short-sellers in the market are hedgers who will not be panicked in the covering their positions at higher prices. Continue to stand aside.
From the June 17 research note on gold:
“The COT report reveals that managed money added 45,439 contracts to their long positions and liquidated 6,435 of their short positions, which leaves manage money long gold by a stratospheric ratio of 9.11:1, which is up from the previous week of 6.11:1 and more than double the ratio two weeks ago of 4.41:1. The current ratio of manage money longs takes out the previous high of 8.31:1 made several weeks ago.”
“The lopsided position of managed money concerns us and it should be noted that the tabulation date of June 14 (Tuesday) does not reflect the massive open interest increases of Wednesday, Thursday and Friday, which means that managed money has likely increased their net long position and this will be reflected in this Friday’s report.We continue to recommend a stand aside posture due to the extreme volatility regarding Brexit.”
From the June 16 research note on gold:
“We continue to recommend a stand aside posture. If there is a vote to remain in the European Union by citizens of the United Kingdom, we think gold will decline precipitously and think it is likely to occur even if the vote is to exit the union. In summary, it is highly probable that commodities and equities will decline if there is a vote to exit while longer dated government fixed income instruments will experience yield declines.
July silver advanced 10.3 cents on heavy volume of 83,789 contracts. Total open interest increased by 4,924 contracts, which relative to volume is approximately 140% above average meaning it appears likely there were was a battle between buyers and sellers and buyers were able to edge the market slightly higher. The July contract accounted for a loss of 6.976 of open interest. As this report is being compiled on June 21, the July contract is trading lower, down 20.4 cents on substantial volume. While we are bullish longer-term, we think silver will succumb to speculative long liquidation regardless of the vote on June 23.
British pound: The September British pound will generate short and intermediate term buy signals on June 21. This reverses the June 13 short and intermediate term sell signals.
The September British pound advanced by a very strong 3.42 cents on relatively light volume of 177,672 contracts. Total open interest declined by a massive 7,486 contracts, which relative to volume is approximately 60% above average meaning liquidation was heavy on yesterday’s extremely large advance.
According to the COT report released last Friday, leverage funds were short the pound by a ratio of 1.06:1, and it appears that yesterday a portion of these were blown out of the market. Distressed short-sellers were powering the market higher yesterday, not new buying. The pound is a very dangerous market to trade and we recommend a stand aside posture in all currencies until after the June 23 vote on Brexit.