Due to the switching out of positions from June into September, the open interest stats in currencies are massively distorted and as a consequence, we will not provide an analysis on currency futures in today’s report.
July corn advanced 3. 50 cents on extremely heavy volume of 747,204 contracts. Volume was the strongest since April 21 when 754,890 contracts were traded and the July contract closed at 3.89 3/4. On June 8, total open interest increased by 18,358 contracts, which relative to volume is average. The July contract accounted for loss of 31,449 contracts, which means there were sufficient open interest increases in the forward months to offset the decline in July and increase total open interest substantially.
As this report is being compiled on June 9, the July contract is trading 3.50 cents lower and has made a daily high of 4.30 1/4, which is substantially below yesterday’s print of 4.39 1/4. Yesterday’s volume spike as July corn rocketed to its highest price since last July on the weekly continuation chart may signal a top or temporary top.
For the past several days when corn prices advanced, total open interest has increased as well, and we have no doubt that in this week’s COT report, managed money has added substantially to their long positions. In the most recent report released last Friday, managed money was long corn by ratio of 2.26:1, which was up from the previous week of 1.51 and the ratio two weeks ago of 1.36:1. Do not enter new bullish positions at current levels and for those of you who are long at lower levels, sell parameters should be in place.
July soybeans advanced by a very strong 36.50 cents on heavy volume of 446,592 contracts. Volume was below that of June 2 when the July contract gained 44. 50 cents on volume of 497,781 contracts and total open interest declined by 5,161 contracts. On June 8, total open interest increased by 5,349, which relative to volume is approximately 45% below average. However, the July contract lost 16,169, which means there were sufficient open interest increases in the forward months to offset the decline in July and increase total open interest.
As this report is being compiled on June 9 the July contract is trading 2.00 cents lower and has made a daily high of 11.85, which is below yesterday’s print of 11.89 1/4. When taking the action of June 2 and June 8 and putting it together, July soybeans advanced 81.00 cents, yet total open interest during these two days increased only 188 contracts. This supports our view that soybeans are likely to top shortly and tops in soybeans are seen frequently in June or July. Do not attempt to pick a top in this market and sell parameters, whether mental or fixed market sell stops should be in place.
WTI crude oil:
July WTI crude oil advanced 87 cents on very heavy volume of 1,276,655 contracts. Volume was the strongest since May 12 when 1,305,445 contracts were traded and the July contract closed at $47.45. On June 8, total open interest increased just 801 contracts, a major disappointment for anyone bullish on crude oil. The July contract lost 70,425 of open interest, which means there were barely enough open interest increases in the forward months to offset the decline in July and increase total open interest fractionally.
Yesterday’s action followed the disappointing activity of June 7 when the July contract gained 67 cents on volume of 995,483 contracts and total open interest declined by 627 while the July contract lost 55,061 on June 7. In summary, during the past two sessions, as the July contract closed in on nearly one year highs, July WTI gained $1.54 while total open interest has increased only 174 contracts. While we are not suggesting that the bull move is over, it is a sign that momentum is stalling.
A short-term sell signal will be generated if the July contract makes a daily high below OIA’s key pivot point for June 9 of 47.89. Since the 21 day average true range is $1.43, this would imply a move to at least 46.45 ($47.88-$1.43 =46.45), which is approximately $4.00 below current prices. We reiterate: do not short his market.
Copper: Though July copper is trading at lows last seen in late January 2016 on June 9, the July contract will not generate a short-term sell signal on June 9. For this to occur, the high of the day must be below OIA’s key pivot point for June 9 of $2.0619. Stand aside.
Gold: August gold will generate an intermediate term buy signal on June 9, but remains on a short term sell signal.
August gold advanced $15.30 on substantial volume of 198,201 contracts. However, volume was below that of June 3 when August gold advanced 30.30 on volume of 255,983 contracts and total open interest increased by 15,163. On June 8, total open interest increased by 10,642 contracts, which relative to volume is approximately 115% above average meaning aggressive new buyers were entering the market in large numbers and driving prices to a daily high of 1267.20.
As this report is being compiled on June 9, the August contract is trading higher again, up by 10.20 and has made a daily high of 1274.40, which is the highest print since 1283.50 made on May 18. On June 9, the August contract has made a daily lows above the pivot points we wrote about in yesterday’s research note of 1252.00 and 1256.00. However, it has not made a daily low above OIA’s key pivot point, which would generate a short-term buy signal of 1266.80.
It appears that gold is on its way to a short-term buy signal and a test of the May 2 high of 1308.00. The catalyst for the current move was the dismal employment report, which crashed the dollar and gave a strong bid to precious metals and they have not looked back since.
Though the dollar index is trading strongly higher on June 9, up 38.4 points, this is not dampening prices for gold or silver. However, it appears likely that the major stock indices will continue to rally and while gold and silver have been correlated recently to the movement of the indices, this may break down if the highs made last May are taken out.
Before recommending bullish positions, we want gold to generate a short-term buy signal. There have been large numbers of new long is entering the market during the past couple of days, which could cause gold to pull back once the short term buy signal occurs. The 50 day moving average for the August contract stands at 1252.20, and the closer gold gets to its 50 day moving average, the less risk clients assume when entering bullish positions.
Silver: July silver will not generate a short-term buy signal on June 9 because its daily low of $16.950 is below OIA’s key pivot point for June 9 of 17.007.
July silver advanced 59.1 cents on heavy volume of 90,537 contracts. Volume exceeded that of June 3 when the July contract gained 34.00 cents volume of 67,594 contracts and total open interest declined by 697. By contrast on June 3, August gold gained 30.30 and total open interest increased by 15,163.
On June 8, total open interest increased by a very disappointing 597 contracts, which relative to volume is approximately 70% below average. The July contract accounted for a loss of 3,688 of open interest, indicating that while there was enough open interest increases to offset the decline in July, there was not enough in the forward months to increase total open interest substantially above average as seen in gold on June 8.
It should be noted that the percentage advance in silver on June 8 was substantially greater than gold. This continues on June 9 as silver is trading 1.85% above yesterday’s close while gold is +0.83%. Again the tepid open interest action in silver is of concern when taking into account the magnitude of the move. On June 9, the July contract has made lows above the pivot points we wrote about in yesterday’s research note of 16.659 and 16.795. While this is positive, it is important to see substantial total open interest increases on advances, especially after silver generates a short term buy signal.