Corn: OIA recommends that bullish positions be entered on June 12. Use the penetration of the 20 day moving average of 3.73 5/8 as an exit point. On June 7, OIA announced that July and September 2017 corn generated short and intermediate term buy signals.
On Friday June 9, July corn advanced 2.00 cents on volume of 531,752 contracts. Volume was substantially below that of June 8 when the July contract gained 1.00 cents on volume of 825,629 contracts and total open interest increased by 3,314. On June 9, total open interest increased again, this time by 10,471 contracts, which relative to volume is approximately 20% below average. The July contract lost 34,157 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in July and increase total open interest. The performance on Friday was very positive.
The total open interest increase on June 9 was the fourth increase in a row and prices advanced on each of those days.From June 6 through June 9, July corn gained 14.75 cents while total open interest increased by a sizable 57,543 contracts in this time frame.
The big story about the move in corn is that higher prices are the result of new buying, not short covering, which is the myth being circulated in the financial press.
The COT report released on Friday revealed that managed money added 32,187 contracts to their long positions and liquidated 38,849 of their short positions. Commercial interests liquidated 15,956 of their long positions and added 43,664 to their short positions. As of the June 6 tabulation date, managed money was short corn by a ratio of 1.52:1, down sharply from the previous week of 1.93:1 and the ratio two weeks ago of 1.80:1.
Please note that in the current report more short positions were liquidated than long positions added. The report also reveals there is a large contingent of short-sellers remaining in the market which could serve to power the market higher, especially if there is a major weather scare.
The daily moving averages are in a solid bullish set up with the 20 day standing at 3.73 5/8, 50 day at 3.67 1/4, 100 day of 3.66 3/8 and the 200 day stands at 3.55. At this time last year the corn market topped out. During the week of July 13, 2016 the July 2016 contract made a high of 4.39 and skidded to a major low of people 3.01 during the week of August 29, 2016 by the September 2016 contract.
In our June 7 note on corn, we recommended that clients wait for a pullback to the 3.75-3.78 area before initiating bullish positions. As this report is being compiled on June 12, the July contract is providing the pullback we discussed and currently is trading 9.25 cents lower or -2.39% and has made a daily low of 3.76 1/4.
One concern for corn is that on Wednesday, June 14, the Federal Resume will announced whether it has raised interest rates and it is conceivable that the language in the announcement and discussion afterwards could be far more hawkish than most people believe. If this is the case, we would expect the euro to pullback, which would likely put the dollar index on a path to generate a short term buy signal. A strong dollar would likely adversely impact corn prices, but we really will not know the extent of this until it actually occurs. It is something to watch for and if necessary clients should take remedial steps to move up exits or take profits prior to the Fed announcement.
From the June 7 note on corn:
“Now that corn is on short and intermediate term sell signals, we are waiting for a set-back before recommending bullish positions. A correction between 3.78 and 3.75 would be a reasonable entry point. ”
Copper: On June 9, July and September 2017 New York copper generated intermediate term buy signals after generating short term buy signals on May 22.
July copper advanced 4.00 cents on strong volume of 129,963 contracts. Total open interest increased by 3,092 contracts, which relative to volume is approximately 5% below average.
The COT report released on Friday revealed that managed money added 2,653 to their long positions and also added 695 contracts of their short positions. Commercial interests added 1,766 to their long positions and also added 4,129 to their short positions. As of the June 6 tabulation date, managed money was long New York copper by ratio of 2.63:1, up slightly from the previous week of 2.60:1 and the ratio two weeks ago of 2.61:1. In summary, managed money has not increased their net long position during the past three weeks.
From the June 8 note on NY copper:
“The daily moving averages on the continuation chart have a bearish tilt with the 20 day standing at $2.5686, 50 day of 2.5730, 100 day 2.6197 and the 200 day stands at 2.4797.”
“The weekly moving average shows a potentially bullish set up with the 10 week standing at 2.5753, 20 week of 2.6221, 50 week 2.4360, 100 week 2.3172.One of our favorite moving average crosses is the 10 and 30 week moving average and on the continuation chart, the 10 week stands at 2.5753, which is below the 30 week of 2.6067.”
“The 10-20 long term monthly moving average on the continuation chart is in a bullish setup with the 10 month standing at 2.5121 and the 20 month of 2.3276.”
“In summary, the nearby copper contract must stay at an elevated price for an extended period of time for the bearish moving averages to move into a bullish set-up. On a seasonal basis, copper has a tendency to bottom in early to mid June and advance during the month of July.”
The June British pound lost 2.17 cents on heavy volume of 344,387 contracts. Total open interest increased by 5,412, which relative to volume is approximately 40% below average. Friday’s open interest increase indicates that new short-sellers were entering the market and driving prices to a low of 1.2638 for the June contract. As this report is being compiled on June 12, the June contract is trading lower again, down 85 pips, but has not taken out Friday low.
The COT report released on Friday revealed that leverage funds liquidated 4,764 their long positions and added 711 to their short positions. As of the latest report tabulated on June 6, leverage funds were short the pound by ratio of 1.23:1, up from the previous week of 1.09:1 and a reversal from the ratio two weeks ago when leverage funds were long by 1.04:1.
On May 30, OIA announced that the June and September 2017 contracts generated short term sell signals, but as yet have not generated intermediate term sell signals. This will occur for the June contract if the daily high is below OIA’s key pivot point for June 12 of 1.2660. We strongly advise against chasing the move lower. The market could have a strong counter trend rally at any time. Stand aside.