Soybean meal: May soybean meal will generate an intermediate term buy signal on March 28 if the daily low remains above OIA’s key pivot point for March 28 of $270.70. May soybean meal generated a short-term buy signal on March 7.
May soybean meal advanced $4.40 on volume of 111,803 contracts. Total open interest exploded higher, up by 5,351 contracts, which relative to volume is approximately 80% above average meaning aggressive new buyers were entering the market in substantial numbers and driving prices to a new high for the move of $276.60, which is the highest print since $276.00 made on January 14. As this report is being compiled on March 28, the May contract is trading 2.20 lower. We have no recommendation.
Live cattle: On March 24, June live cattle generated a short-term sell signal, and remains on an intermediate term sell signal.
June live cattle advanced 27 points on volume of 53,786 contracts. Total open interest declined by 336 contracts, which relative to volume is approximately 70% below average. The April contract lost 2,753 of open interest. Live cattle is in a bear market, and we recommend that it be traded from the short side only.
WTI crude oil:
May WTI crude oil lost 33 cents on volume of 867,120 contracts. Total open interest declined just 2,159 and the May contract gained 3,924 of open interest. As this report is being compiled on March 28, the May contract is trading 36 cents lower on the day and has made a daily low of 38.86, which is above Thursday’s print of 38.33. The uptrend for WTI remains intact, and it looks likely that the high for the move of $42.49 made on March 18 will be tested. We have no recommendation.
Gold: On March 24, June gold generated a short-term sell signal, but remains on an intermediate term buy signal.
June gold lost $2.10 on substantial volume of 241,364 contracts. Total open interest increased just 306 contracts.However, the April contract lost 26,977 of open interest and there were sufficient open interest increases in the forward months to offset the decline in April and increase total open interest slightly.
As this report is being compiled on March 28 the June contract is trading $4.50 lower and has made a daily high of 1225.10, which is below Thursday’s print of 1225.60 and a daily low of 1207.70, which is the lowest print since 1203.00 made on February 22. Although we think gold has seen the worst, according to the latest COT report, which was released on March 25, managed money remains long gold by ratio of 5.90:1, which is up from the previous week of 5.41:1 and is a substantial increase from the ratio two weeks ago of 4.87:1.
In summary there are large numbers of professionals who are massively long gold, and this group will exert selling pressure as gold prices continue their correction. Additionally, both platinum and silver are getting close to generating short term sell signals. We recommend a stand aside posture and to wait until after the liquidation has occurred before contemplating bullish positions. Additionally, gold would have to generate a short-term buy signal before OIA would recommend bullish positions.
The June euro lost 11 pips on light volume of 117,593 contracts. Total open interest declined by 813 contracts, which relative to volume is approximately 65% less than average. As this report is being compiled on March 28, the June contract is trading 24 pips above Thursday’s close and has made a daily high of 1.1246, which takes out Thursday’s print of 1.1213 and is the highest since 1.1250 made on March 23.
We think the euro is entering a bull market phase, and therefore should be traded from the long side only. According to the latest COT report, leverage funds remain short the euro by ratio of 2.99:1, which is down from the previous week of 3.38:1, but is up from the ratio two weeks ago of 2.28:1. As the euro continues to rally, leverage fund shorts will be forced to liquidate at ever higher prices. At this juncture, we have no recommendation.
The June British pound advanced 36 pips on volume of 75,185 contracts. Total open interest increased by a substantial 1,623 contracts, which relative to volume is approximately 15% below average, but the open interest increase indicates the likelihood of new buyers moving prices higher. However, as a caveat, the June contract made a low of 1.4059 and the open interest increase could have reflected new short-sellers entering the market, but because the low occurred in the very early morning hours of Thursday and volume was sparse, we think this scenario is doubtful.
The the rally was accompanied by heavier volumes and this is when new buyers were likely entering positions. As this report is being compiled on March 28, the June contract is trading 89 pips above Thursday’s close and has made a daily high of 1.4287, which takes out Thursday’s print of 1.4187 and Wednesday’s high of 1.4234.
The COT report released on Friday showed that leverage funds liquidated a substantial 23,021 contracts of their long positions and also liquidated 1,518 of their short positions which left the short ratio at 1.86:1, up from the previous week’s print of 1.33:1, but is down from the substantial short ratio of 2.89:1 made two weeks ago. The current report reflected the partial liquidation of the large long position (38,693), which was initiated during the time frame of the previous week’s report.
In summary, professionals have gotten severely whipsawed by the pound and will likely be hesitant to enter new long positions. In the research note of March 23, we recommended that clients move to the sidelines and wait for a spot to re-institute bearish positions. At this juncture, we think it’s premature and want to see more market action before making a recommendation. Keep in mind, the pound remains on a short-term buy signal, and an intermediate term sell signal.
From the March 23 research note:
“In yesterday’s report, which we have reprinted in part, we told clients of our concern about the spike in volatility and recommended taking partial profits or shorting out of the money puts. Additionally, we said a move through 1.4137 would be the first indication that a counter trend rally is occurring and that penetration of 1.4156 would confirm it.”
“Earlier today, we told clients to take profits on bearish positions recommended the day before and to move to the sidelines. Remarkably, the June pound remains on a short-term buy signal, but an intermediate term sell signal. There will be ample opportunity to re-institute bearish positions and the next down side move will take out today’s low and test the multi-year February 29 low of 1.3835.”