July soybeans lost 51.75 cents on surprisingly light volume of 189,404 contracts. Volume was only slightly above the 184,545 contracts traded on April 29 when July soybeans advanced 17.25 cents and total open interest declined by 2,323 contracts. Additionally, volume was below that of April 28 when July soybeans advanced 5.75 cents on volume of 211,923 contracts and total open interest declined by 14,579 contracts. On May 1, total open interest declined by a massive 10,635 contracts, which relative to volume is approximately 120% above average meaning that liquidation was substantial on the very large decline. The May contract lost 3,732 of open interest and July -8364. It now appears inevitable that soybeans will generate a short-term sell signal and for this to occur, the high of the day in the July contract must be below $14.58 3/4. As this report is being compiled on May 2, July soybeans are trading 1.00 cent lower on the day. The low volume on May 1 indicates a lack of participation and we expect volume to rise as prices continue to decline. Stand aside.
The USDA reported there were net cancellations of 16.4 thousand metric tons, which brings total commitments to 1.638.5 billion bushels versus the USDA projection for the season of 1.580 billion bushels. In short, the USDA is projecting cancellations of at least 58.5 million bushels.
July soybean meal lost $17.00 on low volume of 67,266 contracts. Total open interest declined by 4,024 contracts, which relative to volume is approximately 140% above average meaning that liquidation was heavy on the decline, though the participation as evidenced by volume was low. Continue to stand aside because we think lower prices are in store. Soybean meal remains on a short and intermediate term buy signal, and is not close to generating a short-term sell signal. As this report is being compiled on May 2, July soybean meal is trading 70 cents higher on the day and has made a new low for the move at $475.00.
The USDA reported sales of 140.9 thousand metric tons bringing total commitments to 9054.6 thousand metric tons versus USDA projections for the season of 9979 thousand metric tons.
Soybean oil: On May 1, July soybean oil generated a short-term sell signal, but remains on an intermediate term buy signal.
July soybean oil lost 95 points on volume of 81,554 contracts. Total open interest declined only 70 contracts, which is minuscule and dramatically below average. The May contract lost 2,941 of open interest and July -189. As this report is being compiled on May 2, July soybean oil is trading 30 points higher on the day. As is usually the case after the generation of a sell signal, the market tends to rally from 1-3 days and this is the opportunity to initiate bearish positions. Wait for further rally although, soybeans look very weak and could easily take soybean oil lower with it.
The USDA reported sales of 0.50 thousand metric tons, bringing total commitments to 583.9 thousand metric tons versus USDA projections for the season of 703.1 thousand metric tons.
July corn lost 12.00 cents on surprisingly light volume of 268,092 contracts. Volume was significantly lighter than the 338,774 contracts traded on April 29 when July corn advanced 7.75 cents and total open interest declined by 5,626 contracts. The May contract lost 7,881 of open interest and July -5370. On May 1, total open interest declined by 5,552 contracts, which relative to volume is approximately 20% below average.In short, corn had one of its biggest daily declines of the past 2 months yet volume was tepid and the open interest decline was relatively small. This tells us more liquidation is ahead, and as this report is being compiled on May 2, July corn is trading 8.00 cents lower on the day. We think corn will continue to move lower until the heavy long positions of speculators have been significantly diminished.
The USDA reported huge sales of 937.9 thousand metric tons bringing total commitments to 1.734.5 billion bushels versus USDA projections for the season of 1.750 billion bushels. This week’s reported sales was the highest since March 27.
July Chicago wheat lost 14.25 cents on volume of 83,604 contracts. Volume shrank considerably from April 30 when 96,430 contracts were traded and July wheat advanced 5.00 cents while total open interest increased by 2,295 contracts. On May 1, total open interest declined by 2,434 contracts, which relative to volume is approximately 20% above average meaning that liquidation was reasonably heavy considering the magnitude of the decline. The May contract lost 752 of open interest and July -4059. As this report is being compiled on May 2, July Chicago wheat is trading 10.00 cents higher, however it is short of the $7.24 1/2 high made on May 1. We are partial to Kansas City wheat and prefer it to Chicago.
Kansas City wheat:
July Kansas City wheat lost 8.50 cents on volume of 21,319 contracts. Total open interest increased by 2,509 contracts, which relative to volume is approximately 360% above average meaning that new short sellers were aggressively entering the market and driving prices to a daily low of $7.98 1/2. However, prices rebounded and closed at $8.04. As this report is being compiled on May 2, July Kansas City wheat is trading 19.00 cents higher and has taken out yesterday’s high with a new print of 8.28. Unfortunately, KC wheat has had only one small setback, and this was not enough of a pullback to merit the entry of new bullish positions. There has been talk based upon a recent week crop tour, that the Kansas City wheat crop may be the smallest since 1996. Severe drought has taken its toll on the hard red wheat crop and no end in sight.With the market remaining severely overbought, we cannot recommend the entry of new bullish positions.
The USDA reported sales of wheat in all categories totaled 214.9 thousand metric tons bringing total commitments to 1.149 billion bushels, versus USDA projections for the season, which ends on May 31 of 1.175 billion bushels.
August live cattle advanced 2.50 cents on total heavy volume of 74,414 contracts. Volume was slightly higher than the 74,357 contracts traded on April 4 when the August contract lost 2.475 cents.Unfortunately, on May 1, total open interest increased by only a paltry 645 contracts, which relative to volume is approximately 60% below average. The June contract lost 3,332 of open interest, which makes the total open interest increased somewhat more impressive. However, the fact that the June contract lost open interest at all is negative in our view. As this report is being compiled on May 2, August cattle continues to rocket higher and is trading 95 points above yesterday’s close and has made a new high for the move at 1.39575.
Our concern is that as the market continues to move higher, speculators will begin to jump into the market, which will set the stage for a sharp move to the downside and we do not want clients caught in the downdraft. As of yesterday, open interest increases on price advances have been moderate. For example on April 28, August cattle advanced 52.5 points but total open interest declined by 1,387 contracts. Even on a day when prices were unchanged (April 29) total open interest declined by 266 contracts. If the ratio of managed money longs was not already in the stratosphere, we could understand taking a somewhat more aggressive stance. As mentioned in yesterday’s report, a more conservative strategy would be to buy the June 2014 contract and sell August 2014, which would take advantage of any near term tightness. Other than this, we recommend a stand aside posture until such time as the August contract corrects.
Cocoa: On May 1, July cocoa generated a short-term sell signal, but remains on an intermediate term buy signal.
July cocoa lost $58.00 on volume of 29,057 contracts. Total open interest declined by 2,387 contracts, which relative to volume is approximately 230% above average meaning that liquidation was off the charts heavy. The May contract lost 15 of open interest.We encourage clients to look at a cocoa chart to see how speculators have gotten cut to ribbons by the chop in the market. As is usually the case, and this has been typical of cocoa, the market has a tendency to rally from 1-3 days after the generation of a sell signal. This is the opportunity to enter bearish positions, however caution should be exercised because cocoa has shown a tendency to blowout longs and shorts with equal opportunity. July Cocoa will generate an intermediate term sell signal if the high of the day for the July contract is below 2898.00.
WTI crude oil:
June WTI crude oil lost 32 cents on volume of 511,940 contracts. Total open interest declined by 5,806 contracts, which relative to volume is approximately 45% less than average. The June contract accounted for loss of 10,780 of open interest. Remarkably, during 3 days of market declines totaling $3.20 (April 25, April 30 and May 1) open interest for 3 days has declined only 14,231 contracts. Considering that managed money is stratospherically long (10.99:1), it is surprising there has not been more liquidation. In our view, WTI is setting up for a further decline, and we recommend initiating bearish positions if WTI rallies for one more day. On April 30, June WTI generated a short-term sell signal and the market continues to look weak. Today is the first day of what is normally a 1 to 3 day countertrend rally after the generation of a sell signal.
June natural gas lost 9.6 cents on volume of 208,525 contracts. Total open interest increased by 1539 contracts, which relative to volume is approximately 55% below average, but an open interest increase on a price decline is bearish. The June contract lost 4,489 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on May 2, June natural gas is trading 3.3 cents lower and has made a low of 4.679.
As the April 29 report indicates (see below), we recommended the initiation of a new bullish position on April 29, and advised using the low of 4.751 as an exit point for the new position. Clients should be out of this position and only hold the partial bullish position after we recommended taking partial profits on April 22. Also, on April 22 , we recommended writing out of the money calls and both positions at this juncture should be profitable.
However, it is clear the path of least resistance is lower for now. Natural gas is far from generating a short or intermediate term sell signal, and as indicated in yesterday’s report, temperatures across the country need to rise before we see increased demand for natural gas. Have money management sell stops in place on the partial bullish position. Support for the June contract should be found at 4.644 and 4.500. The 20 day moving average comes in at 4.667 and the 50 day moving average, 4.561.
From the April 29 report:
“On April 22, we recommended taking profits on partial positions and write out of the money calls on the remaining position. Continue to hold this combination, however, today, we also recommend that clients should initiate new bullish positions and use today’s low of $4.751 as an exit for the new positions. Today’s low was slightly beneath the low made on April 29 of 4.754. If clients are stopped out of the new position, they will continue to hold have the partial long position coupled with short calls. The 5 day moving average stands at 4.768 and the 20 day moving average is 4.642.”
The June Australian dollar lost 23 pips on light volume of 39,288 contracts. Total open interest declined by 1,491 contracts, which relative to volume is approximately 50% above average. For the past 2 days, the Australian dollar has shed 2,488 of open interest, however with the massive long position held by managed money, we see more liquidation ahead. The Aussie dollar has not come close to making a daily low above OIA’s key pivot point of 92.65. Until this occurs, the June Australian dollar will trade sideways to lower .
July copper lost 60 points on light volume of 34,431 contracts. Total open interest declined by 956 contracts, which relative to volume is average. As this report is being compiled on May 2, July copper is trading 3.20 cents higher on the day. It should be noted that gold, silver and platinum also are rallying strongly. Yesterday, we thought copper was in the process of generating a short-term sell signal and with today’s action, this has been put off. However, in order for July copper to continue its advance, the low for the day must be above OIA’s key pivot point of $3.0424. Until this occurs, copper will trade sideways with a downward bias. We continue to be concerned about the terrible economic stats out of China and this tempers our bullishness even if copper trades above our pivot point.
S&P 500 E mini:
The June S&P 500 E mini lost 0.25 points on very light volume of 941,833 contracts. Total open interest declined by 3,060 contracts, which is minimal and dramatically below average. As this report is being compiled on May 2, the June E mini is trading 4.00 points lower after making a high of 1886.00 after the release of the employment report by the US Department of Labor. The market made two subsequent attempts to break above the 1886.00 high, but was unable to do so. Since the final attempt made between 10:00 a.m.-10:30 a.m. CDT, the market has been trading steadily lower. Although there is 90 minutes left to trade in the cash market, the E mini performance on May 2 has to be disappointing to the bulls. We continue to advise the maintenance of long puts for those clients who hold long equity positions. Keep in mind that the high in the June E mini was made at 1892.50 on April 4 and today is the closest it has been to the high.