Cocoa: On May 17, July New York cocoa will generate an intermediate term sell signal after generating a short-term sell signal on May 12. We have no recommendation.
WTI crude oil:
June WTI crude oil advanced $1.51 on disappointing volume of 1,155,647 contracts. Volume was substantially below that of May 12 when the June contract gained 47 cents on volume of 1,305,445 contracts and total open interest increased by 28,538. On May 16, total open interest declined by 4,525 contracts, a number that is substantially below average, and which indicates that both longs and shorts were liquidating as the market moved higher and that short sellers were the power behind yesterday’s move, NOT new buying. The June contract accounted for a loss of 37,219 of open interest, which means there were not enough open interest increases in the forward months to offset the loss in the June contract.
Although prices made a new high for the move of 47.98 in yesterday’s trading, the volume and total open interest action was disappointing to say the least. As this report is being compiled on May 17 the June contract is trading 49 cents above yesterday’s close and has made a new high for the move of 48.42. Stand aside.
June gold advanced $1.50 on volume of 226,452 contracts. Total open interest exploded higher, up 16,767 contracts, which relative to volume is approximately 185% above average. It appears that there was a battle between buyers and sellers in yesterday’s trading and part of the open interest increase was undoubtedly the result of the move to 1290.40, which is the highest print since May 9 (1289.50).
As this report is being compiled on May 17 the June contract currently is trading $2.90 higher on the day after making a daily high of 1083.90, substantially below yesterday’s print. The gold market should find support at the 5 day moving average of 1275.20 and the 10 day moving average of 1274.70. Below this, the June contract should find support at 1267.00.
For the rally to resume, the June contract must make a daily low above OIA’s pivot point of 1277.40. If June gold is able to make a daily low above 1273.00, this would increase the likelihood that a low will be made above the pivot point.
While we are bullish gold, we think it is premature to enter new bullish positions, especially since managed money is loaded up on the long side and there have been many articles in the financial press about the bullish attributes of gold and that hedge funds are moving into the gold market in substantial numbers. This makes us nervous. Stand aside.
Dollar index: On May 16, the June and September dollar index generated short-term buy signals, but remains on intermediate term sell signals.
The June dollar index lost 4.3 points on volume of 13,488 contracts. Total open interest declined by 535 contracts, which relative to volume is approximately 40% above average meaning liquidation was extremely heavy on the fractional decline. As this report is being compiled on May 17, the June contract is trading 10 ticks lower. If the dollar index continues to strengthen, this will cast a negative pall over commodities and gold and silver in particular. We have no recommendation.
The June British pound advanced 23 pips on light volume of 56,879 contracts. Total open interest declined by 313 contracts, which relative to volume is approximately 65% below average. As this report is being compiled on May 17, the June contract is trading 72 pips higher and has made a daily high of 1.4525, which is the highest print since 1.4532 made on May 12.
The reason for the rally is a poll that was released last night, which indicated that citizens of the United Kingdom were becoming increasingly against leaving the European union. In yesterday’s report, we recommended shorting out of the money calls in the nearby delivery months to take advantage of an eventual reduction in volatility and benefit from time decay of the option. We don’t think rallies will get far at this juncture, and the pound is likely to trade in a sideways pattern at best which benefits option sellers.
The pound remains on short and intermediate term buy signals, and a short term sell signal will be generated if the daily high is below OIA’s key pivot point for May 17 of 1.4417.
S&P 500 E-mini:
The June S&P 500 E-mini advanced 19.25 points on volume of 1,428,359 contracts. Volume declined substantially from the previous day (May 13) when the June contract lost 15.25 points on volume of 1,881,502 contracts and total open interest increased by 6,795. On May 16, total open interest increased by 15,005 contracts, which relative to volume is approximately 45% below average, but an open interest increase on yesterday’s advance was positive.
As this report is being compiled on May 17, the June contract is trading 11.25 points lower and has made a daily low of 2051.25, which is above yesterday’s print of 2035.00. The market has been trading in a choppy manner and interestingly has been unable to take out the April 20 high of 2105.25, the high for the move since the bottom made in mid February.
Although we thought that the April 20 high would be tested, the market does not have the momentum to accomplish this. On May 6, OIA announced that the June contract generated a short-term sell signal, and it remains on an intermediate term buy signal. If the June contract takes out the April 7 low of 2026.00, and closes below it, we think this would likely spell the end of the rally.