Lean Hogs: July and August lean hogs generate short term sell signals on May 20. Both contracts remain on intermediate term buy signals.
June gold lost $19.60 on very heavy volume of 336,038 contracts. Volume was the strongest since May 11 when the June contract gained 10.70 on volume of 328,026 contracts and total open interest increased by 6,113. On May 19, total open interest declined by a massive 17,504 contracts, which relative to volume is approximately 105% above average meaning liquidation was off the charts heavy. The June contract accounted for a loss of 33,399 of open interest.
The massive decline seen yesterday confirms that speculative longs were heading for the hills as prices made new lows for the move of 1244.60, which is the lowest print since 1239.10 made on April 28.We think there are large numbers of speculative longs who continue to show losses or scant profits. Any position initiated after April 28 is in this condition and these speculators will be looking to liquidate on any rally, which should keep a lid on price advances until the supply overhang is cleared.
Although the April 28 low of 1239.10 represents decent support, the large contingent of potential sellers leaves the market vulnerable to test the low of 1225.40 made the week of April 11. As we said yesterday, a test of the weekly low of 1207.70 (March 28) is unlikely. The 100 day moving average stands at 1205.70. A weekly close below 1246.70 would be negative and would increase the likelihood of a test of the April 11 weekly low of 1225.40. Weekly closes below 1239.20 or 1232.20 would continue the negative price action.
Remarkably, gold has not generated a short-term sell signal yet and the reason is it has traded above our pivot point for the past two days. The high of the day must be below the pivot point for a sell signal to occur. The pivot point for May 20 is 1259.00 and the high on Friday has been 1261.20 which is below Thurday’s high of 1262.30.We recommend a stand aside posture. Gold has more work to do on the down side before resuming the uptrend. It tends to bottom in early July and then trend higher for the remainder of the year.
Silver: On May 19, July New York silver generated a short-term sell signal, but remains on an intermediate term buy signal.
July silver lost a whopping 63.9 cents on heavy volume of 80,890 contracts. Volume substantially exceeded that of May 9 when the July contract lost 51.7 cents on volume of 61,564 and total open interest declined by 821 contracts. Additionally, volume exceeded that of April 29 when silver advanced 23.1 cents on volume of 75,795 contracts and total open interest declined by 2,507.
On May 19, total open interest declined by 2,302 contracts, which relative to volume is average. For the past two days, beginning on May 18, silver has declined by 75.7 cents while total open interest has declined by 4,767. Interestingly, total open interest declined by a greater amount on May 18 (2,465) than it did on May 19 when silver fell by a substantially larger amount.
After making its contract high of $18.06 on May 2, the July contract has fallen nearly 10%. As we said in yesterday’s research note, silver market participants will likely shed their lofty long positions much quicker than in gold due to the extreme volatility of silver. As of last week’s COT report, managed money was long silver by a ratio of 6.29:1. This was down from the record high long ratio of 9.21:1 made two weeks before. This afternoon the new COT report will be released at 3:30 p.m. Eastern standard time.
We envision the July silver trading lower to OIA’s key pivot point of $15.874. If the July contract makes a daily high below the pivot point, an intermediate term sell signal would be generated. As we said before, we, think this is unlikely because a move to the pivot point will likely take out large numbers of speculative longs. This would reduce the likelihood of an intermediate term sell signal. Stand aside
The June dollar index advanced 23.1 points on volume of 23,967 contracts. Total open interest declined by a massive 1,203, which relative to volume is approximately 100% above average meaning liquidation was extremely heavy on yesterday’s modest advance. This follows the massive open interest decline in trading on May 18 when the June contract gained 53.2 points and total open interest declined by 1,703.
According to the COT report released last Friday, managed money was short by a ratio of 1.51:1, and it will be interesting to see what the ratio tells us this week. We think it is likely that an intermediate term buy signal will be generated and this will occur if the daily low is above OIA’s key pivot point for May 20 of 95.682. We have no recommendation.
Yen: On May 19, the June and September yen generated short-term sell signals. Both contracts remain on intermediate term buy signals.
The June yen gained 5 pips on light volume of 100,635 contracts. Total open interest declined by 2,202 contracts, which relative to volume is approximately 10% below average. Yesterday, the June contract made a new low for the move of .9063 and this has been taken out on May 20 with another new low of .9046.This is the lowest print since .8947 made on April 28. Though the yen is on a short-term sell signal, our recommendation is to avoid this market entirely. The uptrend is still intact, and we expect the bull moved to resume at some point in near the future.
10 Year Treasury Note: On May 19, the June and September 10 year note generated short and intermediate term sell signals.
The June 10 year treasury note advanced 9.5 points on volume of 1,777,827 contracts. Total open interest declined by 13,315 contracts, which relative to volume is approximately 55% below average. As this report is being compiled on May 20, the June note is trading 2 points above yesterday’s close and has not taken out yesterday’s print of 129-250. We have no recommendation.