Lean hogs: On May 2, June and July lean hogs generated intermediate term buy signals after generating short term buy signals on April 28.
July lean hogs advanced 1.35 cents on volume of 34,492 contracts. Total open interest exploded higher, up 3.372, which relative to volume is approximately 280% above average. The June contract accounted for a loss of 1,676 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in June and increase total open interest substantially.
Yesterday, the July contract made a new high for the move of 83.150, which takes out the previous high of 82.950 made on March 18. As this report is being compiled on May 3 the July contract is trading fractionally lower after making another new high of 83.450. We have no recommendation.
July soybeans gained 14.00 cents on surprisingly light volume of 220,614 contracts. Volume declined from April 29 when the July contract gained 2.25 on volume of 247,400 contracts and total open interest declined by 6,267. The lower volume is negative. On May 2, total open interest increased 6,950, which relative to volume is approximately 10% above average. The May contract lost 1,207 of open interest.
As this report is being compiled on May 3, the July contract is trading 16.25 cents lower after making a new contract high of 10.57 in the early morning hours of May 3 when the dollar index fell to a new contract low. It appears May 3 is key reversal day and this is likely spells the end of the soybean rally for now.
The high of 10.75 was 12.00 cents above the May 2 high and 11.75 cents above the April 28 print. We think it is highly likely that today’s high will eventually be taken out, but as we pointed out before, managed money is massively long soybeans which is not a good sign for further advances at this juncture.
July soybean meal advanced by a strong $12.50 on light volume of 117,912 contracts.Volume was considerably below that of April 28 when the July contract gained $5.10 on volume of 185,518 contracts and total open interest declined by 3,956 as July meal made a daily high of 339.90. On May 2, total open interest increased just 35 contracts. The May contract accounted for a loss of 1,598 of open interest.
Yesterday, soybean meal made a new contract high of 347.80 and this has been taken out on May 3 (353.40). This is the highest print since 357.70 made the week of July 13, 2015. The rally in soybean meal has been characterized by dismal open interest action on a consistent basis.
Considering the magnitude of the rally, remarkably, soybean meal remains an unloved commodity. Managed money has assumed a net long position, and is long by a ratio of 2.17:1, which is a substantial increase from the previous week of 1.35:1 and a complete reversal from two weeks ago when managed money was short by a ratio of 1.15:1. In our view lower prices are ahead. Soybean meal remains on short and intermediate term buy signals.
July corn closed unchanged on light volume of 237,723 contracts. Surprisingly, total open interest increased just 48 contracts. The May contract lost 3,882 of open interest. As this report is being compiled on May 3, the July contract is trading 14.50 cents lower after making a daily high of 3.95, which is below the April 29 print of 3.95 1/4, which was also the high for April 28.
In summary, though soybean meal and soybeans were able to make new contract highs, corn was not able to take out the highs of the previous couple of days. This reveals substantial internal weakness in corn. The COT report revealed that managed money finally moved to a net long position by adding 42,975 to their long positions and liquidating 60,950 contracts of their short positions leaving them long by a ratio of 1.50:1, which is a reversal of the previous week when they were short by a ratio of 1.16:1 and the ratio two weeks ago when managed money was short by 1.94:1.. Though July corn remains on short and intermediate term buy signals, we would not be surprised to see a reversal of these within the next week. We have no recommendation.
New York coffee: July New York coffee will generate a short-term sell signal on May 3. It remains on an intermediate term buy signal.
WTI crude oil:
June WTI crude oil lost $1.14 on light volume of 748,754 contracts. Volume was the lightest since March 29 when 769,310 contracts were traded and the June contract closed at $39.51. On May 2, total open interest increased by a strong 13,263 contracts, which relative to volume is approximately 25% below average, but the June contract lost 5,743 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in June and increase total open interest.
As this report is being compiled on May 3, the June contract is trading lower again, down $1.13 on considerably heavier volume than seen on May 2. For the past couple of research notes, we commented on the positive price, but dismal open interest activity on rallies. Weakness is beginning to rear its head again. However, the June contract remains on short and intermediate term buy signals. We have no recommendation.
From the April 29 research note on WTI:
“Although price action has been outstanding, total open interest action has left much to be desired and we pointed this out in the April 28 research note. On April 26 and 27 the June contract gained 1.40 and 1.28 respectively, yet total open interest increased only 12,136 and 12,250 contracts respectively, which relative to volume was substantially below average. In other words, many would be market participants are standing on the sidelines as prices advance.”
June gold advanced $5.30 on volume of 231,089 contracts. Volume fell substantially from April 29 when the June contract gained $24.10 on volume of 300,076 contracts and total open interest increased by a massive 24,106. On May 2, total open interest declined by 1,019 contracts, which relative to volume is approximately 75% below average. Yesterday’s action was negative considering the June contract made a contract high of 1306.00, which took out the previous contract high of 1299.00 made on April 29 and that gold closed positively on the day.
As this report is being compiled on May 3, the June contract is trading 5.70 lower and has made a daily low of 1284.00, which takes out yesterday’s print of 1289.60. Gold is undergoing consolidation and we expect this to last for another couple of days. Interestingly, on May 3, when the equity market was down sharply, this did not boost gold prices and instead acted as a negative influence. Additionally, the dollar was sharply lower and this did not keep gold prices aloft. Gold remains on short and intermediate term buy signals. We have no recommendation at this juncture.
Euro: On May 2, the June euro generated a short-term buy signal, which reversed the April 25 short-term sell signal. The June contract remains on an intermediate term buy signal.
The June euro advanced 72 pips on volume of 148,550 contracts. Total open interest increased by 593 contracts, which relative to volume is approximately 80% below average. As this report is being compiled on May 3 the euro has made a new high of 1.1630, which is the highest print since 1.1718 made the week of August 24, 2015. We have no recommendation.
The June British pound advanced 55 pips on very light volume of 52,359 contracts. Total open interest increased by a substantial 1,532 contracts, which relative to volume is approximately 5% above average. Yesterday, the June contract made a new high for the move of 1.4698 and this was taken out on May 3 in the early morning hours with another new high of 1.4771, the highest print since 1.4818 made on January 4, 2016.
Today, May 3 may be the first indication that the pound is about to reverse and is likely to be viewed as a key reversal day with a new high for the move and a sharply lower close. This becomes more compelling because the euro is trading positively along with the yen and the Swiss franc. The Australian dollar is trading sharply lower based upon a cut in interest rates by the Reserve Bank of Australia and the Canadian dollar is moving lower in sympathy. We have no specific recommendation at this juncture and will know more when we see today’s volume and open interest stats.