Coffee: July New York coffee will generate a short-term sell signal on May 24 and will likely generate an intermediate term sell signal this week.
Lean hogs: July and August lean hogs will generate an intermediate term sell signal on May 24 after generating a short-term sell signal on May 20.
August lean hogs lost 1.025 cents on fairly light volume of 31,463 contracts. Though volume was light, total open interest declined by a massive 4,880, which relative to volume is approximately 450% above average meaning liquidation was off the charts heavy.
The June contract, which enters first notice day next week lost 3,593 of open interest, July -1,276. The liquidation has been steady ever since hogs topped several sessions ago. As we have pointed out before, managed money was caught substantially long at the top and the ratio in last week’s report was a lofty 4.69:1. Ever since the August contract topped at 82.90 on May 17 it has headed straight down and has not had a counter trend rally even after it generated a short-term sell signal on May 20.
The market is overdue for rally, but the dynamic operating in the hog market is there are large numbers of longs who will be looking to trim positions when the market advances, which will keep a lid on any gains. Wait for rally before initiating bearish positions.
Live cattle: On May 23, August live cattle generated a short-term sell signal, which reversed the May 9 short-term buy signal. The August contract remains on an intermediate term sell signal.
August live cattle lost the 3.00 cent daily limit on muted volume of 52,979 contracts. Total open interest increased by 470 contracts, which relative to volume is approximately 50% below average, but it should be noted that the June contract lost 3,593 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 24 the August contract is trading 1.25 cents lower and has made a daily low of 112.375, which is the lowest print since 112.500 made on May 2. On April 24, we wrote about live cattle from a technical point of view and our basic thesis is that live cattle is in a long term bear market. At this juncture, we have no recommendation.
July corn advanced 3.25 cents on volume of 295,638 contracts. Total open interest increased substantially, up by 10,159 contracts, which relative to volume is approximately 20% above average meaning aggressive new buyers were entering the market in substantial numbers and driving prices higher (3.99 1/4). The March 2017 contract lost 1,549 of open interest.
As this report is being compiled on May 24, the July contract is trading 4.50 cents higher and has made a daily high of 4.03 1/4, which is the highest print since 4.07 1/4 made on April 21. On May 20, the July contract advanced 4.50 on volume of 337,824 and total open interest increased by 3,177.
According to the latest COT report released last Friday, managed money was long corn by a ratio of 1.36:1, which was up from the previous week of 1.22:1, but down from the ratio two weeks ago of 1.41:1. Increasing corn and meal prices are negative for live cattle and lean hogs and if feed costs continues to advance, they will have a depressing effect on livestock. July corn remains on short and intermediate term buy signals. We have no recommendation.
Gold: On May 23, June and August gold generated short-term sell signals, but remain on intermediate term buy signals. It is likely that an intermediate term sell signal will be generated this week and will occur if the daily high is below OIA’s key pivot point for May 24 of 1240.00.
June gold lost $1.40 on heavy volume of 314,804 contracts. Volume increased from May 20 when the June contract lost 1.90 on volume of 288,904 contracts and total open interest declined by 16,559. On May 23, total open interest declined by 5,076 contracts, which relative to volume is approximately 35% below average. The June contract accounted for a loss of 46,495 of open interest and will enter first notice day next week.
As this report is being compiled on May 24, June gold is trading sharply lower, down $21.90 or -1.76% on very heavy volume. Today, the June contract has made a daily low of 1228.00, which is the lowest print since 1228.50 made on April 22. Gold and silver are experiencing the typical kind of washout seen when speculators pile into a market and the holders of long positions become active sellers. We have been warning clients to stand aside long before the debacle in gold prices. Remain on the side lines and do not attempt to pick a bottom.
From the May 19 research note on gold:
“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.”
July silver lost 10.9 cents on volume of 42,056 contracts. Total open interest increased by 1,339 contracts, which relative to volume is approximately 10% above average meaning that new short-sellers were entering the market and driving prices to a new low for the move of $16.325.
Yesterday, silver experienced the first total open interest increase on a price decline since July silver generated a short-term sell signal on May 19. As this report is being compiled on May 24, the July contract is trading 17.3 cents lower or -1. 05% and has made a daily low of $16.240, which is the lowest print since $16.180 made on April 19.
From the high for the move of 18.06 made on May 2 through today’s low, July silver has fallen 10% and the fact that market participants are beginning to get bearish on the white metal in our view is positive that will eventually set the stage for a turnaround after silver makes its seasonal low during the next month.
Today, Tuesday is going to be the tabulation date for this Friday’s COT report and we have no doubt that the current long ratio of 5.22:1 will be reduced substantially in the report. Keep in mind: three weeks ago, managed money was long silver by a ratio of 9.21:1, therefore the net long position already has been reduced substantially. Continue to stand aside.