Chicago Wheat: On May 27, July Chicago wheat generated short and intermediate term buy signals.
Natural gas: July and August natural gas will generate short-term buy signals on May 31. This reverses the May 18 short-term sell signal. Both contracts remain on intermediate term buy signals.
As this report is being compiled on May 31, the July contract has made a new high for the move of $2.280, up 10.8 cents, which is the highest print since 2.315 made on January 29. The COT report released on Friday revealed that managed money is short natural gas by ratio of 1.53:1, which is up from the previous week of 1.33:1 and the ratio two weeks ago of 1.30:1. In the report, managed money liquidated 17,114 of their long positions and added 20,212 to their short positions.
The moving average set up is becoming increasingly favorable with the 20 day moving average standing at $2.220, 50 day 2.206 and the 100 day at 2.226. The year to date moving average is 2.233. In summary, on May 31, July natural gas is trading above the aforementioned moving averages. The 200 day moving average stands at 2.447, and we expect the move to carry to least the 200 day moving average. On a seasonal basis, natural gas prices tend to advance into the mid-June period.
Now that natural gas is on a short term buy signal, the July contract should pullback or 1-3 days and this will be the opportunity to initiate bullish positions. Keep in mind that the natural gas storage report will be released later in the week and will most definitely influence prices in the immediate term.
July soybeans advanced 6.75 cents on volume of 238,273 contracts. Total open interest increased by 6,020 contracts, which relative to volume is average. The July contract accounted for a loss of 316 of open interest. As this report is being compiled on May 31 the July contract is trading 5.50 cents lower and has made a daily high of 10.96, which is the highest print since 10.98 made on May 26, the high for the move thus far.
The COT report revealed that managed money liquidated 11,318 of their long positions and also liquidated 4,367 of their short positions, which leaves managed money long soybeans by ratio of 14.52:1, a new high ratio which is up substantially from the previous week of 11.58:1 and the ratio two weeks ago of 9.22:1.
Although, soybeans tend to top out in the month of June, we strongly advise against picking a top in this market even though managed money is very heavily net long. With respect to long positions acquired at substantially lower levels, we recommend holding them with appropriate stop loss protection. We advise against initiating new bullish positions at current levels.
August gold lost $6.00 on substantial volume of 274,650 contracts. Total open interest declined by 14,889 contracts, which relative to volume is approximately 120% above average. The June contract, which enters first notice day lost 24,027 of open interest. May 27 marked the ninth day in a row in which total open interest declined.
The COT report released on Friday showed that managed money liquidated 41,879 of their long positions and added 14,101 to their short positions, which leaves managed money long gold by ratio of 4.21:1, down sharply from the previous week of 7.14:1 and the ratio two weeks ago of 6.93:1. Three weeks ago, gold made its high long ratio of 8.31:1. Based upon trading from last Wednesday through today Tuesday (the COT reporting period), we expect the COT report released this Friday to show a substantial reduction in the net long position of managed money. The tabulation date for the report is May 31.
On Friday, the August contract made a low of $1209.00, and this was taken out during the holiday shortened session, which began on Sunday evening when the August contract made a low of 1201.50. This is the lowest print since 1202.50 made on February 22, 2016. As this report is being compiled on May 31 for the session that began in late afternoon Monday evening, the low thus far has been 1207.70.
On May 23, OIA announced that June and August gold generated short-term sell signals and intermediate term sell signals on May 25. Prior to the sell signals, we warned clients to remain on the sidelines, especially after the dollar index generated a short-term buy signal on May 16. The dollar index will generate an intermediate term buy signal on May 31 and the rising dollar is having an extremely negative impact on precious metals. This combined with the massive long position of managed money have served to collapse prices from the contract high of 1308.00 made on May 2. Continue to stand aside and do not try to pick a bottom.
July silver lost 7.4 cents on volume of 41,226 contracts. Total open interest declined substantially by 1,206 contracts, which relative to volume is approximately 10% above average. On Friday, the July contract made a low of $16.140 and in the holiday shortened session beginning on Sunday evening, the July contract made a another new low for the move of 15.915, which is the lowest print since $15.925 made on April 14, 2016.
As this report is being compiled on May 31, the daily low in the July contract is 15.980 and July silver is experiencing considerable weakness today, especially compared to gold. Currently the July contract is trading down 27.9 cents (-1.62%) compared to gold, which is trading 40 cents higher on the day.
On May 19, OIA announced that July silver generated a short-term sell signal and it will generate an intermediate term sell signal if the daily high is below OIA’s key pivot point for May 31 of 16.015. We continue to recommend a stand aside posture and advise against picking a bottom in this market.
Dollar index: The June and September dollar index will generate an intermediate term buy signal on May 31 after generating a short-term buy signal on May 16.
The September dollar index advanced 33.8 points on volume of 19,889 contracts. Total open interest increased by 133 contracts, which relative to volume is approximately 60% below average, however the June contract, which shortly enters first notice day lost 515 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. This is positive.
The COT report revealed that leverage funds remain net short the dollar index and the report showed that leverage funds liquidated 3,495 of their long positions and also liquidated 2,952 of their short positions leaving the short ratio standing at 1.73:1, up from 1.55:1 and the ratio two weeks ago of 1.51:1. As is usually the case at major turning points, leverage funds are on the wrong side of the trade.
As this report is being compiled on May 31 the September contract is trading 29.5 points higher, but has not taken out the May 30 high of 95.980, which is the highest print since 96.200 made on March 29. We have no recommendation.
The June yen lost 15 pips on volume of 90,224 contracts. Total open interest increased by 2,584 contracts, which relative to volume is approximately 5% above average. As this report is being compiled on May 31, the June contract is trading 67 pips lower, but has made a new low for the move of .8982, which is the lowest print since .8947 made on April 28.
The COT report revealed that leverage funds remain long the yen by a ratio of 1.53:1, down from 1.81:1 the previous week and the ratio two weeks ago of 1.70:1. After making its contract high of .9483 on May 3, the June contract has fallen precipitously and will likely bottom when leverage funds assume a net short position. The yen and the S&P 500 are experiencing price correlation on May 31, which is something not seen very often. Currently, the June E-mini is trading 8.75 points lower on the day.