July soybeans advanced 4.00 cents on volume of 312,926 contracts. Total open interest increased by 16,912 contracts, which relative to volume is approximately 120% above average meaning large numbers of buyers and sellers were entering the market and buyers were able to edge the market slightly higher as the July contract moved to its daily high of 10.45 3/4, which is below the May 3 high of 10.57.
As this report is being compiled on May 5, the July contract is trading 17.50 cents lower after making a daily high of 10.47 1/2 and a daily low of 10.14 1/2, which is the lowest print since 10.10 3/4 made on April 27. Although total open interest action relative to price advances and declines has been positive, the soybeans appear to be tired at the upper end of its trading range. As we pointed out in yesterday’s report, the 10.50 area represents substantial resistance going back to November 2014. We recommend a stand aside posture, but think there will be opportunities on the long side down the road.
From the May 3 research note on soybeans:
“According to the latest COT report released last Friday, managed money is long by a stratospheric 5.53:1, which means there will be an absence of speculative short covering to power the market higher. Two weeks ago, managed money was long by a ratio of 2.01:1. The only way prices can continue their advance is for new buyers to step in at current levels in order to support the market. On March 7, OIA announced that soybeans generated a short-term buy signal and an intermediate term buy signal on March 11.”
“Though we think soybeans can eventually move higher, we think it is premature and speculators should not enter a new positions at current levels. For those of you long at lower levels, please call if you need an evaluation of your strategy.”
Coffee: On May 4, July New York coffee generated an intermediate term sell signal after generating a short-term sell signal on May 3. We strongly advise clients to avoid this market.
WTI crude oil:
June WTI crude oil advanced 13 cents on volume of 1,192,924 contracts. Total open interest increased just 1,442. The June contract accounted for a gain of 174. As this report is being compiled on May 5, the June contract is trading $1.03 higher on the day and has made a daily high of 46.07, which is the highest print since 46.15 made on May 2. June WTI crude oil remains on short and intermediate term buy signals. We have no recommendation.
June gold lost $17.40 on healthy volume of 238,899 contracts. Total open interest increased by 2,596 contracts, which relative to volume is approximately 50% below average. The June contract accounted for a loss of 1,209 of open interest. Yesterday, was the second open interest increase in a row on a price decline. On May 3, June gold lost 6.60 on volume of 248,572 and total open interest increased by a massive 17,273.
This indicates that longs are remaining steadfast in the face of declining prices. This is a double edge sword: if gold makes a turnaround shortly, longs will have been vindicated. However, if prices continue to move lower there will be substantially more longs showing losses, which increases the likelihood of additional selling.
We like gold in the intermediate and longer term, but as we pointed out in previous reports, the early summer months are not favorable for precious metals’ performance. We envision a move to the 20 day moving average of 1256, or the 50 day moving average of 1247 before the market finds some stability. Much of what occurs in gold short term will depend upon tomorrow’s employment report, which will be a major market mover.We have no recommendation.
The June yen lost 45 pips on volume of 107,178 contracts. Total open interest increased by 2,029 contracts, which relative to volume is approximately 25% below average, but the open interest increase on yesterday’s decline continues the very negative open interest action relative to price advances and declines that we have seen during the past week.
To refresh memories, on April 29 the June contract advanced by 117 pips and total open interest declined by 5,993 contracts. The previous day, April 28, the yen had a massive rally, up 266 pips and yet total open interest increased only 2,699 contracts, which was approximately 50% below average. Though the yen remains on short and intermediate term buy signals, we question the duration of this. Tomorrow, the employment report is released by the US Department of Labor and this will have a substantial impact on the yen and currency markets in general. We have no recommendation stand aside.
Australian dollar: On May 4 the June Australian dollar generated a short-term sell signal, but remains on an intermediate term buy signal.
The June Australian dollar lost 28 pips on volume of 113,501 contracts. Total open interest declined by 2,487 contracts, which relative to volume is approximately 15% below average. Though, it is healthy to see a total open interest loss on a price decline, the fact remains managed money remains substantially long the Australian dollar. According to the COT report released last Friday, managed money is long by a ratio of 5.44:1.
Now that the Australian dollar is on a short-term sell signal, the market should have a counter trend rally lasting 1-3 days and this will be the opportunity to initiate bearish positions. The employment report released tomorrow could potentially have a bullish effect on the Australian dollar. We recommend waiting for the counter trend rally before initiating bearish positions.
The June British pound lost 42 pips on volume of 95,868 contracts. Total open interest declined by 3,281 contracts, which relative to volume is approximately 20% above average meaning liquidation was substantial on yesterday’s decline. Yesterday’s open interest action was positive and continues the pattern of positive open interest action relative to price advances and declines seen for the past couple of weeks. Although we are bearish on the pound between now and just prior to the vote on the United Kingdom leaving the European union, we have not received a sell signal on the pound. Continue to stand aside.
Dow Transportation Index: On May 4 the Dow Jones transportation Index generated a short-term sell signal, but remains on an intermediate term buy signal.
S&P 500 E-mini: The June S&P 500 E-mini will generate a short-term sell signal if the daily high is below OIA’s key pivot point for May 5 of 2057.83.
SPX: The S&P 500 cash index (SPX) generated a short-term sell signal on May 4. It remains on an intermediate term buy signal.
Clients should begin to position themselves on the bearish side of the indices because we see lower prices ahead.
10 Year Treasury Note:
It appears likely the June 10 year note will generate short and intermediate term buy signals within the next couple of days. The employment report will be released tomorrow and this could be the catalyst for the move. ADP released their estimate for the upcoming report yesterday and it was substantially below numbers of the past three years. Currently, the 10 year note remains on short and intermediate term sell signals, but we think this is about to change. Clients should exit bearish positions.