WTI crude oil:
June WTI crude oil gained 70 cents on extremely heavy volume of 1,748,544 contracts. Volume was the strongest since March 14 when the April 2017 crude oil contract lost 9 cents on volume of 1,785,814 contracts and closed at $48.83.
On May 5, total open interest declined only 911 contracts, a number that is essentially unchanged. The June contract accounted for a loss of 35,908 of open interest, which means there were not enough open interest increases in the forward months to offset the decline in June. In the early going during the evening session, the June contract made a low of $43.76 and proceeded to rally during the overnight session through May 5 when it made a high of 46.68.In summary, the market damaged longs on the downside and shorts on the upside as it hit the lowest price since 42.20 made the week of November 14, 2016.
The COT report revealed that managed money liquidated 19,179 of their long positions and added 38,766 to their short positions. Commercial interests added 7,338 to their long positions and also added 1,125 to their short positions. As of the May 2 tabulation date, managed money was long WTI crude oil by a ratio of 2.19:1, down sharply from the previous week of 3.26:1 and a dramatic decrease from the ratio two weeks ago, which was the high ratio for the move of 4.98:1.
As this report is being compiled on May 7, the June contract has made a daily high of 46.98, which is only 30 cents above Friday’s print and a low of 45.73, which is considerably above Friday’s print of 43.76. It appears that a test of Friday’s low is likely, and once this occurs, we will reassess our projections for the market.
On April 24, OIA announced that June WTI crude oil generated a short term sell signal and at the time was on an intermediate term sell signal. The entire commodity complex has been performing abysmally and our favorite commodity index GCC continues to make new lows. This index is equally weighted and therefore provides an accurate picture of the entire complex. We recommend a stand aside posture in WTI crude oil.
Soybeans: We recommend the liquidation of bullish positions on May 7.
July soybeans lost 1.25 cents on volume of 180,475 contracts. Total open interest declined by 1,014 contracts. The May contract which expires shortly lost 174 of open interest. The COT report released on Friday revealed that managed money added 3,225 to their long positions and liquidated 5,925 contracts of their short positions. Commercial interests liquidated 22,497 of their long positions and also liquidated 14,198 of their short positions. As of the May 2 tabulation date, managed money was short soybeans by a ratio of 1.61:1, down slightly from the previous week of 1.64:1 and slightly above the ratio two weeks ago of 1.58:1.
As this report is being compiled on May 7, the July contract is trading 8.00 cents lower and has made a daily low is 9.63 1/2, which is the lowest print since 9.58 1/2 made on May 1. We recommend the liquidation of bullish positions in soybeans for a number of reasons: First, the July contract recently made three new highs for the move. On May 2, the July contract made a high of 9.78 1/2 and was unable to hold the high and closed lower. On May 4, the July contract made a high of 9.80 and again was unable to hold the high and closed lower. And finally on Friday, May 5, July made a high of 9.83 and for a third time could not hold the high and closed lower.
If this were not bad enough, soybean meal has been unable to generate a short term buy signal. The corn market is in the doldrums and has been unable to generate a short term buy signal. In summary, though we think higher prices are down the road, this may not occur until there is a major weather event or a surprise in a crop report that acts as a catalyst and begins to panic short-sellers.On May 2, July soybeans generated a short term buy signal, but remains on an intermediate term sell signal. Stand aside.
July corn advanced 4.25 cents on volume of 297,855 contracts. Total open interest declined by a substantial 10,776 contracts, which relative to volume is approximately 25% above average and this means that liquidation was heavy on Friday’s rally. The open interest action in corn has been consistently bearish, and it appears that lower prices are ahead.
The COT report revealed that managed money liquidated 2,090 of their long positions and also liquidated 11,847 of their short positions. Commercial interests liquidated 54,934 their long positions and also liquidated 50,999 of their short positions. As of the May 2 tabulation date, managed money was short corn by ratio of 1.88:1, down from the previous week of 1.92:1, but up from the ratio two weeks ago of 1.86:1.
As this report is being compiled on May 7, the July contract is trading 5.25 cents lower and has made a daily low of 3.65, which is the lowest print since 3.63 1/2 made on April 28. Stand aside. The July contract remains on short and intermediate term sell signals. Stand aside.
The June euro advanced 11 pips on Friday on volume of 183,328 contracts. Total open interest increased by a substantial 6,060 contracts, which relative to volume is approximately 30% above average. This indicates that new buyers were moving into the euro and sending it to a new high for the move of 1.1023, which is the highest print since 1.1024 made on November 11, 2016.
The COT report released on Friday revealed that leverage funds continue to hold a net short position and during the tabulation period added 1,752 contracts to their long positions and liquidated 26,549 of their short positions. As of the May 2, tabulation date, leverage funds were short the euro by ratio of 2.02:1, down sharply from the previous week of 2.62:1 and the ratio two weeks ago of 2.77:1.
As this report is being compiled on May 7 the June euro is trading 64 pips lower after making a high of 1.1036, only 13 pips above Friday’s high during the evening session, after the release of the French election results. As we pointed out in the May 4 note, we thought the impact of the French election on the euro was going to be “buy on the rumor-sell on the news” event and this is precisely what has occurred. Also, pointed out in the May 4 note: we think the euro will be a terrific trade on the long side but want to see more corrective activity down to the 20 and 50 day moving averages. On April 24, OIA announced that the June euro generated short and intermediate term buy signals. Stand aside.
From the May 4 note on the euro:
“The market has been acting in a very firm manner and setbacks have been few and far between. Conceivably, the euro may experience “buy on the rumor- sell on the news” action after the results of the election are known.”
“As much as we like the long side of the euro, the market currently is trading substantially above 20 day moving average of 1.0814 and the 50 day moving average of 1.0758. Additionally, both of these moving averages are below the 200 day moving average of 1.0942. This is a technical negative, and we think the euro needs to do some backing and filling for an extended period before it can move substantially higher from here.”