The USDA will release its world agriculture supply and demand report ( WASDE) on May 9 at 11:00 a.m. CDT. If any client is holding positions that show losses, the position should be liquidated prior to the report.
Soybeans: On May 7, July soybeans generated a short-term sell signal, but remains on an intermediate term buy signal. The new crop November contract remains on a short and intermediate term buy signal.
July soybeans lost 13.25 cents on surprisingly light volume of 123,738 contracts. Remarkably, volume was lower than May 6 when 138,289 contracts were traded and July soybeans lost 3.75 cents while total open interest declined by 6,618 contracts. On May 7, total open interest declined only 783 contracts, which relative to volume is approximately 65% less than average. The May contract lost 1,266 of open interest.For the past 3 days, soybean prices have declined while making new lows for the move, yet it is occurring on low volume. This tells us large numbers of market participants are refusing to liquidate as prices decline.We see this is a double-edged sword: either the longs that refuse to liquidate are correct in believing that price declines from now on will be muted, or that they have been completely been fooled by holding onto positions that show losses, or at the very least, a loss of profits. If there is more carnage, longs will be forced to liquidate en masse, which could send beans lower than any one anticipates. Much is riding on tomorrow’s report.
The fact that the new crop November contract has held up well gives more credence to speculators who are long old crop soybeans. The reason: it is anticipated that the 2014-2015 crop is going to be significantly larger, which means the November contract should be the weaker of the two. Comparing performance for the 2nd quarter through May 7, the November contract is dramatically outperforming July with a gain of 2.53% versus July gaining 1.17%. However, on a year-to-date basis, the July contract is handily beating November with a gain of 14.37% versus the November contract of +7.25%. The 50 day moving average is 14.35, which means the correction in the July contract (low of 14.41 3/4) is not anything out of the ordinary.
The USDA reported that 40.82 thousand metric tons were sold, which brings total commitments season to date of 1.640 billion bushels versus USDA projections of 1.750 billion bushels.
As this report is being compiled on May 8, July soybeans are trading 22.25 cents higher on low volume. The rally today is in keeping with the countertrend rally after the generation of a sell signal. Do not enter new positions prior to the report.
For July soybeans to resume its uptrend, the low of the day in the July contract must be above 14.57 1/4.
July soybean meal lost $2.60 on volume of 46,061 contracts. Total open interest declined by 89 contracts, which is minuscule and dramatically below average. The May contract lost 816 of open interest. The soybean meal contract continues to be the leader of the bean complex, and as this report is being compiled on May 8, July soybean meal is trading $6.60 higher on the day. July soybean meal made its low of 471.00 on May 6 and has not penetrated this. We much prefer the long side of soybean meal to soybeans, and look for soybean meal to make new contract highs during the next 2 months. The 20 day moving average in the July contract is $477.00 and the 50 day moving average is 459.70. Currently, the July contract is trading at 480.90.Do not enter new positions prior to the report.
The USDA reported sales of 75.04 thousand metric tons bringing total commitments to date of 9129.67 versus the USDA projection for the season of 9979 thousand metric tons.
July corn lost 3.50 cents on light volume of 216,358 contracts. Total open interest declined by 3,196 contracts, which relative to volume is approximately 40% less than average. The May contract lost 2,062 of open interest. As this report is being compiled on May 8, July corn is trading 1.50 cents higher after making a daily low of 5.08, which is above the low of May 6 of 5.02. Do not enter new positions prior to tomorrow’s report.
The USDA reported sales of 161.3 thousand metric tons, which brings commitments to date of 1.738.9 billion bushels versus the USDA projection for the season of 1.750 billion bushels. This week sale was the lowest since early January.
July Chicago wheat lost 1.50 cents on volume of 73,304 contracts. Total open interest declined by 3,244 contracts, which relative to volume is approximately 75% above average meaning that longs and shorts were liquidating heavily even though July wheat closed fractionally lower on the day. The May contract lost 108 of open interest. As this report is being compiled on May 8, July Chicago wheat is trading 2.50 lower and has made a daily low of 7.27 3/4, which is slightly above yesterday’s low of 7.27 1/4. July Chicago wheat continues to be massively overbought, and we have been advising a stand aside posture until such time as wheat corrects to at least its 20 day moving average of 7.04 1/8.
Kansas City wheat:
July Kansas City wheat lost 4.25 cents on volume of 24,720 contracts. Total open interest increased declined by 1.090 contracts, which relative to volume is approximately 75% above average meaning that liquidation was fairly heavy considering the minor decline of 4.25 cents. The May contract lost 15 lots of open interest. As this report is being compiled on May 8, July KC wheat is trading 1.50 cents lower on the day and has made a daily low of $8.28 1/4, which was the low on May 7. KC wheat continues to be massively overbought and we have been advising a stand aside posture. We want to see a correction to at least the 20 day moving average of 7.83 5/8.
In all wheat categories, the USDA reported sales of 320 thousand metric tons, which brings total commitments to 1.160.8 billion bushels versus USDA projections for the season (which ends May 31) of 1.175 billion bushels.
Cocoa: On May 8, July Cocoa will generate an intermediate term sell signal after generating a short-term sell signal on May 1. Wait for a rally before considering the initiation of bearish positions. The 5 day moving average for July Cocoa is 2911 and the 20 day moving average is 2963.
August live cattle lost 52.5 points on volume of 63,386 contracts. Total open interest declined by 4,232 contracts, which relative to volume is approximately 160% above average meaning that liquidation was heavy on a rather modest decline. The June contract lost 8,097 of open interest. We continue to advise a stand aside posture in outright bullish positions because of the disappointing action of the June 2014-August 2014 spread. As this report is being compiled on May 8, the August contract is trading 32.5 points higher and June is trading +25 points. Although we think the spread may widen out, the fact that it is narrowing concerns us about recommending out right bullish positions in the August contract. For now stand aside.
WTI crude oil:
June WTI crude oil advanced $1.27 on fairly heavy volume of 612,984 contracts. volume was the highest since April 22 when 623,559 contracts were traded and June WTI closed at $101.75. On May 7, total open interest declined by 3,057 contracts, which relative to volume is 75% below average, but a total open interest decline on a sizable advance is clearly bearish. The June contract lost 21,148 of open interest. As this report is being compiled on May 8, June WTI is trading 55 cents lower and has made a daily low of 99.87, which did not take out yesterday’s low of 99.78. Continue to hold the short call position recommended on May 2.
Natural gas: June natural gas will generate a short-term sell signal, if the high for the day is below 4.582.
June natural gas lost 3.9 cents on volume of 235,571 contracts. Total open interest declined by 6,650 contracts, which relative to volume is average. The June contract accounted for loss of 9,405 of open interest. As this report is being compiled on May 8, June natural gas is trading 15.6 cents lower on the day and has made a new low for the move at $4.560, which is right at the 50 day moving average. In the May 6 report we recommended liquidating the new bullish positions at 4.651 and therefore this position should have been closed out either before the report or some time after. On May 2, OIA recommended that the partial bullish position recommended in the April 22 report be liquidated if natural gas penetrated the April 25 low of 4.644, but the short call position should continue to be held. Continue to hold the short call position.
From the May 2 report:
“We like the way natural gas is trading and recommend that the partial bullish position coupled with the short call continue to be held. However, if natural gas penetrates the April 25 low of 4.644, we would liquidate the remainder of the bullish position, and continue to hold the short call position.”
From the May 6 report:
“We are disappointed with today’s trade and our immediate concern is the impact of tomorrow’s natural gas storage report, which is released at 9:30 a.m. CDT. The decision to continue holding the new bullish position should be made before the release of the storage report.We continue to like natural gas, and what we are seeing is basic consolidation. The 5 day moving average is $4.719, 20 day moving average 4.701, 50 day moving average 4.567. In short, there is a bullish moving average set up wherein the shorter averages are above the longer averages. The decision to stay with the trade should be based upon your risk parameters and sound money management.”
“Yesterday, we recommended the initiation of bullish positions and suggested using the May 5 low of 4.651 as the exit point for bullish positions.”
The Energy Information Administration announced that working gas in storage was 1,055 Bcf as of Friday, May 2, 2014, according to EIA estimates. This represents a net increase of 74 Bcf from the previous week. Stocks were 797 Bcf less than last year at this time and 982 Bcf below the 5-year average of 2,037 Bcf. In the East Region, stocks were 473 Bcf below the 5-year average following net injections of 35 Bcf. Stocks in the Producing Region were 389 Bcf below the 5-year average of 844 Bcf after a net injection of 27 Bcf. Stocks in the West Region were 119 Bcf below the 5-year average after a net addition of 12 Bcf. At 1,055 Bcf, total working gas is below the 5-year historical range.
June gold lost $19.70 on heavy volume of 204,183 contracts.Volume surpassed that of April 15 when June gold lost $27.20 on volume of 199,031 contracts and total open interest increased by 100 contracts. On May 7, total open interest increased by 4381 contracts, which relative to volume is approximately 15% below average, but an open interest increase on Wednesday’s decline is clearly bearish. For example, on May 2 and 5, June gold advanced $19.50 and 6.40 respectively. Total open interest increased by 4,893 on May 2 and 9,250 on May 5. In short, in a healthy market, open interest should have declined on yesterday’s move sharply lower. As this report is being compiled on May 8, June gold is trading $1.60 higher on the day. June gold remains on a short-term sell signal, but an intermediate term buy signal.
July platinum lost $23.30 on fairly heavy volume of 12,437 contracts. volume was the heaviest since April 24 when 13,491 contracts were traded and July platinum closed at $1409.60. As this report is being compiled on May 8, July platinum is trading $2.20 higher on the day. On May 5, July platinum generated a short and intermediate term buy signal, and according to OIA protocols a pullback lasting from 1-3 days is in order. Yesterday, was the first day of the pullback and we believe the market will continue to correct. However, from a practical point of view, we do not see platinum breaking out if gold and silver continue to be in the doldrums. Additionally, the buy signals generated on May 5 may turn out to be false if gold and silver continue to lead the way lower. Stand aside.
S&P 500 E mini:
The June S&P 500 E mini gained 10.00 points on fairly heavy volume of 2,002,852 contracts. Total open interest increased by 21,592 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on May 8, the E mini is trading 0.75 points lower after making a high of 1884.75, which is the highest print since 1886.00 made on May 2. Ever since April 4 when the June E mini made its all-time high at 1892.50, whenever the market approaches this high, it is unable to hold it and closes lower on the day.
For example, on April 4 when the E mini reached its all-time high of 1892.50 it closed sharply lower on the day at 1860.00. On April 24, the E mini made a high of 1882.50 and closed at 1873.00. On May 2, the E mini made a high of 1886.00 and closed at 1874.50. In short, during 3 previous occasions over the past month, the E mini has not been able to close at its highs for the day when it trades at the very top of the range. In short, sellers come of the woodwork at the highs to drive prices lower. We continue to recommend long put protection for those clients who hold long equity positions.