Volume and open interest analysis for April 10 2013.
May soybeans lost 2.75 cents on volume of 222,557 contracts. Open interest declined by 6,867 contracts, which in relation to volume is approximately 20% above average. The May contract accounted for loss of 13,602 of open interest. The USDA released its export sales report on April 11 and for the 2012-2013 season 319,200 tons were sold and 64,500 tons for the 2013-2014 season. Total commitments to date are 1.334.8 billion bushels against a USDA projection of 1.350 billion bushels. Sales this week were dramatically above the USDA projected weekly sales.
The USDA World Agriculture Supply Demand report showed that domestically soybeans are very tight, but on a global basis are adequate. The tight supply of U.S. old crop beans are reflected in the large premium of May soybeans over July. For example, the May-July soybean spread closed at 25.25 cents premium to May, which is the highest close for the spread since September 17, 2012 when it closed at 31.50 cents premium to May.
As this report is being compiled on April 11, May soybeans are trading 9.25 cents higher, and the July contract 1.75 cents higher, which is a massive increase for the spread in one day. This continues to reinforce the very tight situation in US soybeans. Of course the tightness of soybeans in the United States is offset by the huge crop harvested in Brazil and Argentina. However, until the logistics problems are alleviated with respect to moving soybean cargoes out of Brazil, we should continue to see near-term strength in the May contract. Soybeans remain on a short and intermediate term sell signal. First notice day for may soybeans is April 30. Stand aside.
The USDA announced that 227,200 tons were sold for the 2012-2013 season in the most recent reporting week and 7,500 were sold for the 2013-2014 season. Sales for the most recent week were the highest in 5 weeks, and 96% of the soybean meal crop has been committed through the end of the 2012-2013 season. Soybeans are being crushed for meal at a pace that is unsustainable. Ultimately, price is going to have to ration current demand for soybean meal. Soybean meal remains on a short and intermediate term sell signal. Stand aside.
May corn gained 4.75 cents on heavy volume of 438,980 contracts. Volume was the highest since April 1 when 595,940 contracts were traded and May corn lost 53 cents while open interest declined 16,499 contracts. On April 10, total open interest increased 2,993 contracts, which in relation to volume is approximately 60% less than average. The May contract accounted for loss of 19,463 contracts, which means there was sufficient buying in the July 2013 forward contracts to offset the decline in May. First notice day for May corn is April 30.
The USDA World Agriculture Supply Demand report also showed that domestic supplies of corn are tight, but global supplies are relatively plentiful. The USDA released its export sales report on April 11 and showed that 185,200 tons were sold for the 2012-2013 season and 290,810 tons for the 2013-2014 season. Sales were approximately the same as the average sale weekly year to date, but slightly below the USDA projection for the current crop year. Corn remains on a short and intermediate term sell signal. Stand aside with the exception of clients who wrote out of the money calls prior to March 28.
May wheat lost 12 cents on very heavy volume of 185,843 contracts. Volume was the highest since April 3 when 219,206 contracts were traded while open interest increased by 4,099 contracts and May wheat advanced 25.75 cents. On April 10, open interest increased by 2,197 contracts, which in relation to volume is approximately 50% below average. The May contract accounted for loss of 10,584 contracts and first notice day for May wheat is April 30.
The World Agriculture Supply Demand report showed that domestic supplies of wheat are plentiful, and that global supplies are as well. The USDA announced that 263,500 tons had been sold in the most recent reporting week for the 2012-2013 season and 76,000 tons sold for the 2013-2014 season. Sales were slightly above the USDA projection for the current crop year. For a period of about 5 days, price and open interest was performing in a bullish congruent fashion. This came to a halt on April 10, and the move to $6.88 is a very negative development. Wheat remains on a short and intermediate term sell signal. We expect wheat to test the low made on April 1 of $6.59. Stand aside.
May WTI gained 44 cents on volume of 526,133 contracts. Open interest declined by 825 contracts, which is minuscule and dramatically below average. The May contract accounted for loss of 28,824 of open interest meaning that in the June 2013 forward contracts there was an insufficient number of new participants willing to make commitments at higher prices. On April 10, May crude oil made a high of $94.82, which was 2 cents below the high of $94.84 made on April 4.
During the past 3 trading sessions beginning on April 8, May crude oil has advanced $1.94 while open interest has increased 7,772 contracts. While this is a positive number, it does not indicate much enthusiasm on the long side. During the past 3 trading sessions, the S&P 500 has advanced 37.00 points, but this has been unable to move the WTI market much beyond a fractional advances. Anyone who follows our work knows we have been bearish the petroleum complex, and have been skeptical of WTI to advance in the face of major weakness in Brent, heating oil and gasoline. We continue to advise a stand aside position in WTI.
Brent crude oil lost 44 cents on very light volume of 591,748 contracts. Volume was the lowest since April 1 when 293,047 contracts were traded. Open interest increased by 908 contracts, which is minuscule and dramatically below average. WTI continues to be the week sister, and until Brent shows independent strength, we will continue to recommend a stand aside position. Brent is on a short and intermediate term sell signal. Stand aside.
May heating oil lost 1.34 cents on light volume of 118,053 contracts. Open interest declined by 152 contracts which is minuscule and dramatically below average. The May contract accounted for loss of 3,898 of open interest. Heating oil continues to trade in a very weak fashion, and as this report is being compiled on April 11, heating oil is trading 4.30 cents lower and has made a new low at $2.8969. The next area of support is $2.8430 made on March 19 on the heating oil continuation chart. Heating oil remains on a short and intermediate term sell signal. Stand aside.
May gasoline lost 7.73 cents on very heavy volume of 252,488 contracts. Volume was the highest since September 13, 2012 when 255,490 contracts were traded. On April 10, open interest declined 1,182 contracts, which in relation to volume is 75% below average. The May contract accounted for loss of 7,429 of open interest. For the first time since at least late June 2012, the May 2013 gasoline contract is selling at a discount to June 2013. This occurred for the first time on April 10 with May closing at a .0099 discount to the June contract. This is a very bearish development and it portends lower prices ahead.
From the April 7 report:
“Last year at this time, gasoline went from a high on April 16, 2012 of $3.23 down to a low of $2.48 on June 21, 2012. It then rebounded to $3.12 on August 31, 2012. If gasoline breaks below its 50 week moving average of $2.87 (which we think is likely), then the next area support will be the 160 week moving average of $2.68.”
May natural gas gained 6.8 cents on volume of 609,585 contracts. Open interest increased by 8,595 contracts, which in relation to volume is approximately 40% below average. The May contract accounted for loss of 23,883 of open interest, which means there was sufficient buying in the June 2013 forward months to offset the decline in May. On April 11 as this report is being compiled, May natural gas is trading 4.9 cents higher and has made a new high of 4.185, which is fractionally above the high of 4.180 made on April 8.
Although the market has been able to hold at the upper end of its trading range, it is beginning to look somewhat tired, and the volume on April 11 is likely to be less than volume on April 10. In short, anyone who has wanted to buy natural gas is likely in the market already. For natural gas to continue to move higher, fresh longs must be willing to make commitments at ever higher prices. In our view, scattered cold-weather throughout United States has been propping up the natural gas market, and as this begins to dissipate and warmer weather begins to appear, natural gas draws from storage will begin to reverse.
For the past 17 trading sessions beginning on March 18 through April 10, open interest has increased 209,670 contracts while natural gas has advanced 19.1 cents. The massive open interest increase combined with a small advance shows the bulls are in control, but barely so. If natural gas is unable to forge major new highs shortly, it is likely that disillusioned longs will begin to take profits, which is likely to result in a pullback to the $3.86 level. Natural gas remains on a short and intermediate term buy signal.
May copper lost 2.35 cents on volume of 78,889 contracts. Open interest increased by 2,049 contracts, which in relation to volume is average. The May contract accounted for loss of 4,745 of open interest, which makes the total open interest increase that much more impressive although it is distinctly bearish. On April 9, May copper made its high for the move at $3.4525, and on April 11 is trading 1.25 cents higher. With the S&P 500 making new highs, it is likely that copper may make one or two more attempts on the upside. However, we do not envision copper trading much beyond $3.50. Copper remains on a short and intermediate term sell signal.
June gold lost $27.90 on volume of 186,581 contracts. Volume increased by 43,000 contracts from April 9 when gold advanced $14.20 and open interest increased by 6,375 contracts. On April 10, open interest increased 3,350 contracts, which in relation to volume is approximately 25% less than average. A test of the April 4 low of $1539.40 appears inevitable, and if this is broken, we expect the next area of support to be $1523.90, which was the late December 2011 low for gold on the continuation chart. Gold is trading in a manner that suggests the bear market is far from over.
May silver lost 22.8 cents on relatively heavy volume of 68,114 contracts. Total open interest increased by a massive 4,380 contracts, which in relation to volume is approximately 150% above average, meaning that new shorts were aggressively entering the market and driving prices lower. The total open interest increase on the price decline (which is bearish) is even more impressive when considering the May contract lost 1,739 of open interest. Although silver is trading in a bearish fashion, we advise caution as silver approaches the mid-$26.00 area.
From the April 7 Weekend Wrap:
“Although silver is on a short and intermediate term sell signal, the market is overdue for a good-sized rally. Perhaps the action on April 5 is a sign that silver is going to chase out shorts who are late to the party. The lows of July 12, 2012, December 29, 2011 and September 26, 2011, should cause anyone to temper their bearishness in the current market.”
The Australian dollar gained 40 points on heavier than normal volume of 106,030 contracts. Open interest increased by 8,642 contracts, which in relation to volume is approximately 230% above average, meaning that new longs were aggressively entering the market and pushing prices higher. The June Australian dollar made a high of 1.0499, which is the highest price since January 24, 2013 when the Australian dollar reached 1.0509 on the continuation chart.
We remain bullish on the Australian dollar, and the only fly in the ointment is the possibility of a major yen collapse, which could take the Australian dollar down to the 1.0300- 1.0350 level. On the other hand, if Japanese consumers begin to panic about the declining purchasing power the yen, they may convert their yen holdings into the Australian dollar, US dollar and Singapore dollar. Shortly after the Australian dollar generated a short-term buy signal on March 15, we recommended that clients write out of the money puts.
The June euro lost 41 points on volume of 214,726 contracts. Open interest increased by 513 contracts, which is minuscule and dramatically below average.The euro remains on a short and intermediate term sell signal, and we would like to see more liquidation, especially on a price advance before recommending bearish positions. The dollar index is undergoing a correction, and a further pullback appears likely, which means more strength in the euro, at least temporarily. Stand aside.
S&P 500 E mini:
The S&P 500 E mini gained 19.50 points on volume of 2,045,287 contracts. Open interest increased by 26,190 contracts, which in relation to volume is approximately 45% less than average. The number of stocks trading above their 50 day moving average on the New York Stock Exchange advanced to 1,597 on April 10 from 1,424 on April 9. Despite the sharp move higher, which was a new high for the move, the number of stocks trading above their 50 day moving average remains below the 50 day moving average of 1,669. Depending upon your risk tolerance, we recommend writing calls that are significantly out of the money coupled with buying calls that are somewhat farther out of the money.