I want to comment on the market action of the British pound and how this is contradicted by the economic morass in the United Kingdom. It is very important for speculators to learn that market action will often contradict fundamentals and/or the prevailing talking points echoed by market pundits.
At the top of my April 25 post, I quoted the announcement by the Office for National Statistics of the United Kingdom that the country was formally in a recession. Many people would think this is a bearish development for the British pound. After all, money printing would be in a high gear, and interest rates would stay low. However, on April 25, the same day as the announcement, the British pound closed 44 points higher to make a new high for the move, which is the highest price since September of 2011. As a matter of fact from April 16, the British pound has closed higher every day thus far. In my April 22 Weekend Wrap, I wrote that the British pound’s 50 day moving average would be crossing above the 200 day moving average, which occurred this week. Speculators should give market action a priority over narrative(s), especially when they contradict the narrative(s) and the financial press is pushing a story.
July soybeans closed 11 cents higher on heavy volume of 346,452 contracts. Open interest declined by 2,172 contracts. The market made a new high at $14.96 3/4, but sold off to close at $14.76. Volume was slightly higher than it was on April 20 when the market closed up 28 1/2 cents and open interest declined by 1,884 contracts. The market is overbought, and can stay overbought, but it is best to stand aside. Do not attempt to pick a top by shorting soybeans.
July corn closed 7 cents lower on volume of 366,879 contracts. Open interest declined by a whopping 16,218 contracts. During the past four days open interest has declined by 63,662 contracts, which is a very healthy development for the market. The overwhelming majority of speculators are showing losses on their positions, and if their positions are held in the May contract, they can either roll the position into the July contract, or simply liquidate. After distressed longs are out of the market, there will be far less selling pressure in corn. The underlying strength in corn is reflected by the bull spread in the May-July corn contracts. On April 25, the spread lost 1/4 cent and May is still selling at a 10 cent premium to July. Stand aside for now.
June crude oil closed 57 cents higher on fairly light volume of 538,191 contracts. Open interest increased by a whopping 19,421 contracts. Open interest has increased by 29,839 contracts for the past three trading sessions. The market has not moved much in this period. On Friday April 20, crude closed at $103.88 and on April 25, it closed at $104.12. However, since April 23 each daily low has been higher than the previous day. The market remains on a short-term sell signal, however, do not short the market. Stand aside.
June gasoline closed fractionally lower (almost unchanged) from the previous day on volume of 179,752 contracts. Open interest declined by a whopping 9,014 contracts. During the past five days open interest has declined by 34,051 contracts. The open interest decline is very healthy for the market and is reducing the amount of potential selling pressure as we move into the summer driving season. Stand aside.
May copper closed 2.75 cents higher on extremely heavy volume of 117,777 contracts. Open interest declined by 1,190 contracts. As I mentioned yesterday, if copper was able to rally above $3.73, the market could rally further. As I am writing this on April 26, copper is 7.50 cents higher on the day. The market remains on a short-term sell signal, but has never generated in intermediate term sell signal. Stand aside.
June gold closed $1.50 higher on heavier than normal volume of 176,739 contracts. Open interest increased by 5,814 contracts. The market made a low at $1625.00 and then rallied to close at $1642.30. Although the market was weak in the early part of the day session, there was a strong support at the lows, and the market did not break the low of $1623.60 made on April 23, 2012. Conceivably, we may have seen a major reversal day. The trading range of April 25 was $22.60, which was less than the 21 day average true range of $25.50. Volume on the 25th was 2,381 contracts higher than April 19, which was the highest volume day since April 10 when gold traded 204,526 contracts. The market remains on a short and intermediate term sell signal. Investors should be looking to acquire gold at lower prices, but they should consult with their investment advisor or broker.
May silver closed 39 cents lower on very heavy volume of 107,151 contracts. Open interest declined by 2,004 contracts. Silver made a low of $29.92, which was the lowest price since January 18 when the low was $29.74. Volume was 18% higher than volume on April 23 (90,793) when the market lost $1.12 and the trading range for the day was $1.23 versus $1.04 on April 25. It looks to me that a substantial number of longs were blown out by the move below $30.45, which was the low made on April 23. The market remains on the short and intermediate term sell signal. Do not short the market. Stand aside.
The June Euro closed 39 points higher on volume of 246,787 contracts. Open interest increased by 1,117 contracts. The point that I made at the top of this post about the British pound, is applicable to the Euro. The economic landscape in Euroland is abysmal, but the market seems to be defying this. Since April 16, the British pound is 1.74% higher and the Euro is .59% higher. Since April 16, the lows in the Euro have been irregularly higher. Whether the market is moving higher due to repatriation of asset sales into the cash Euro, or because new speculators are coming into the market, it is wise to stand aside. Although I believe the market is going to move higher, I do not feel comfortable on the long side of the Euro. The reason for this is, it is difficult to calibrate the extent of the upside move. Also, the market could fall apart at any moment due to a cataclysmic event coming out of Euroland. The short term pivot point is 1.3248 and the intermediate term pivot point is 1.3287. If the daily low is above any of these pivot points, a respective short/intermediate term buy signal will be generated.
The June Australian Dollar closed 68 points higher on volume of 113,506 contracts. Open interest increased by 322 contracts. Speculators that have bearish positions should exit those positions if the June Australian dollar moves above the March 28 high of 1.0388. The market remains on the short term sell signal.
S&P 500 E mini:
The June S&P 500 E mini closed 17.25 points higher on heavy volume of 1,830,886 contracts. Open interest increased by 26,537 contracts. Relative to volume, the open interest increase was less than average. One important point to keep in mind is that a weak dollar will have the impact of increasing commodity prices and equities. It is likely that a short-term sell signal will be generated by the dollar index on April 26, which would be bullish for the S&P 500 E mini. Despite this, speculators should have long put protection in place. With the volatility as low as it is, puts are a cheap form of insurance against a major market decline.