May soybeans advanced 29.25 cents on fairly light volume of 164,744 contracts. Volume increased approximately 33,000 contracts from March 20 when soybeans gained 13 cents and total open interest declined 1,192 contracts. However, volume was approximately 10,500 contracts less than March 19 when soybeans lost 2.75 cents and open interest declined 6,815 contracts. As we stated in yesterday’s report: “It is important to note that volume increases when soybeans close lower. For example, on March 19, May soybeans closed 2.75 cents lower and volume was 175,336 contracts. On March 18 May soybeans declined 16.50 cents and volume was 200,300 contracts. On March 15, volume was 162,179 while May soybeans declined 9.50 cents.”
On March 21, open interest increased 1,283 contracts, which in relation to volume is approximately 65% less than average. Interestingly, the May contract added 1,708 contracts of open interest, but the July 2013 through November 2013 contracts saw open interest declines. In short, for the past 2 days soybeans have increased 42.25 cents and total open interest has increased by a mere 91 contracts. This is bearish open interest action relative to the price advance. On March 21, May soybeans made a high of $14.51 1/2, which is slightly above the high made on March 14 of 14.50.
From the report of March 20:
“Conceivably, soybeans could rally to 14.53 1/8. However, we don’t think the market has the energy to trade much higher. If bearish positions have not been implemented, we advise waiting until the exchange data is published in the March 22 report. Use the 14.53 area as an exit point for any bearish positions.”
May soybean meal gained $9.10 on volume of 68,355 contracts. Total open interest declined 1,360 contracts, which in relation to volume is approximately 25% below average. The May contract accounted for loss of 1,380 of open interest. During the past 2 days, May soybean meal rallied $11.30, while total open interest declined 5,056 contracts. This is bearish open interest action relative to the price advance.
From March 12 through March 21, open interest has declined 11,887 contracts while May soybean meal has declined $15.10. This is bullish open interest action relative to the price decline. Despite this, soybean meal should be traded from the short side because it is on a short and intermediate term sell signal.
May soybean oil gained 58 points on volume of 63,962 contracts. Total open interest declined 4,482 contracts, which in relation to volume is approximately 180% above average, meaning that liquidation was very heavy on the advance. The May contract accounted for loss of 6,286 of open interest. Due to the high net short position of managed money, we recommend that clients refrain from implementing bearish positions until soybean oil has rallied to the 51.00 area. Soybean oil remains on a short and intermediate term sell signal.
May corn gained 0.50 cents on volume of 201,525 contracts. Volume declined approximately 44,500 contracts from March 20 when May corn gained 4 cents and open interest increased 13,514 contracts. On March 21, open interest increased by a massive 12,174 contracts, which in relation to volume is approximately 130% above average. During the past 6 days beginning on March 14, May corn has advanced 23.00 cents while open interest has increased a total of 86,983 contracts. The massive increase in open interest relative to the rather minor advance during the past 6 days is becoming troubling. Like natural gas, when a huge increase in open interest occurs and the price advance is relatively tepid, a correction, or perhaps a reversal in trend may be on the horizon.
May wheat lost 7.25 cents on volume of 64,533 contracts. Open interest declined by 894 contracts, which in relation to volume is approximately 40% less than average. Wheat remains on a short and intermediate term sell signal. Stand aside.
May crude oil lost $1.05 on very light volume of 411,302 contracts. Volume was the lowest since February 22 when 395,138 contracts were traded and May crude oil closed at $93.57. On March 21, open interest increased by 12,139 contracts, which in relation to volume is approximately 20% above average. The April contract lost 710 of open interest while May lost 1,023. The open interest increases occurred in the June forward contracts. One factor that is weighing on West Texas intermediate crude oil prices is the underperformance of Brent crude compared to WTI. Both are on short and intermediate term sell signals, and we see no major pickup in prices for WTI unless Brent begins to reassert its leadership role. One factor that could serve to boost WTI prices is that traders who have been long Brent and short WTI continue to unwind these spreads. Until a short/intermediate term buy signal is generated, crude oil should be traded only from the short side. However, we recommend the use of put options rather than out right short positions in futures. The situation in Syria seems to be entering a crisis stage, and the ramifications of this in the region is difficult if not impossible to assess. However, it could prove to be explosive for oil prices.
May natural gas lost 2.4 cents on heavy volume of 670,643 contracts. Volume exceeded the number traded on March 15 of 647,150 contracts, but fell short of 758,506 contracts traded on March 14. On March 21, open interest increased by a massive 24,867 contracts, which in relation to volume is approximately 50% above average. The massive increase of open interest is made more impressive when taking into account the April contract lost 18,932 of open interest.
For the past 4 trading sessions beginning on March 18, open interest has increased 56,309 contracts while natural gas has advanced 4.7 cents. The massive open interest increase compared to the relatively paltry advance, is troubling. In short, there is heavy selling as the market reaches the upper end of its trading range, which is capping the price advance. As indicated in previous reports, we think it is wise to take some money off the table due to the heavy increase of open interest and the tepid price response. Another approach, is to write out of the money calls against any remaining long futures, or long call positions.
May copper lost 1.15 cents on fairly heavy volume of 68,481 contracts. Volume was the highest since March 18 when 87,703 contracts were traded and copper lost 9.25 cents while open interest increased 3,295 contracts. On March 21, open interest increased by 475 contracts, which in relation to volume is approximately 60% less than average. Before recommending bearish positions in copper, we want to see the market rally up to the $3.56 area.
From Zerohedge March 22:
“Pardon this brief tangent from the hypnotic, sclerotic, quixotic, Cypriotic situation which will get no resolution today, or tomorrow, and may at best be resolved on Sunday night following yet another coordinated global bailout, (although our money is on a last, last minute resolution some time on Monday when Cyprus is closed but the European markets are widely open), but as it highlights a key follow up to our article from two days ago, “Dr. Copper’s Deja Vu” it is worth being aware of a rather particular problem in Asia right now. A rather well-known problem for those who have tracked the warehousing woes of assorted industrial medals (sic) in China as an indication of the true state of the Chinese economy: as of right now, the stocks of copper in Asia (as determined by deliverable LME CLS and Shanghai copper) are at an all time high and up 90% from the previous three year average.”
April gold gained $6.30 on volume of 177,382 contracts. Volume declined by 30,000 contracts from March 19 when April gold advanced $6.70 and open interest declined 3,089 contracts. On March 19, April gold made a high of 1615.00. On March 21, open interest increased 4,481 contracts, which in relation to volume is average. The high made on March 21 was 1616.50, or $1.50 higher than on March 19. Gold remains on a short and intermediate term sell signal. Due to the possible ramifications of the crisis in Cyprus, we are recommending a stand aside position.
April platinum lost $2.40 on relatively heavy volume of 17,368 contracts. Open interest increased by a heavy 723 contracts, which in relation to volume is approximately 55% above average. Platinum remains on a short and intermediate term sell signal. Stand aside.
May silver gained 39.5 cents on volume of 38,713 contracts. Open interest declined 669 contracts, which in relation to volume is approximately 30% less than average. Silver remains on a short and intermediate term sell signal. Stand aside.
Australian dollar: On March 21, the June Australian dollar generated an intermediate term buy signal.
The Australian dollar advanced 66 points on volume of 107,930 contracts. Volume was slightly higher than March 15 when 107,126 contracts were traded and open interest increased by 487 contracts while the Australian dollar advanced 25 points. On March 21, open interest increased by a massive 8,913 contracts, which in relation to volume is approximately 225% above average meaning that new longs were entering the market heavily and pushing prices higher. The June Australian dollar made a new high for the move at $1.0392, which is the highest price since 1.0439 made on January 24. On June 15, the Australian dollar generated a short-term buy signal. Our recommendation of writing out of the money puts has been a lucrative, low risk trade.
The June euro lost 30 points on volume of 314,885 contracts. Open interest increased by 1,382 contracts, which in relation to volume is approximately 75% below average. We continue to advise waiting until the June euro has reached the 1.31 area, before contemplating bearish positions.
S&P 500 E mini:
The S&P 500 E mini lost 10.00 points on volume of 1,904,974 contracts. Open interest declined 2,626 contracts, which is minuscule and dramatically below average. Stocks trading above their 50 day moving average on the NYSE fell to 1546 on March 21 from 1639 on March 20. Stocks making new highs minus those making new lows fell to 329 on March 21 from 613 on March 20. We continue to recommend writing calls that are significantly out of the money on the E mini.