On March 28, the USDA will release its planting intentions report.
May soybeans lost 8.50 cents on light volume of 133,495 contracts. Volume was the lowest since March 21 when 131,325 contracts were traded and open interest declined 1,192 contracts while May soybeans advanced 13 cents. On March 22, open interest declined 1,321 contracts, which in relation to volume is approximately 50% less than average. The May contract lost 4,542 of open interest. Soybeans remain on a short and intermediate term sell signal. Soybeans should be traded from the short side
May soybean meal lost $3.60 on volume of 63,458 contracts. Open interest increased 260 contracts, which in relation to volume is approximately 75% below average. The May contract accounted for loss of 953 contracts. Soybean meal remains on a short and intermediate term sell signal. Soybean meal should be traded from the short side.
May soybean oil gained 1 point on volume of 68,555 contracts. Open interest increased 375 contracts, which in relation to volume is approximately 60% less than average. The May contract accounted for loss of 783 contracts. Soybean oil remains on a short and intermediate term sell signal. Although we believe that soybean oil should be traded from the short side, conceivably the market could rally due to the large number of managed money shorts.
May corn lost all 6.75 cents on volume of 243,106 contracts. Volume was 3,000 contracts below March 20 when corn advanced 4 cents and open interest increased 13,514 contracts. On March 22, open interest increased 9,666 contracts, which in relation to volume is approximately 55% above average. The May contract accounted for loss of 6,935 of open interest. We would’ve preferred to have seen open interest decline on Friday’s pullback. As we said in the Weekend Wrap of March 24, commercial selling has been keeping a lid on corn prices. May corn generated a short-term buy signal on March 18 and an intermediate term buy signal on March 19. Corn should be traded from the long side.
May wheat gained 1 cent on volume of 72,348 contracts. Open interest declined by 3 contracts, and the May contract accounted for loss of 1,431 of open interest. Wheat remains on a short and intermediate term sell signal. However, we do not recommend trading wheat from the short side at this juncture. Stand aside.
May crude oil gained $1.26 on light volume of 432,118 contracts. Volume increased by approximately 21,000 contracts from March 21 when crude oil declined $1.05 and open interest increased 12,139 contracts. On March 22, open interest increased by 2,996 contracts, which in relation to volume is approximately 60% below average.
The advance on March 22 exceeded the advance on March 7 when crude oil gained $1.13. In order to put the rally of March 22 in context consider the following: on March 7 when crude gained $1.13 volume was 681,799 contracts and open interest increased 8,496 contracts. The next advance that approximated the rise on March 22 occurred on February 11. On that day, crude oil gained $1.31 on volume of 831,563 and open interest increased 14,354. In short, the rally on March 22 was not confirmed by increasing volume and increasing open interest. On March 25, crude oil made a new high for the move at $95.65, which is the highest price for crude since February 20 when May crude reached $97.99. On February 21, May crude made a high of 95.33. On the 15 minute chart for March 25, the high of 95.65 was made on a volume spike of 20,103 contracts. Heavy volume on a new high can be the continuation of a strong advance, or a sign of capitulation. In this case, we believe it is a sign of capitulation, and that the high of March 25 should be used as a benchmark to exit from bearish positions. The spread between West Texas intermediate crude and Brent crude oil is narrowing, and this is forcing market participants who have been long Brent crude oil and short WTI to unwind their positions. WTI remains on a short and intermediate term sell signal as does Brent crude.
May natural gas declined 9 ticks on relatively light volume of 340,600 contracts. Open interest increased by a massive 24,937 contracts, which in relation to volume is approximately 180% above average, meaning that large numbers of longs and shorts entered the market, but neither side was able to move the market. In the Weekend Wrap of March 24, we expressed our concern about the continually increasing open interest without a corresponding increase in prices.
For the past 5 trading sessions beginning on March 18, open interest has increased 81,246 contracts while natural gas has advanced 4.8 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.
We strongly encourage clients to take partial profits, or at least write calls that are out of the money, in order to protect bullish positions. Managed money has moved strongly to the long side, and we suspect that much of the selling is from commercial interests and speculators who are trying to pick a top. Regardless, the selling is capping the advance, and clients should exercise extreme caution. We recommend that sell stops be placed slightly below $3.89. Holders of long calls should liquidate if the market penetrates the 3.89 level.
May copper gained 3.10 cents on volume of 49,100 contracts. Open interest declined 1,282 contracts, which in relation to volume is average. The rally on March 22 on lackluster volume while open interest declined confirms the dismal condition of the copper market. Although we have targeted the $3.56 area for the implementation of bearish positions, it doesn’t appear that copper has the strength to move to this level. Due to the illiquidity of the options market, there are no other alternatives other than being short the futures. Although copper is trading at the low-end of the range, we can envision a scenario in which copper could have a surprise rally. Our recommendation is to stand aside at current levels.
April gold lost $7.70 on heavier than normal volume of 192,942 contracts. Volume increased approximately 15,500 contracts from March 21 when April gold advanced 6.30 and open interest increased 4,481 contracts. On March 22, open interest declined 698 contracts, which is minuscule and dramatically below average. Despite the carnage in Cyprus, and the possibility, however remote that this could spread to the peripheral countries, the upside prospects for gold have not improved. Gold remains on a short and intermediate term sell signal. Stand aside.
April platinum gained $1.60 on heavier than normal volume of 19,056 contracts. Open interest increased 71 contracts which is minuscule and dramatically below average. Platinum remains on a short and intermediate term sell signal. Stand aside.
May silver lost 51.4 cents on volume of 44,228 contracts. Volume increased 4,500 contracts from March 21 when silver advanced 39.5 cents and open interest declined 669 contracts. On March 22, open interest increased by a whopping 1,988 contracts, which in relation to volume is approximately 75% above average, meaning that new shorts were heavily entering the market and driving prices lower. Silver remains on a short and intermediate term sell signal. Stand aside.
The June Australian dollar lost 5 ticks on volume of 77,012 contracts. Open interest increased by a massive 12,185 contracts, which in relation to volume is approximately 420% above average. It is a bit concerning that the massive increase in open interest was unable to move the market significantly higher. Previously, we had recommended writing out of the money puts, and this strategy has been working well.
The June euro gained 67 points on light volume of 295,118 contracts. Volume was the lowest since March 11 when 214,488 contracts were traded and the euro advanced 39 points while open interest declined 10,647 contracts. On March 22, open interest declined 3,801 contracts, which in relation to volume is approximately 45% less than average. The open interest decline combined with very low volume on the advance is testament to a market that is technically weak. Although we were hoping for more of a rally in order to implement bearish positions, it looks like this is off the table for now. On March 25, the June euro has traded in a 250 point range. After making a new high for the move at 1.3094, it has declined and made a new low for the move at 1.2837. This is due to the uncertainty with respect to the banking situation in Cyprus and the fear that a contagion could spread to the peripheral countries. Stand aside.
S&P 500 E mini:
The June S&P 500 E mini gained 13.00 points on volume of 1,580,747 contracts. Volume was the lowest since February 19 when 1,502,332 contracts were traded and open interest declined by 40,120 contracts while the E mini advanced 11.00 points. On March 22, open interest increased by 12,202 contracts, which in relation to volume is approximately 55% below average. In short, the E mini had its largest rally since February 27 when the E mini gained 23.25 points on volume of 2,485,970 contracts while open interest declined 13,911 contracts. However, volume shrank dramatically on the 22nd and the open interest increase was disappointing to say the least. On March 22, stocks on the NYSE trading above their 50 day moving average increased to 1556 from 1546 on March 21. This feeble increase is another indication of weak internals as the E mini advances We continue to advocate writing calls that are significantly out of the money.