July soybeans lost 26 cents on extremely light volume of 149,504 contracts. Total open interest declined by 2,271, which relative to volume is approximately 40% less than average. The May contract accounted for loss of 3,383 of open interest. Soybeans remain on a short and intermediate term sell signal. Stand aside.
July corn lost 3.25 cents on volume of 201,092 contracts. Total open interest declined by 9,262, which relative to volume is approximately 75% above average, meaning that liquidation was very heavy on the rather modest decline. The May contract accounted for loss of 5,466 of open interest. Corn remains on a short and intermediate term sell signal. Stand aside.
July wheat lost 10 cents on light volume of 78,534 contracts. Volume shrank approximately 69,000 contracts from April 30 when July wheat gained 14.50 cents and open interest declined 5,803 contracts. On May 1, total open interest increased by a mere 95 contracts. The May contract lost 153 of open interest and July lost 1,070. The December 2013 contract added 1,589 of open interest. This was responsible for bringing the total open interest number to a positive reading. From April 1 through May 1, July wheat has dramatically outperformed corn. For example, July wheat has gained 7.77% in this time frame while July corn has gained 3.19%. Managed money is long corn by a ratio of 1.54:1 while it is short wheat by a ratio of 1.34:1. If the May 2 low of $7.17 3/4 holds for the rest of the trading session, July wheat will generate a short-term buy signal. However, this is not the point to implement bullish positions. As is usually the case, a pullback ensues after the generation of a buy signal. We don’t think the pullback will last very long, perhaps just one day and this is the move you want to buy
June cattle gained 57.5 points on volume of 54,342 contracts. Total open interest declined by 1,268, which relative to volume is average. The June contract accounted for loss of 4,637 contracts. It is highly likely that June cattle will generate a short-term buy signal on May 2. However, similar to wheat, cattle is likely to have a pullback and this is the move you want to buy.
June crude oil lost $2.43 on very heavy volume of 736,155 contracts. Volume was the highest since April 18 when 772,647 contracts were traded and crude oil gained $1.05 while open interest increased 7,945 contracts. On May 1, open interest declined by 16,648 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on May 2, crude oil is trading $2.08 higher. Crude oil remains on a short and intermediate term sell signal.
June natural gas lost 1.7 cents on volume of 408,208 contracts. Open interest increased by 9,903 contracts, which relative to volume is average. We have been warning clients the market has been overbought and that a pullback was inevitable. We are seeing this on May 2 as June natural gas is trading 26.6 cents lower and has made a new low for the move at $4.018. Below, is the summary from Dow Jones about the larger than expected build in natural gas inventories from the Energy Information Administration. June natural gas has support at $3.91 and 3.83.
From Dow Jones News:
Stockpiles last week climbed 43 billion cubic feet to 1,777 bcf, according to
the U.S. Energy Information Administration, well above the 30-bcf rise
projected by analysts in a Dow Jones Newswires survey.
The steep increase suggests that demand from utilities for electricity and
heating–the biggest drivers of natural-gas prices–may be coming in weaker
July copper lost 10.75 cents on volume of 68,244 contracts. Open interest increased by 2,081 contracts, which relative to volume is approximately 20% above average. July copper made a new low for the move at $3.0425. As this report is being compiled on May 2, copper has rallied 2.30 cents. Copper remains on a short and intermediate term sell signal. Stand aside.
June gold lost $25.90 on volume of 183,691 contracts. Volume was light considering the magnitude of the decline. Compared to April 30, volume on May 2 rose approximately 15,000 contracts from April 30 when gold advanced $4.70 and open interest declined 16,046 contracts. Although it is positive to see that volume is not increasing on a large decline, gold has much work to do by testing the recent lows and highs. Gold remains on a short and intermediate term sell signal. Stand aside.
July silver lost 84.2 cents on volume of 65,657 contracts. Open interest increased by 2,259, which relative to volume is approximately 40% above average meaning that new shorts were entering the market and driving prices lower. Silver remains on a short and intermediate term sell signal. Stand aside.
The June Australian dollar lost 68 points on volume of 100,878 contracts. Open interest increased by 747 contracts, which relative to volume is approximately 55% less than average. On April 23, the June Australian dollar generated a short and intermediate term sell signal. Previously, we have recommended that clients write out of the money calls in the Australian dollar. Continue to hold this position.
Euro: The June euro generated a short-term buy signal.
The June euro gained 51 points on light volume of 198,764 contracts. Volume shrank by approximately 87,000 contracts from April 30 when the euro advanced 65 points and open interest declined 83 contracts. On May 1, open interest declined 829 contracts, which relative to volume is approximately 80% less than average. As is usually the case when a buy signal is generated, the market undergoes a correction lasting 1-2 and possibly 3 days. As this report is being compiled on May 2, the euro is trading down 1.47 cents on heavy volume. The euro zone cut interest rates by 25 basis points on May 2. Although the market is negatively reacting to the news, it was not unexpected, and the pullback is due in part to the strong rally of the past several sessions. We envision a further pullback to 1.3016, and 1.2993. Our worst-case scenario is a pullback to 1.2960. A more conservative way of playing the pullback in the euro is to write out of the money puts. We want to see what the open interest stats tell us about the action on May 2. Our preference would be to see a hefty open interest decline.
S&P 500 E mini:
The S&P 500 E mini lost 15.00 point on light volume of 1,469,670 contracts. Open interest increased by 12,369, which relative to volume is approximately 55% below average. We have seen a pattern of shallow pullbacks and then rallies in the days that follow. This pattern is repeating itself on May 2 as the June E mini is trading 16.00 points higher. The unusual aspect of the rally has been the lack of a pullback of at least 5%. Our fear is when the pullback comes, it could be more damaging than the street currently thinks. The crucial area to watch for on the June E mini is 1548.50. If the E mini penetrates this level and closes below it, we could have the first signal the E mini is definitely entering a corrective phase. On May 1, the number of stocks trading above their 50 day moving average on the New York Stock Exchange fell tp 1,416, which was over a 200 stock drop from April 30 when 1,627 stocks traded above their 50 day moving average on the NYSE.
Tomorrow, is the employment report, and this will determine the direction of trading for the next couple of days. We think it is wise to have some put protection, especially if clients have larger long position(s) in equities.