May 30 report
July soybeans lost 6 cents on light volume of 122,277 contracts. Open interest declined by 1,924 contracts, which relative to volume is approximately 35% less than average. The July contract accounted for loss of 2,711 of open interest. As this report is being compiled on May 31, soybeans are trading 19.75 cents higher and have made a high of $15.23, which is the highest price since May 28 when beans made a high of 15.28 1/2. The market is in an un-even uptrend, and July soybeans are in the last month of trading. In our view, this bodes well for higher prices. On a seasonal basis, soybeans have a tendency to top out in May, June and July. Our major concern is the parabolic top of $15.46 3/4 made on May 23. If the market approaches this level again, there is likely to be a pullback, and conceivably a top. Soybeans remain on a short and intermediate term buy signal.
July soybean meal lost $3.50 on volume of 68,017 contracts. Open interest declined by a hefty 3,134 contracts, which relative to volume is approximately 75% above average, meaning that liquidation was fairly heavy on a rather modest decline. The July contract accounted for loss of 4,568 of open interest. Export sales for soybean meal was off the charts with sales totaling 149.16 thousand tons. As a result, sales have surpassed the USDA projection of 8,981 thousand tons and as of the report today, commitments total 9065.48 thousand tons. Soybean USDA projected sales for the current season is 1350 million bushels and commitments of 1343.8 million bushels have been made for the season. In short, soybeans are being crushed for soybean meal, and the demand for meal is robust. Soybean meal remains on a short and intermediate term buy signal.
July corn lost 10.75 cents on volume of 235,544 contracts. Open interest declined by 7,099 contracts, which relative to volume is approximately 20% above average. The July contract accounted for loss of 12,145 of open interest. Although corn has had its setbacks, it continues to trade at the high-end of its recent trading range. As we have stated before, with managed money holding a relatively high short position, we think it is possible for a blow off technical rally. With July corn is entering its last 30 days of trading and inventory tight, there are enough catalysts to move the market higher.
July wheat lost 4 cents on volume of 91,038 contracts. Open interest increased by 2,445 contracts, which relative to volume is average. The July contract accounted for loss of 5,460 of open interest, which makes the total open interest increase much more impressive. However, the increase in total open interest is confirmation of the bearish view of market participants. Unlike corn, we recommend the writing of out of the money calls in the July option. Wheat remains on a short and intermediate term sell signal.
July cotton lost 57 points on heavy volume of 41,078 contracts. Volume was the highest since April 12, 2013 when 57,443 contracts were traded. On May 30, open interest declined by 1,162 contracts, which relative to volume is average. The market made a new low on May 30, and as this report is being compiled on May 31, cotton has made another new low at 79.30 cents. When we made the recommendation to initiate bearish positions on May 19, we stated that our downside target was 81.50. After attaining this we revised the target lower to 80.00 cents. Now that cotton has broken below 80.00, there is nothing standing in the way of a move to 78 cents. The COT report will be released at 3:30 p.m. eastern daylight time and it will be interesting to see whether managed money has significantly reduced their long positions.
July WTI crude oil gained 48 cents on volume of 586,332 contracts. Open interest declined by 10,373 contracts, which relative to volume is approximately 25% below average. The July contract accounted for loss of 10,101 of open interest. Despite the very bearish fundamental situation, it is remarkable how well crude oil has held up. As this report is being compiled on May 31, WTI is trading $1.53 lower.
As we said in yesterday’s report: “Although we think crude oil prices are headed lower, we are hesitant to recommend new positions at current levels. Conceivably, the market could rally again by another dollar or two, and this could easily blowout a position that makes directional sense, but is untenable due to the risk potential.”
Brent crude oil:
July Brent lost 25 cents on volume of 555,816 contracts. Open interest increased 5,749 contracts, which relative to volume is approximately 50% less than average. As this report is being compiled on May 31, Brent is trading $1.08 lower and has made a new low for the move at $100.70. Brent remains on a short and intermediate term sell signal while WTI remains on a short and intermediate term buy signal.
July heating oil lost 2.06 cents on volume of 138,831 contracts. Open interest increased by 107 contracts, which is minuscule and dramatically below average. The June contract, which will expire shortly, lost 9,535 of open interest. It is a certainty that July heating oil will generate a short-term sell signal on May 31. This will weigh on the price of Brent and WTI going forward.
July gasoline gained 93 points on heavy volume of 178,268 contracts. Open interest declined by 7,088 contracts, which relative to volume is approximately 55% above average. The June contract accounted for loss of 8,296 of open interest. As this report is being compiled, July gasoline is trading 5.23 cents lower. However, it will not generate a short-term sell signal on May 31, but is getting close.
July natural gas lost 16.1 cents on volume of 306,152 contracts. Open interest declined by 5,759 contracts, which relative to volume is approximately 25% less than average. The June and July contracts accounted for loss of 7,245 of open interest. From May 24 through May 30, natural gas prices have declined each day. During this four-day decline, open interest has declined by 27,575 contracts while July natural gas has declined 28.4 cents. This is bullish open interest action relative to the price decline. Another positive factor has been the very light volume during the past 4 days. For example, we averaged volume for 4 days and the volume per day was 281,939 contracts traded. To put this number in perspective, consider that the average daily volume year to date is 391,081 contracts and that the average daily volume in April was 431,134. In short, during the past 4 days, open interest has declined along with price on very light volume. We consider this to be positive volume and open interest action relative to the price decline. Despite this, it is a certainty that natural gas will generate a short-term sell signal, which reverses the short-term buy signal generated on May 23.
The June Australian dollar gained 39 points on volume of 148,015 contracts. Open interest declined by 680 contracts, which relative to volume is approximately 75% less than average. Continue to hold the short call position recommended on April 29 and 30. Do not initiate new bearish positions current levels.
The June euro gained 1.10 cents on surprisingly light volume of 319,500 contracts. Volume increased only 9,000 contracts from May 29 when the euro advanced 60 points and open interest declined 2,697 contracts. In other words, the advance on May 30 was nearly twice that of May 29, but volume expanded very little. This confirms the lack of upside enthusiasm for the euro. As this report is being compiled on May 31, the June euro is trading 70 points lower. After exiting bearish positions on May 30, speculators should be on the sidelines.
S&P 500 E mini:
The S&P 500 E mini gained 6.50 points on volume of 1,784,670 contracts. Open interest increased by a meager 4,748 contracts. Open interest action continues to act in a bearish pattern. For example, when the market rallies, open interest increases are muted and when the E mini declines, open interest tends to rise. The E mini has been trading in a different pattern ever since it made its blow off top of 1685.75 on May 22. Rallies do not get very far and the market does not have this strength to test the secondary high of 1672.75 made on May 28. We strongly urge that long put protection be initiated if it has not been implemented already. This is especially important for those that hold long positions in equities.