We are initiating coverage on New York coffee.
July soybeans gained 13 cents on very light volume of 99,091 contracts. Open interest declined 274 contracts. The May contract accounted for loss of 450 of open interest. Soybeans remain on a short and intermediate term sell signal. Stand aside.
July corn gained 3.50 cents on volume of 197,799 contracts. Open interest increased by 190 contracts. The May contract accounted for loss of 2,221 of open interest. Despite the sharp move lower on May 8, corn will not generate a short-term sell signal, which would reverse the short-term buy signal generated on May 3. However, it is likely to occur on May 9. Stand aside.
July wheat gained 6.25 cents on volume of 82,348 contracts. Open interest increased by 1,310 contracts, which relative to volume is approximately 35% less than average. Though wheat is trading lower on May 8, it will not generate a short-term sell signal, which would reverse the short-term buy signal generated on May 2. However, it is likely to occur on May 9. Stand aside.
Live cattle: On May 7, June live cattle generated a short-term sell signal, which reverses the short-term buy signal generated on May 2.
June live cattle lost 47.5 points on volume of 68,440 contracts. Open interest declined by 1,975 contracts, which relative to volume is average. Although it appears that cattle is headed lower, we are not terribly bearish at current levels and recommend a stand aside position.
June crude oil lost 54 cents on volume of 579,430 contracts. Open interest declined 9,354 contracts, which relative to volume is approximately 35% less than average. It is healthy to see open interest decline when price declines, especially since there was an open interest build during the rally of the past several sessions. On May 6, June crude oil generated a short and intermediate term buy signal. However, we are waiting for a pullback before recommending the initiation of bullish positions. As the piece below indicates, stocks of crude oil are at their highest level since April of 1981, however, the surplus narrowed compared to a year ago. Stand aside.
DJ MARKET TALK: Crude Stocks Rise, Surplus to Year-Earlier Narrows
11:07 EDT – US crude oil stocks rose 230,000 bbls last week and remain at
their highest level since April 1981, at 395.5M bbls, EIA data show. Gain was
well below expected 1.7M-bbl rise, as imports fell 6.9%, or 560,000 b/d from a
four-month high a week earlier. Output inched up to 21-year high of 7.369M b/d.
Despite stock build, surplus to year-earlier narrowed to an eight-month low of
4.2% from 5.2% a week earlier. Surplus to five-year level widened to 9% from 8%
a week earlier.
Brent crude oil:
June Brent crude oil lost $1.06 on volume of 862,692 contracts. Open interest declined by 14,641 contracts, which relative to volume is approximately 35% less than average. Brent crude continues to be the laggard and as of May 8 has not generated a short or intermediate term buy signal. Stand aside.
Heating oil: On May 7, June heating oil generated a short-term buy signal.
June heating oil gained .0075 cents on volume of 151,471 contracts. Open interest declined by 1,038 contracts, which relative to volume is approximately 65% below average. We can expect to see open interest decline as heating oil prices rise because managed money is heavily short heating oil. As is usually the case after a buy signal is generated, a pullback ensues, which lasts from 1-2 and possibly 3 days. As this report is being compiled, heating oil has pulled back to 2.8982 and is trading 1.37 cents lower. Stand aside and wait for a further correction before initiating bullish positions.
June gasoline lost 3.23 cents on volume of 120,793 contracts. Open interest increased by 3,174 contracts, which relative to volume is average. With the COT long to short ratio at major two-year lows, there is larger number of bears in gasoline than usual. The open interest increase when prices declined is bearish, but we expect gasoline will generate a short-term buy signal within the next day or so. As the article from Dow Jones indicates demand is lagging year earlier levels. We think price increases in the petroleum complex is being driven by quantitative easing and an equities market that continues to march ever higher.
DJ MARKET TALK: Weak Start for Peak-Gasoline-Demand Season
12:09 EDT – US gasoline demand at 8.4M barrels/day last week lagged the
year-earlier level by 4.7%, the biggest shortfall in seven months, EIA data
show, while falling 400K barrels in early May was the largest decline for the
start of what’s the peak gasoline-demand season since 1994. Demand hasn’t been
robust of late, and the 4-week average of 8.5M is a 14-year low for this time
of year. EIA projects daily average April-September gasoline demand will drop
0.3% to a 12-year low of 8.9M as more-fuel-efficient vehicles continue to hit
the nation’s roads.
July New York coffee gained 95 points on volume of 19,932 contracts. Open interest declined by 149 contracts, which relative to volume is approximately 60% below average. Since coffee began its rally on May 1 through May 7, open interest declined by 7,584 contracts while July coffee gained 8.00 cents. This is bearish open interest action relative to the price advance. It is a virtual certainty that July coffee will generate a short-term buy signal on May 8. As of the latest COT report, managed money is short coffee by a ratio of 1.59:1. This is certainly good news for anyone contemplating long positions. We expect to see liquidation by managed money shorts on further advances. As this report is being compiled, coffee is up 1.45 cents, and has reached a high not seen since April 22. After the generation of the buy signal on May 8, July coffee could snap back to its 50 day moving average of 1.403, and at least to 1.413. On the upside, we see resistance at the $1.49 level. Stand aside.
The Australian dollar lost 57 points on heavy volume of 130,273 contracts. Open interest increased by 3,364 contracts, which relative to volume is average. The market continues to trade in a very bearish fashion, and the trade we recommended on April 29 and 30 of writing out of the money calls is working well. Stay with this position.
The June euro gained 7 points on volume of 183,088 contracts. Open interest declined by 1,302 contracts, which relative to volume is approximately 65% less than average. Although we thought it was possible for the euro to pullback to the low 1.30 area, this is not occurred and as this report is being compiled on May 8, the euro is trading 69 points higher and has made a high of 1.3198. Use a setback to 1.31 to initiate bullish positions and use the low of 1.3071, or 1.3056 as an exit point for futures positions. As we stated yesterday, clients can also write out of the money puts, which is a more conservative trade. On May 1, the June euro generated a short-term buy signal.
S&P 500 E mini:
The S&P 500 E mini gained 7.00 points on volume of 1,520,100 contracts. Open interest increased by a massive 51,361 contracts, which relative to volume is approximately 35% above average, meaning that new longs were moving aggressively into the E mini and pushing prices higher. Since April 19, through May 8 the E mini has advanced 12 days and declined on 2. As this market continues to move higher, investors are going to become increasingly worried about acquiring equities at stratospheric prices. We think the market is in a bubble, and strongly recommend put protection, especially if clients are long equities.