July WTI crude oil lost 8 cents on volume of 623,501 contracts. Total open interest declined by 1,083 contracts which is minuscule and dramatically below average. However, the July contract accounted for a loss of 33,696 contracts, which means there were sufficient new positions initiated that decreased total open interest to a minor number. The market has a firm undertone, however it is trading at the very high-end of its range going back to September of 2012. This is reason enough to be cautious. If WTI moves to $99.00, this would be a breakout of its 2013 range. With Brent, gasoline and heating oil on a short-term buy signals, the strength of WTI cannot be underestimated, but geopolitical events and the real possibility of a sharp decline in equities make positions on either side of the trade potentially hazardous.
Brent crude oil:
July Brent crude lost 46 cents on very light volume of 389,910 contracts. Open interest declined by 2,587 contracts, which relative to volume is approximately 65% less than average. As we have seen many times before, the lack of enthusiasm for Brent is usually manifested by low volume or tepid movements of open interest. In the case of Brent on June 17, volume was the lowest since May 27 when 42,389 contracts were traded. Although Brent generated a short-term buy signal on June 14, its performance since then has been unimpressive, especially when compared to WTI. Brent has not pulled back after generating a short-term buy signal and we expect this to occur shortly. If speculators are holding bullish positions in WTI, we suggest they offset these in whole or in part with bearish positions in Brent.
July heating oil lost 1.19 cents on very light volume of 79,868 contracts. Volume was the lowest since December 31, 2012 when 66,877 contracts were traded. On June 17, open interest declined by 2,063 contracts, which relative to volume is average. The July contract accounted for loss of 3,780 of open interest. Since generating a short-term buy signal on June 14, heating oil has pulled back for one day, but we expect to see more of a correction, before heating oil resumes its uptrend.
July gasoline lost 4.06 cents on light volume of 110,227 contracts. Open interest declined only 224 contracts, which is minuscule and dramatically below average. The July contract, which is about to expire accounted for loss of 6,647 of open interest. Although gasoline has been on a short-term buy signal since May 17, its performance has been abysmal, especially considering that seasonally gasoline consumption and prices begin to pick up. Gasoline needs to move up to the $2.92 level, and preferably to $2.94, which would be considered an upside breakout. If rallies continue be stymied, eventually new short sellers will enter the market and likely drive prices lower. Since May 31, gasoline has been underperforming heating oil by a significant margin. For example from May 31 through June 17, heating oil has advanced 6.19% while gasoline has advanced 4.33%.
July natural gas gained 14.2 cents on volume of 338,684 contracts. Open interest declined by 6,855 contracts, which relative to volume is approximately 20% less than average, meaning that participants were liquidating as the market moved higher, which is bearish, but were doing so at a rate that was below average. The July contract accounted for loss of 21,049 contracts. The volume on June 17 was approximately 35,000 below the average daily volume year to date of 373,700 contracts. This, along with the decline of open interest tells us that market participants lack of enthusiasm for the upside of natural gas. Ideally, we want to see a market pull back, perhaps for a final retest of the 3.71 level.
July soybeans lost 4 cents on very low volume of 148,679 contracts. Open interest increased by 5,273 contracts, which relative to volume is approximately 40% above average. The July contract accounted for loss of 6,984 of open interest, which makes the total open interest increase more impressive (bearish). The fact that total open interest increased significantly above average even though July lost several thousand contracts shows that shorts were clearly in control. Beans made their low in the evening session on Sunday and continued to trade lower into Monday. We think July soybeans will work their way higher, however if July soybeans penetrate $14.80, it is likely that the top has been made. July soybeans remain on a short and intermediate term buy signal.
July soybean meal lost $1.60 on volume of 66,094 contracts. Open interest increased by 2,704 contracts, which relative to volume is approximately 55% above average. The July contract accounted for loss of 2,557 of open interest. Like soybeans, soybean meal traded lower during the evening session on Sunday through Monday. The build of open interest on a relatively minor decline is somewhat troubling, however we think that soybean meal will continue to be the leader, and that soybean meal will top out later than soybeans. If July meal breaks below $427.00, a top, or temporary top is likely to have been made. July soybean meal remains on a short and intermediate term buy signal.
July corn gained 13.50 cents on volume of 291,373 contracts. Total open interest declined by 10,996 contracts, which relative to volume is approximately 50% above average, meaning that liquidation was very heavy on the advance. The July contract accounted for loss of 25,395 of open interest. Monday was the second day in a row that corn prices advanced and open interest declined. Market participants are using rallies to unload their holdings of corn. Despite this, we think corn prices are headed higher, and as this report is being compiled on June 18, July corn is trading 2.75 cents higher and has made a new high for the move at $6.77 1/4, which took out the high of 6.74 made on June 7. July Corn remains on a short-term buy signal, but an intermediate term sell signal
July wheat lost 0.25 cents on volume of 112,330 contracts. Total open interest declined by 7,104 contracts, which relative to volume is approximately 145% above average, meaning that liquidation was very heavy. The July contract accounted for loss of 11,646 of open interest. Wheat remains on a short and intermediate term sell signal.
December cotton lost 45 points on heavy volume of 63,177 contracts. Volume was the highest since June 13 when 74,525 contracts were traded. On June 17, open interest declined by 2,431 contracts, which relative to volume is approximately 50% above average, meaning that liquidation was unusually heavy on the decline, which is positive. The market was massively overbought and as we stated in the Weekend Wrap of June 16:
"If the market pulls back as we expect, it is highly likely that some recent speculative longs will be shaken out on the correction. This places cotton in the sweet spot with respect to an entry point on the long side. Cotton generated a short-term buy signal on June 13, and continued its advance on the 14th. We think a correction lasting 1-2 and possibly 3 days should take cotton down to 86.50 and possibly to its 50 day moving average of 85.30 on the December chart.
On June 17, July platinum generated a short-term sell signal, which reverses the short-term buy signal generated on June 5. Platinum remains on an intermediate term sell signal.
The September euro gained 10 points on light volume of 183,440 contracts. Open interest increased by 2,740 contracts, which relative to volume is approximately 40% less than average. As this report is being compiled on June 18, the September euro has made a new high for the move at 1.3423 and is trading 65 points higher. On June 6 and 7 the euro generated a short and intermediate term buy signal respectively.
S&P 500 E mini:
The S&P 500 E mini gained 15.25 points on extremely heavy volume of 3,002,214 contracts. Open interest increased by 45,832 contracts, which relative to volume is approximately 40% less than average. As this report is being compiled on June 18, the E mini is trading 13.50 points higher and has made a new high for the move at 1648.00. Much of the rally of the past 2 days can be attributed to the hope that the Federal Reserve will continue its quantitative easing program. The board of governors are meeting on June 18 and 19 and the results will be released on June 19. This undoubtedly will move the market sharply one way or the other. We continue to advise long put protection in the E mini, especially for those who hold long equity positions.
By Garry Stern