June WTI crude oil gained 9 cents on volume of 743,320 contracts. Open interest increased by a minor 4,653 contracts, which is dramatically below average. The low of $92.13 made on May 15 likely represents the low-end of the trading range and 97.00 is probably the high. Until Brent crude and gasoline generate a short-term buy signals, we advise a stand aside posture.
Brent crude oil:
July Brent crude advanced 99 cents on volume of 815,055 contracts. Open interest declined by a sizable 23,743 contracts, which relative to volume is approximately 20% above average, but this is due to the expiration of June contract. Brent remains on a short and intermediate term sell signal. Stand aside.
June heating oil gained .0071 cents on volume of 101,544 contracts. Open interest increased by 5,446, which relative to volume is approximately 50% above average. The market made a low of $2.8193, which is the lowest price since May 2 when June heating oil reached $2.7820. Howver, the market recovered nicely and closed fractionally higher. Heating oil remains on a short-term buy signal, but an intermediate term sell signal. Heating oil should find resistance at the $2.94-2.95 level. Stand aside.
June gasoline gained 2.94 cents on heavy volume of 185,659 contracts. Volume was the highest since April 24 when 196,067 contracts were traded and June gasoline closed at $2.7518. During the past 6 trading sessions beginning on May 8, gasoline price and open interest has been trading in a bullish congruent fashion. Despite this, gasoline has been unable to generate a short-term buy signal, but is getting close. The problem appears to be that during the past several sessions, gasoline has been unable to close near it highs. We recommend a stand aside posture.
June natural gas advanced 4.6 cents on volume of 2 57,070 contracts. Open interest declined by a minor 344 contracts. As this report is being compiled on May 16, June natural gas is trading 13.9 cents lower due to the EIA report showing inventories rising 99 bcf, which was above expectations of 95 bcf. As we stated in previous reports, we like the way natural gas has been correcting ever since it topped out at $4.457 on April 18. Open interest has been declining along with price and the correction has been in an orderly manner. Natural gas remains on a short-term sell signal and an intermediate term buy signal. Stand aside.
July soybeans lost 2 cents on volume of 123,660 contracts. Open interest increased by 4,673 contracts, which relative to volume is approximately 50% above average, meaning that both longs and shorts were very aggressive initiating new positions, but this was unable to move the market beyond a fractional loss. As this report is being compiled, soybeans are trading 15 cents higher and has made a new high for the move at $14.31, which is the highest price since March 28 when July beans made a high of $14.36 1/4. As we stated in the May 13 report, soybeans should move higher, but unless a weather event changes the essential supply dynamic, we expect the rally to be fairly modest. Soybeans have a seasonal tendency to top out in May, June, or July with June being the month when most highs are made. Soybeans remain on a short-term buy signal, but an intermediate term sell signal.
July soybean meal lost $1.30 on volume of 65,335 contracts. Open interest increased by 252 contracts, which relative to volume is approximately 80% less than average. Like soybeans, we expect soybean meal to rally, but bulls should temper their enthusiasm unless a major weather event occurs. Soybean meal remains on a short-term buy signal and an intermediate term sell signal.
July corn lost 1.75 cents on light volume of 180,711 contracts. Open interest increased by a massive 9093 contracts, which relative to volume is approximately 100% above average, which means both longs and shorts were aggressively entering the market, but were able to move prices only fractionally lower. Although, corn remains on a short-term buy signal, we think the high made on April 30 of $6.69 will hold for some time. Unless a weather event occurs that changes the supply dynamic, we recommend that clients write out of the money calls on rallies.
July wheat lost 17 cents on volume of 81,448 contracts. Open interest declined by 2,144 contracts, which relative to volume is average. Wheat is likely to generate a short-term sell signal on May 17, which would reverse the short-term buy signal generated on May 2. Since the generation of that signal, wheat has been acting in a bearish fashion from a price and open interest standpoint. Like corn, we suggest writing out of the money calls on rallies.
July coffee lost 3.45 cents on volume of 25,968 contracts. Volume rose approximately 7,000 contracts from May 14 when coffee lost 1.75 cents and open interest increased by 385 contracts. On May 15, open interest increased by 180 contracts, which relative to volume is approximately 60% less than average. In short, during the past 2 trading sessions, coffee has declined by 5.20 cents while open interest has increased by 565 contracts, which relative to two day's volume is approximately 45% less than average. Additionally, volume on the decline has been on the low side as well. As this report is being compiled on May 16, coffee has made a low of 1.3825, but has rallied to 1.4025. Originally we thought coffee would move to the 1.42 level, but the market moved to the lower end of the trading range, however coffee remains on a short-term buy signal, but an intermediate term sell signal. In our view, the low on May 16 is at, or near to the reaction low made from the May 10 high of 1.4880. We recommend that clients purchase call options, which will give them the flexibility of managing their risk based upon their choice of option strikes.
The Australian dollar lost 8 points on heavy volume of 131,040 contracts. Open interest increased by 9,402 contracts, which relative to volume is approximately 185% above average, meaning that new shorts continued to enter the market aggressively and drive prices lower. For the past 8 sessions beginning on May 6, the June Australian dollar has declined and open interest has declined each day as well. On April 23, OIA announced that the June Australian dollar generated a short and intermediate term sell signal. Furthermore, we recommended that clients short out of the money calls on April 29 and 30. This trade has been working well and the position should continue to be held.
On May 15, the June Euro generated a short-term sell signal, which reversed the short-term buy signal generated on May 1. The euro remains on an intermediate term sell signal.
The June euro declined 62 points on volume of 288,482 contracts. Open interest increased by a massive 11,954 contracts, which relative to volume is approximately 55% above average. Wait for a rally before implementing bearish positions.
S&P 500 E mini:
The S&P 500 E mini gained 6.25 points on heavier than normal volume of 2,144,500 contracts. Open interest increased by 36,905 contracts, which relative to volume is approximately 35% less than average. We continue to advise long put protection on the E mini, especially for those clients that hold long positions in equities.
By. Gary Stern