July WTI crude oil advanced 64 cents on volume of 632,229 contracts. Open interest declined by 4,828 contracts, which relative to volume is approximately 60% less than average. The June contract accounted for loss of 37,325 of open interest because it will shortly expire. We continue to advise a stand aside position in crude oil due to the inherent risk involved in all markets, especially when the equity market begins to setback.
July Brent crude gained 16 cents on very light volume of 440,721 contracts. Volume was the lowest since May 6 when 388,255 contracts were traded. On May 20, open interest declined by 1,883 contracts, which is 75% below average. During the past 3 days beginning on May 16, Brent has advanced $1.30 while open interest has declined 777 contracts. This is bearish open interest action relative to the price advance. Additionally, volume has been declining on the 3 session advance: May 16, 671,351, May 17, 540,779, May 20, 440,721 Despite the move higher, volume is shrinking and, Brent has been unable to generate a short-term buy signal. We consider this to be a potential canary in the coal mine for the rest of the petroleum complex. Stand aside.
July heating oil gained 1.18 cents on very light volume of 96,391 contracts. Remarkably, volume was the lightest since January 2 when 95,882 contracts were traded and July heating oil closed at $3.0195.On May 20, open interest declined by 1789 contracts, which relative to volume is approximately 25% less than average. The June contract lost 5385 contracts due to its impending expiration. Like Brent, volume in heating oil for the past 3 sessions has been declining. For example, on May 16 July heating oil advanced 2.86 cents on volume of 139,252, May 17, +2.83 cents on volume of 122,905 contracts, May 20+1.18 cents on volume of 96,391. This is bearish volume action relative to the price increase. A bullish scenario would be that volume increases as price advances. Stand aside.
July gasoline gained .0011 on extremely light volume of 87,694 contracts. Volume on May 20 was the lowest for 2013.On May 20 , open interest declined by 1243 contracts, which relative to volume is approximately 40% less than average.The June contract lost 4,242 of open interest due to its impending expiration. Like Brent and heating oil, volume has been decreasing as gasoline prices have been advancing. On May 16, gasoline advanced 1.52 cents on volume of 150,619, May 17+2.47 on volume of 128,956, May 20 +11 ticks on volume of 87,694 contracts. This is bearish volume action on the price advance. On May 17, gasoline generated a short-term buy signal, which is usually accompanied by a pullback lasting 1-2 and sometimes 3 days. However we don't like the way gasoline is trading and at this juncture advise a stand aside position.
June natural gas gained 3.5 cents on volume of 289,853 contracts. Total open interest increased by 4,910 contracts, which relative to volume is approximately 35% less than average. However, the June contract lost 13,927 of open interest, which means there was sufficient buying in the July forward months to bring total open interest to a relatively strong positive number. As matter of fact the open interest increase along with the price advance is the first time this has occurred since April 29 when natural gas advanced 16.9 cents and open interest increased by 13,072 contracts on volume of 298,408 contracts. We think natural gas is turning around and that most of the downside has been seen for now. Setbacks are to be expected, but in our view, natural gas should only be traded from the long side. Although natural gas remains on a short-term sell signal, this should be reversed within the next day or two.
July soybeans gained 16 cents on relatively heavy volume of 178,323 contracts. Volume increased approximately 3,000 contracts from May 17 when soybeans gained 21 cents on volume of 175,197 contracts and open interest increased by 2,540 contracts. On May 20, total open interest declined by 966 contracts, which relative to volume is approximately 75% below average. The July contract accounted for loss of 2,278 of open interest. For the past 2 trading sessions, soybeans have advanced 37 cents and total open interest has increased by a mere 1,574 contracts. This tells us that the speculative community has not been willing to make commitments at ever-increasing prices. We consider this to be bullish, and as a result, the rally may extend further than we had thought heretofore. July soybeans are trading at their highest level since February, and with the long to short ratio at very low levels, there is a considerable amount of speculative money sitting on the sidelines that can enter the market at any time. OIA announced that July soybeans generated a short-term buy signal on May 9. On May 9, July soybeans closed at $14.08 3/4 and as of May 20, closed at 14.64 1/2 Do not short this market.
July soybean meal gained a massive $10.20 on heavier than normal volume of 83,251 contracts. Volume was the highest since April 30 when 84,242 contracts were traded and July soybean meal closed at $414.50. On May 20, total open interest declined by 531 contracts, which relative to volume is approximately 65% below average. The July contract accounted for loss of 553 of open interest. For the past 2 trading sessions, July soybean meal has advanced $20.40 and open interest has increased 3,575 contracts. The two-day open interest increase relative to two day's volume is approximately 10% below average, which is a considerably better performance than soybeans in the same today time frame. Like soybeans, the soybean meal net long position by managed money is at the very low-end of its recent range. With its outperformance compared to soybeans, we would expect to see more speculative interest as the market continues to move higher. On May 9, OIA announced that soybean meal had generated a short-term buy signal. On May 9, July soybean meal closed at $413.20 and as of May 20, closed at 435.30 Do not short soybean meal.
July corn lost 3.50 cents on volume of 201,889 contracts. Open interest increased by a massive 8,245 contracts, which relative to volume is approximately 55% above average, meaning that new shorts were heavily entering the market and driving prices lower. The July contract accounted for loss of 102 of open interest. Corn made a new high for the move at $6.60 3/4, but this could not hold and the market closed lower on the day. We said in yesterday's report, that the crop progress report would move the market sharply one way or the other depending upon the planting progress. The USDA reported that planting is 71% complete, which is down from an average of 79% as an average for this date. In short, a massive amount of corn was planted in one week and the planting increase of 43%, matched the 1992 number. As the pertinent part of the May 15 report shows, we have been advising clients to write out of the money calls on rallies. The market has provided a good opportunity to put on this position. If short July corn calls, continue to hold the position.
From the May 15 report:
"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 gained 2 cents on volume of 71,083 contracts. Total open interest increased by a massive 6,449 contracts, which relative to volume is approximately 250% above average, which means that both longs and shorts were aggressively entering the market and that longs had a slight edge as evidenced by the minor gain in price. If clients have established short call positions in wheat, they should continue to be held.
From the May 15 report:
"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."
On May 20, July coffee generated a short-term sell signal, which reverses the short-term buy signal generated on May 8. Coffee remains an intermediate term sell signal as well.
This will be our last report coffee until we see a compelling reason to be involved in the market. Since reversing our position as we stated in the May 16 report, coffee has fallen an additional 6.45 cents through May 21. We feel uncomfortable approaching the market from the short side, especially since the freeze season is coming up. Stand aside.
From the May 16 report:
"We do not like the way coffee is trading and are reversing our buy recommendation, and now advise clients to move to the sidelines. For those who are long call options, we recommend these be liquidated. For coffee to generate a short-term sell signal, the high of the day must be below $1.3885."
July cotton lost 63 points on volume of 17,489 contracts. Open interest increased by an unbelievable 2,191 contracts, which relative to volume is an astounding 400% above average. This is a huge number and shows that participants are massively entering the short side of the market and driving prices lower. We suspect much of this is from commercial trade. We have been bearish on cotton and have advised clients to initiate bearish positions. We are reprinting part of the report on cotton from the May 19 report. To see the full report, e-mail email@example.com or call: 415-440-1551 (San Francisco).
From the May 19 Weekend Wrap:
Cotton has a strong seasonal tendency to decline from mid-May through late summer and early fall. Cotton remains on a short-term sell signal, and has never come close to generating a short-term buy signal during the past 30 days. With managed money all in on the long side of the cotton trade, the market remains vulnerable to a move lower that could take July cotton to 81.50 cents. Another very negative factor is the rising dollar, which is going to have a negative impact on export demand. Further dampening demand is the weak economies of the euro zone and China. We recommend that clients initiate bearish positions on rallies, which can take the form of short futures, short calls, or long puts.
By. Gary Stern