July Brent crude lost $1.31 on light volume of 524,069 contracts. Open interest declined by 3,132 contracts, which relative to volume is approximately 60% less than average. Brent crude remains on a short and intermediate term sell signal. Stand aside.
July heating oil lost 5.06 cents on volume of 156,118 contracts. Total open interest increased by 2,315 contracts, which relative to volume is approximately 40% less than average. The June contract accounted for loss of 9,026 of open interest and will be expiring soon. On May 7, heating oil generated a short-term buy signal, and never had much of a rally. As we pointed out in previous reports, heating oil had to overcome resistance at the $2.95 level, and although the market made valiant efforts on a couple of occasions, it was unable to gain momentum to overcome resistance. Stand aside.
July gasoline lost 2.57 cents on heavy volume of 176,820 contracts. Volume declined by approximately 6,000 contracts from May 21 when gasoline lost 5.45 cents and open interest declined by 7,248 contracts. On May 22, open interest declined by 953, which is minor and dramatically below average. The June contract lost 4,313 of open interest. Gasoline has been struggling and is the worse performer of the complex with the exception of Brent. The Energy Information Administration report of May 22 shows a much larger build than was expected, and this has continued to dampen enthusiasm for the long side of gasoline. It is possible that gasoline will generate a short-term sell signal, which would reverse the short-term buy signal generated on May 17. Stand aside.
On May 23, July Natural gas generated a short-term buy signal, which reverse the short-term sell signal generated on May 3.
June natural gas closed unchanged on volume of 248,026 contracts. Volume was the lightest since May 8 when July natural gas closed at $4.03. On May 22, open interest increased by 4,368 contracts, which relative to volume is approximately 25% less than average. However this is a better number than it appears because the June contract lost 12,093 of open interest. According to the Energy Information Administration there was an 89 bcf build in stocks, which was in line with expectations and is slightly lower than the five-year average build for this time of year. Natural gas has been performing in an exemplary manner when taking into account the sharply lower equity and commodity markets of the past 2 sessions. The market exhibits a very firm undertone, and we expect higher prices ahead. A great way to take advantage of the move in natural gas for those who are not futures traders is to use the ETF UNG. We wrote about this ETF in the May 19 Weekend Wrap and showed how well it tracks the futures price of natural gas. Wait for a pull back before initiating bullish positions.
July soybeans gained 16 cents on volume of 200,832 contracts. Volume declined approximately 12,500 contracts from May 21 when July soybeans advanced 13.75 cents and open interest increased by 2,898 contracts. On May 22, open interest increased by 2,738 contracts, which relative to volume is approximately 45% below average. The July contract accounted for loss of 3,306 of open interest. For the past 4 trading sessions beginning on May 17, soybeans have advanced 66.75 cents while open interest has increased only 7,210 contracts. The cumulative four-day open interest increase is approximately 50% less than average of the 4 day cumulative volume. As we have stated in the previous two reports, the minor increase of open interest indicates that speculators are not buying into the soybean rally. 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. Soybeans on the continuation chart are trading at their highest level since November 2012, and the July contract is trading at the highest level since September 25, 2012. Although the market is massively overbought, and due for correction, it appears that the market may be headed higher than we originally thought based upon the absence of speculative interest. For example, since May 7, July soybeans have rallied from a low of $13.67 1/2 to 15.46 3/4 as of May 23 without a correction. It appears that May 23 is a key reversal day for soybeans, closing unchanged after being sharply higher.
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 22, closed at 14.94 1/4. Soybeans generated an intermediate term buy signal on May 21. Usually, after the generation of a buy signal, a pullback lasting 1-2 and possibly 3 days occurs. However, this setback may not occur until speculators rush in and we see volume and open interest increased substantially. As we have been saying for several days, do not short this market. Also, do not initiate new bullish positions at current levels
July soybean meal gained $1.90 on heavy volume of 92,654 contracts. Volume was the highest since April 29 when 100,575 contracts were traded and July soybean meal closed at $416.40. On May 22, open interest increased by 6622 contracts, which relative to volume is approximately 180% above average, meaning that longs and shorts were entering the market, but longs had the edge and were able to move prices somewhat higher.From May 17 through May 22, July soybean meal has advanced $25.70 while open interest has increased 11,157 contracts. The cumulative four-day increase of open interest is approximately 35% above average based upon four-day cumulative volume. Open interest in soybeans during the same four-day period is 50% less than average. The performance from May 17 through May 22 shows that soybean meal has gained 6.19% while soybeans have gained 4.68%. In short, market participants are much more strongly committed soybean meal than soybeans based upon performance and the open interest increase of the past four days. On the May 21, July soybean meal generated an intermediate term buy signal, and like soybeans, soybean meal is overdue for a pullback. It looks like this is occurring based upon Thursday's action. Do not short the market and do not initiate new long positions at current levels.
July corn gained 18.50 cents on volume of 246,095 contracts. Volume declined approximately 16,000 contracts from May 21 when corn lost 9.50 cents and open interest increased on the decline by 6,384 contracts. On May 22, open interest declined by 1,002 contracts, which relative to volume is approximately 75% below average, but very negative open interest action considering the magnitude of the advance. We have advised speculators to write out of the money calls in the July contract. However, as July corn gets closer to its expiration date, we could see some fireworks on the upside. Corn remains on a short-term buy signal, but an intermediate term sell signal.
July wheat gained 8 cents on volume of 71,021 contracts. Open interest increased by 2,641 contracts, which relative to volume is approximately 50% above average, meaning that new longs were aggressively entering the market and pushing prices higher. As this report is being compiled, on May 23, July wheat is trading 13.75 cents higher. We advise that speculators write out of the money July calls.
July cotton lost 44 points on volume of 20,112 contracts. Open interest declined by 532 contracts, which relative to volume is average. In the May 19 Weekend Wrap, we gave our reasons for the initiation of bearish positions in cotton, and the market has fallen sharply this week. In our reports, we said that our downside target is 81.50 and as this report is being compiled, July cotton has made a low of 81.52. In tomorrow's report, we will evaluate where cotton goes from here. Stay with bearish positions.
July WTI crude oil lost $1.90 on volume of 617,527 contracts. Open interest increased by a minor 4,781 contracts, which relative to volume is approximately 65% less than average. The June and July contracts lost a total of 7,938 of open interest. Stand aside.
From the May 17 report:
"With WTI crude, heating oil and now gasoline on short-term buy signals, and Brent crude about to generate one, we want to offer a word of caution on the long side. With very burdensome crude oil stocks according to the latest Energy Information Administration report, and the lackluster demand for gasoline, we cannot help but think that much of this is due to the uncontrollable boom in the stock market.If stock markets swoon, so will the petroleum complex. We advise a stand aside position in the petroleum complex."
On May 22, the June British pound generated a short-term sell signal. It remains on an intermediate term sell signal.
The Australian dollar lost 1.15 cents on extremely heavy volume of 207,280 contracts. Volume was the highest since April 15 when 212,824 contracts were traded and the June Australian dollar closed at 1.0271. On April 23, OIA announced that the Australian dollar generated a short and intermediate term sell signal. We recommended that speculators write calls on the Australian dollar and the trade continues to work well. Continue to hold this position. The Australian dollar is massively oversold, and a good-sized bounce is due.
The June euro lost 59 points on very heavy volume of 398,857 contracts. Volume was the highest since May 2 when 440,801 contracts were traded and the June euro closed at 1.3061. On May 22, open interest increased on the price decline by 2,004 contracts, which relative to volume is approximately 75% below average. The euro's 50 day moving average has just crossed below the 200 day moving average. As this report is being compiled on May 23, the euro is trading 95 points higher. We suggest that speculators take advantage of the higher euro to initiate bearish positions. Exit points for bearish positions would be 1.3000-1.3032.
S&P 500 E mini:
The S&P 500 E mini lost 10.00 points on huge volume of 3,008,559 contracts. Volume was the highest since March 8 when 3,053,473 contracts were traded and the June S&P 500 E mini closed at 1544.50. On May 22, open interest increased by a minor 11,262 contracts, which is approximately 85% below average.
For the first time since October 2012, HSBC's flash China PMI moved to a sub-50 level (49.6), which missed expectations of 50.4. This is a huge drop and is the worst in well over a year. This is terrible news for the global economy, and confirms the slow down of the Chinese economy. We continue to advise long put protection, especially for those who hold long equity positions.
By. Garry Stern