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Lean hogs: On May 2, June and July lean hogs will generate intermediate term buy signals after generating short term buy signals on April 28.

July lean hogs advanced 52.5 points on volume of 40,955 contracts. Total open interest declined by 621 contracts, which relative to volume is approximately 40% below average. The May contract accounted for a loss of 32 of open interest. As this report is being compiled on May 2, the July contract is trading 1.050 higher on the day and has made a daily high of 82.900, which is the highest print since 82.950 made on March 18. We have no recommendation.

Soybean oil: On April 29 July soybean oil generated a short-term sell signal and remains on an intermediate term buy signal.

July soybean oil lost 13 points on volume of 111,438 contracts. Total open interest exploded higher, up 4,996 contracts, which relative to volume is approximately 75% above average, meaning that aggressive new short-sellers were entering the market in large numbers and driving prices lower (33.10). The May and July contracts lost a total of 393 of open interest. We think the new short-sellers were likely commercial interests and according to the COT report released on Friday, managed money is long soybean oil by a ratio of 6.00:1,  a large number, which means there is plenty of fuel to fund a continued downside move.

As this report is being compiled on May 2 the July contract is trading 52 points lower and has made a new low for the move of 32.55, which is the lowest print since 32.30 made on March 16. Wait for a counter trend rally before establishing new bearish positions.

WTI crude oil:

June WTI crude oil lost 11 cents on volume of 992,941 contracts. Total open interest increased by 15,194 contracts, which relative to volume is approximately 40% below average and the June contract lost 2,074 of open interest. On Friday, the June contract made a new contract high of 46.78 and sold off to close at 45.92. As this report is being compiled on May 2 the June contract is trading sharply lower, down $1.21 or -2.64%.

Although price action has been outstanding, total open interest action has left much to be desired and we pointed this out in the April 28 research note. On April 26 and 27 the June contract gained 1.40 and 1.28 respectively, yet total open interest increased only 12,136 and 12,250 contracts respectively, which relative to volume was substantially below average. In other words, many would be market participants are standing on the sidelines as prices advance. We have no recommendation.

From the April 28 research note on WTI:

“On April 28, surprisingly, total open interest increased just 271 contracts. The June contract accounted for a loss of 9,533 of open interest and there were barely enough open interest increases in the forward months to offset the decline in June and increase total open interest.”

“Yesterday’s performance from a volume and open interest stand point relative to the price advance was abysmal. This indicates that many participants remain on the sidelines and are unwilling to make strong commitments at ever higher prices.”

Gold:

June gold advanced $24.10 on heavy volume of 300,076 contracts. Volume increased substantially from April 28 when the June contract gained 16.00 on volume of 241,366 contracts and total open interest increased by 23,355. On April 29, total open interest increased again, this time by 24,106 contracts, which relative to volume is approximately 225% above average meaning aggressive new buyers were entering the market in large numbers and driving prices to a new contract high of 1299.00.

As this report is being compiled on May 2, the June contract is trading 5.50 higher and has made a new contract high of 1306.00. The market has come very far-very fast, and we think it needs to consolidate its gains before taking another leg higher. The equity market will determine the course of gold to a great extent and we think weaker equities has been playing a role in gold’s advance along with the sharply lower dollar index. We have no recommendation at this juncture.

Dollar index:

The June dollar index lost 67.3 points on volume of 33,741 contracts. Total open interest exploded higher, up 2,952 contracts, which relative to volume is approximately 240% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices to a new contract low of 92.975. As this report is being compiled on May 2, the dollar index is trading sharply lower again and has made another new contract low of 92.50 which is also a new 52 week low and takes out the previous print of 92.52 made the week of August 24, 2015. We have no recommendation.

Euro: 

The June euro will generate a short-term buy signal on May 2. This reverses the April 25 short-term sell signal. The June contract remains on an intermediate term but signal.

The June euro advanced 1.01 cents on heavy volume of 243,895 contracts. Total open interest exploded higher, up 19,942 contracts, which relative to volume is approximately 210% above average. As this report is being compiled on May 2 the June contract is trading sharply higher again, up 76 pips and has made a new high for the move of 1.1549, the highest print since 1.1505 made the week of October 12, 2015.

In prior research notes we have stated that the euro should be traded from the long side due to its bullish moving average set up: the 50 day moving average is considerably above the 200 day moving average. Additionally, managed money continues to hold a net short position in the euro and according to Friday’s report are short by ratio of 1.91:1, which is down only slightly from the previous week of 2.05:1 and the ratio two weeks ago of 2.12:1. We suspect the euro will finally make a top after managed money has assumed a net long position.

Yen: On April 29, the June yen generated a short-term buy signal, which reversed the April 25 short-term sell signal. The June contract remains on an intermediate term buy signal.

The June yen advanced by a strong 117 pips on volume of 165,401 contracts. Volume fell considerably from April 28 when the June contract gained 266 pips on volume of 243,062 contracts and total open interest increased only 2,699, which relative to volume was approximately 50% below average.

On April 29, total open interest declined by 5993, which relative to volume is approximately 25% above average. Putting the two day performance together, the June contract gained 383 pips, a very large advance, but total open interest actually declined by 3,294 contracts. This is clearly indicating that market participants are liquidating as the yen moves into new high territory. As this report is being compiled on May 2, the June contract is trading 25 pips higher and has made a new contract high of. 9429. Stand aside.

British pound:

The June British pound gained 2 pips on heavy volume of 107,298 contracts. Volume increased substantially from April 28 when the June contract advanced 70 pips on volume of 83,123 and total open interest increased by 3,714. On April 29, total open interest increased again, this time by 3,197 contracts, which relative to volume is approximately 5% above average, and an open interest increase on Friday’s advance continues the positive action that we’ve seen in the British pound for the past couple of weeks. As this report is being compiled on May 2 the June contract is trading 67 pips above Friday’s close and has made a new high for the move of 1.4698, which is slightly above the previous high print of 1.4675 made on April 29.

The COT report released last Friday showed that managed money continues to hold a net short position in the pound and leverage funds added 5,603 contracts to their long positions and liquidated 4,616 of their short positions. This leaves leverage funds short by ratio of 1.56:1, which is down from the previous week of 1.83:1 and the ratio two weeks ago of 1.71:1.

Ideally, we want to see leverage funds assume a net long position before recommending bearish positions in the British pound. The market continues to make fractional new highs, but we want to see signs of capitulation before making a recommendation.

From the April 28 research note on the pound: 

“Clients should begin thinking about bearish positions in the pound, but we will reserve judgment until we see today’s open interest stats and the COT report released this afternoon. If it shows that managed money has moved to a net long position, we would have another confirming indicator that the pound rally is on its last legs.”