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It appears that coffee may be on the verge of generating a short-term buy signal, but this will not occur until tomorrow at the earliest.We will provide a report on today’s action in tomorrow’s report.

Soybean oil:

July soybean oil lost 27 points on volume of 91,302 contracts. Total open interest increased by 3,509 contracts, which relative to volume is approximately 50% above average meaning that aggressive new short-sellers were entering the market in large numbers and driving prices lower. The July contract lost 216 of open interest. As this report is being compiled on May 18, July soybean oil is trading 15 points lower on the day. July soybean oil remains on the short and intermediate term buy signal. We have no recommendation because we are concerned about the bearish set up in soybeans.

Chicago wheat: On May 15, July Chicago and Kansas City wheat generated short term buy signals, but remain on intermediate term sell signals.

July Chicago wheat lost 3.25 cents on heavier than normal volume of 138,473 contracts. Volume shrank from May 14 when the July contract advanced 32.75 cents on huge volume of 204,181 contracts and total open interest declined by 7,859. On May 15, total open interest declined by 7,394 contracts, which relative to volume is approximately 110% above average meaning liquidation was extremely heavy even though prices declined.

On Friday, the July contract made a new high for the move of 5.19 3/4, and this has been taken out on May 18 with another new high of 5.30 1/4, the highest print since April 8 (5.30). Since making its contract low of 4.60 3/4 on May 5 Chicago wheat has rallied 70 cents and although weather concerns are cited as the reason for the run-up in prices, the fact remains managed money is massively short wheat and this is powering prices higher. We have no idea how far the rally can carry, but undoubtedly there are large numbers of funds showing sizable losses who will be forced to cover if prices continue their upward trajectory.We have no recommendation.

Live cattle:

June live cattle lost 1.275 cents on volume of 62,198 contracts. Total open interest increased by 1,092, which relative to volume is approximately 25% below average, but an open interest increase on a price decline is bearish. The June contract lost 4,068 of open interest, which makes the total open interest increase more impressive (bearish).

On May 14, June and August live cattle generated short-term buy signals, and usually after the generation of buy signals, the market has a tendency to pull back from 1-3 days. May 18 is the second day of the pullback, and prices should be nearing a bottom unless the market is in the process of reversing last week’s short-term buy signal.

As this report is being compiled,  the June contract is trading 1.10 cents lower and has made a daily low of 1.51100, which takes out Friday’s low of 1.51575. Although, fundamentals for live cattle are bullish, the moving averages are in a somewhat bearish set up with the 50 day moving average standing at 1.50150 – 200 day, 1.50730.

Also, it appears the market may have made a double top on May 14 when the June contract made a high of 1.54975, which is slightly above the April 6 high of 1.54675. At this juncture, we do not think the risk merits the reward on the long side.

Lean hogs: This will be our final report for lean hogs until we announce a signal change or see a trading opportunity. June and August lean hogs remained on short and intermediate term buy signals.

June August lost 60 points on volume of 36,017 contracts. Total open interest increased by 495, which relative to volume is approximately 40% below average. However, the June contract lost 1,993 of open interest, which makes the total open interest increase more impressive (bearish).

For the past three sessions beginning on May 13, lean hogs prices have declined each day and open interest has increased each day.The three-day stats are as follows: the June contract lost 1.70 cents while total open interest increased by 7,504. This is clearly bearish, and in the May 14 report, we recommended that clients liquidate partial positions and if not involved to stand aside.

As this report is being compiled, the June contract is trading 1.050 lower and has made a daily low of 82.025, which is the lowest print since May 5 (82.025). Although we think the market could test the May 12 high of 85.325, we see no reason to be involved in the market any longer and would recommend the liquidation of remaining bullish positions.

From the May 14 report:

“Although it is premature to call the end of the current lean hog rally, we advise a sideline stance for those not involved in the market and to take partial profits on bullish positions.”

WTI crude oil:

June WTI crude oil lost 19 cents on volume of 582,548 contracts. Total open interest declined by 10,371, which relative to volume is approximately 25% below average. The June contract accounted for loss of 21,878. As this report is being compiled on May 18, the July contract is trading 18 cents lower on the day.Please review the May 10 and May 17 weekend reports for our thoughts on WTI.

Natural gas:

June natural gas advanced 8 ticks on volume of 285,499 contracts. Total open interest increased by a massive 11,080 contracts, which relative to volume is approximately 50% above average meaning a battle ensued between buyers and sellers and the market closed essentially unchanged. The June contract lost 5,245 open interest.

As this report is being compiled on May 18, the June contract is trading unchanged, down 3 ticks and has made a daily high of 3.048, which takes out Friday’s high for the move of 3.036. On May 1 natural gas generated a short-term buy signal and an intermediate term buy signal on May 13. Although there is no compelling fundamental reason for natural gas to advance sharply, we see prices drifting higher because of the very large short position held by managed money and a reflation mindset, which appears to be taking hold in the commodity markets.

Gold:

August gold advanced 10 cents on light volume of 149,243 contracts. Total open interest increased by massive 5,566 contracts, which relative to volume is approximately 45% above average meaning a battle ensued between buyers and sellers and prices closed essentially unchanged. The June contract lost 1,784 of open interest.On May 14, August gold generated a short-term buy signal and will generate an intermediate term buy signal on May 18.

The gold market has been trading very firmly ever since making its large move on May 13. On May 18, even though the dollar index is trading sharply higher on May 18 gold is trading higher on the day as well and the August contract has made a new high for the move of 1232.80, which is the highest print since 1234.80 made February 17, 2015.

We are waiting for a pull back before recommending bullish positions. Typically, after the generation of buy signals the market has a tendency to pullback from 1-3 days and this is the opportunity to initiate long positions. 

Silver:

July silver advanced 9.8 cents on volume of 49,438 contracts. Total open interest declined by a sizable 1,781 contracts, which relative to volume is approximately 40% above average meaning liquidation was heavy on the modest advance. The July contract accounted for loss of 2,318 of open interest.

Despite the poor open interest action, silver prices continue to march higher and are trading 14.2 cents above yesterday’s close on May 18 and have made another new high of 17.775, which take out the previous high of 17.585 made on May 14 and 15 and is the highest print since 17.780 made on February 3, 2015.

On May 14, July silver generated a short and intermediate term buy signal, and we advise clients to wait for a pull back before initiating bullish positions.

Dollar index:

The June dollar index lost 32.5 points on volume of 42,660 contracts. Total open interest declined by 1,137, which relative to volume is average. As we have pointed out in previous reports, open interest is not increasing on price declines and this has been a fairly consistent pattern ever since the dollar index topped several weeks ago. We think there is going to be a terrific opportunity on the long side, but at this juncture is premature.

Euro:

The June euro advanced 69 pips on volume of 287,355 contract. Total open interest increased by 709, which relative to volume is approximately 90% below average, but an open interest increase on a price advanced is further corroboration that short-sellers are not liquidating on advances.The euro made a new high for the move of 1.1472, which is the highest print since 1.1466 made February 19, 2015.

As this report is being compiled on May 18, the June contract is trading 1.16 cents lower on the day on light volume. We think there is more upside left in the euro, not for fundamental reasons, but because of the current technical condition of the market. Also, it appears the perennial disaster that is Greece is beginning to heat up, but it is difficult to ascertain how the euro will respond if the situation worsens.

British Pound:

The June British pound lost 14 pips on volume of 103,755 contracts. Total open interest declined by 2,439 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on May 18, the June contract is trading 77 pips lower and has made a daily low 1.5649, which is below Friday’s print of 1.5699 and is the lowest since 1.5630 made on May 13.We see a test of the May 14 high of 1.5821 and would not be surprised if this is taken out.