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Everyone should take a look at the chart of Dow Jones Transportation Index, which is making lows last seen in late October 2014 as the major indices trade near their all-time highs. Additionally, the 50 day moving average is about to cross below the 200 day moving average. The divergence between the transports and the major indices is troubling. We have advocated the initiation of at the money option straddles or out of the money strangles in the September/December S&P 500 E mini to protect from asymmetric downside risk.

Soybean oil:

July soybean oil lost 60 points on volume of 124,145 contracts. Total open interest declined by 2,112, which relative to volume is approximately 25% below average. The July contract lost 6,283 of open interest. As this report is being compiled on May 20, the July contract is trading for points higher on the day.

The July contract will generate a short-term sell signal is the daily high is below OIA’s key pivot point for May 20 of 31.91.We see no reason to be involved in the soybean oil market, due to the negative action in soybeans and therefore recommend a stand aside posture.

Chicago wheat:

July Chicago wheat lost 11.50 on volume of 124,238 contracts. Total open interest declined by 659 contracts, which relative to volume is approximately 75% below average. As this report is being compiled on May 20, the July contract is trading 2.00 cents above yesterday’s close. July Chicago wheat remains on a short-term buy signal, but an intermediate-term sell signal. We recommend a stand aside posture.

Live cattle:

June live cattle advanced 40 points on light volume of 41,361 contracts. Total open interest increased by a massive 2.670, which relative to volume is approximately 145% above average meaning that aggressive new buyers were entering the market in large numbers and driving prices fractionally higher. The June contract lost 2,674 of open interest.

Yesterday the June contract made a low of 1.51050, and we recommended that bullish positions initiated during yesterday’s trading liquidated upon penetration of yesterday’s low. The market has penetrated it slightly on May 20, and we recommend that clients move to the sidelines.

It appears the market really does not have the internal strengths to move substantially higher from here. We are concerned that the June contract has made a double top: 1.54675 (April 6) 1.54975 (May 14).  June live cattle remains on a short and intermediate term buy signal, but we think it is vulnerable to reverse the short-term buy signal generated on May 14.

Cotton: On May 20, July cotton, will generate a short-term sell signal, but remains on an intermediate term buy signal.This will be our last report on cotton until we see a trading opportunity or announce a signal change.

July cotton lost 57 points on volume 31,025 contracts. Total open interest declined by a massive 3,920, which relative to volume is approximately 410% above average meaning liquidation was off the charts heavy on the modest decline.The July contract accounted for loss of 5,022 of open interest. As this report is being compiled, the July contract is trading 49 points lower and has made a new low for the move of 63.71.

WTI crude oil: For July WTI to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for May 20 of 59.12.

July WTI crude oil lost $2.25 on surprisingly light volume of 590,322 contracts.Volume was the weakest since May 15 when crude oil lost 19 cents on volume of 582,548 contracts and total open interest declined by 10,371. On May 19, total open interest declined just 783 contracts. The June contract lost 20,153 of open interest, which means there were sufficient open interest increases in the forward months to reduce total open interest to a negligible number. This is bearish open interest action relative to the price decline.

As this report is being compiled after the release of the EIA report, which showed a draw down in stocks, the July contract is trading 94 cents higher and has made a daily high, of 59.04.We think a short-term sell signal is inevitable. Once this occurs, we will wait for a counter trend rally and then examine various strategies for bearish positions.

Brent crude oil: For July Brent crude to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for May 20 of 65.37.

July Brent crude oil lost $2.25 on volume of 624,157 contracts. Total open interest declined by 7,903 contracts, which relative to volume is approximately 45% below average. The July contract lost 14,234 of open interest. As this report is being compiled on May 20, the July contract is trading 85 cents above yesterday’s close has made a high of 65.18, which is below OIA’s key pivot point of 65.37 for a short-term sell signal.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.7 million barrels from the previous week. At 482.2 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. Total motor gasoline inventories decreased by 2.8 million barrels last week, but are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 0.5 million barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories rose 2.6 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 2.1 million barrels last week.

Natural gas:

June natural gas lost 6.2 cents on heavy volume of 480,172 contracts. Volume was the strongest since May 14 when the June contract advanced 7.3 cents on volume of 561,666 contracts and total open interest increased by 2,327 contracts. On May 19, total open interest declined by a massive 25,970 contracts, which relative to volume is approximately 110% above average meaning that liquidation was extremely heavy on the modest decline. The June contract accounted for loss of 21,813 of open interest.

We consider the open interest action yesterday to be positive, and it represents a good-sized shakeout of weak longs. Yesterday, the June contract made a high of 3.105, the highest print since February 23, 2015 (3.096). We see the rally is technical in nature and there isn’t fundamental justification for significantly higher prices, but June natural gas remains on the short and intermediate term buy signal and the trend is higher for now.

Gold:

August Gold lost $20.90 volume of 208,227 contracts. Volume was the strongest since May 13, when gold advanced $25.80 on volume of 283,116 contracts and total open interest increased by 12,104. On May 19, total open interest declined by 2,077 contracts, which relative to volume is approximately 50% below average. The June contract lost 11,784 of open interest, and there were sufficient open interest increases in the forward months to reduce total open interest below average.

We find this a bit unsettling, because it indicates that new short-sellers were entering the market and driving prices lower. As this report is being compiled, the August contract is trading 2.30 higher. We think it is premature to enter bullish positions and would prefer to see another day of corrective activity before making a recommendation. August gold remains on a short and intermediate term buy signal

Silver:

July silver lost 66.1 cents on volume of 63,195 contracts. Total open interest declined by 3,517 contracts, which relative to volume is approximately 120% above average, meaning that large numbers of market participants were liquidating on lower prices. This is positive open interest action relative to the price decline. The July contract lost 4,022 of open interest. As this report is being compiled, the July contract is trading 6.4 cents higher on the day. Like gold, we prefer to see one more day of corrective action before making a recommendation. July silver remains on a short and intermediate term buy signal.

Copper:

July copper lost 6.90 cents on volume of 62,841 contracts. Total open interest declined by massive 3,531 contracts, which relative to volume is approximately 115% above average meaning that liquidation was extremely heavy on the decline. The July contract accounted for loss of 3,672 of open interest. In the May 17 Weekend Wrap, we discussed copper in detail and our reasons for being negative on the red metal. Stand aside.

Dollar index: In order for the June contract to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for May 20 of 96.698.

The June dollar index advanced 1.094 on heavy volume of 65,081 contracts. Total open interest increased just 429 contracts, which relative to volume is approximately 65% less than average. However, the June contract lost 357 of open interest, which makes the total open interest increased by more impressive (bullish). 

However, during the past two days, the dollar index has advanced 2.183 points, but total open interest increased by only 926 contracts. At the very least, this indicates a lack of enthusiasm on the part of market participants for the long side. Stand aside.

Euro: For the June euro to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for May 20 of 1.0963.

The June euro lost 1.49 cents on heavy volume of 334,222 contracts. However, total open interest declined just 499 contracts, which is minuscule and dramatically below average. Surprisingly, during the past two days, total open interest has declined by 8,660 while the June euro has fallen 3.10 cents.

We are surprised that we have not seen open interest increases on such a precipitous decline.This leads us to believe the euro may rally further before the market resumes a downtrend. Also, the dollar index seems to be confirming this. As this report is being compiled, the June contract is trading 61 pips lower and has made a new low for the move of 1.1066, which is the lowest print since 1.1072 made on May 5.

British Pound:

The June British pound lost 1.60 cents on heavy volume of 139,098 contracts. Total open interest declined by 2,964 contracts, which relative to volume is approximately 15% below average. As this report is being compiled, the June contract is trading 32 pips higher. We do not think the rally in the pound is over, but see no compelling reason to be involved in the market.

Australian dollar: For the June Australian dollar to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point for May 20 of 77.93

The June Australian dollar lost 63 pips on volume of 82,583 contracts. Total open interest increased by a massive 7,970, which relative to volume is approximately 300% above average meaning that huge numbers of new short-sellers were entering the market in large numbers and driving prices lower (78.94). As this report is being compiled on May 20, the June contract is trading 40 pips lower. The market has closed lower every day since May 14, however we suspect that a rally is coming to blow out all the new short-sellers. Stand aside.

Coffee: This will be our final report on coffee until we announce a signal change or see a trading opportunity.

July coffee lost 3.30 volume of 29,695 contracts. Total open interest declined by a massive 1,550 contracts, which relative to volume is approximately 105% above average meaning liquidation was extremely heavy on the decline. As this report is being compiled on May 20, July coffee has closed sharply lower at 1.3600. July coffee has been unable to generate a short-term buy signal, and it appears that it will trade sideways to lower. We see no reason to be involved in the market. Stand aside.