Soybeans:

May soybeans advanced 20.50 cents on volume of 217,903 contracts. Volume fell from the 238,934 contracts traded on March 31 when May soybeans advanced 27.50 cents and total open interest increased by 6,841 contracts. On April 1, total open interest increased by 2,411 contracts, which relative to volume is approximately 50% below average. The May contract lost 3,705 of open interest, which makes the total open interest increase more impressive (bullish). On April 2, May soybeans have made a high of 14.96, but have reversed course and is now trading 11.75 cents lower on the day. We think that as the crop year grinds to a close,  beans will have another major rally, but we think the current rally is on borrowed time. Speculators have been piling into the grain markets, with the exception of wheat. Markets have a tendency to top out when the bulk of longs are all in. Though May soybeans remain on a short and intermediate term buy signal, we would avoid the market at this juncture.

Soybean meal:

May soybean meal advanced $3.40 on volume of 81,170 contracts. Interestingly, volume increased from March 31 when 79,112 contracts were traded when May soybean meal advanced $10.90 while total open interest increased by 4,215 contracts. On April 1, total open interest increased by 2,377 contracts, which relative to volume is approximately 20% above average meaning that new longs were entering the market at an above average rate and driving prices to new highs (485.70). The May contract lost 3,594 of open interest, which makes the total open interest increase more impressive (bullish). Is important to note that the gain on April 1 was considerably less than March 31 even though volume increased slightly on April 1. Additionally, open interest increased by approximately 40% less on April 1 than on March 31. Another point… The high on April 2 is 486.00 is only 30 cents above the high made on April 1. What all this means in our view is that the soybean meal market looks spent on the upside and it will be difficult to attract new buyers to send prices above yesterday’s and today’s high. As this report is being compiled on April 2, May soybean meal is trading $6.90 lower at 475.80, which is approximately $10.00 from the high. Stand aside.

Corn:

May corn advanced 5.50 cents on heavy volume of 394,875 contracts. Volume shrank dramatically from March 31 when 582,795 contracts were traded and corn advanced 10.00 cents while total open interest increased only 2,381 contracts. On April 1, total open interest increased by a massive 20,920 contracts, which relative to volume is approximately 110% above average meaning that new longs were heavily entering the market and driving May corn prices to new highs for the move ($5.12 1/2). We have been banging the drum about the massive long position of managed money and from March 27 through April 1 (4 days) open interest has increased by 37,181 contracts while May corn has advanced 23.00 cents. This is a very large open interest increase for a rather minor advance. This confirms that speculators continue to pile into the market, which makes corn vulnerable to the downside. One of the items on our technical checklist is to look for spikes in volume and/or open interest in order to spot capitulation. The open interest increase on April 1 is the largest of the bull move, which began on January 10. In short, our interpretation of the massive spike of an open interest of 20,920 contracts is that all the Johnny-come-lately’s have piled into the market. We would avoid the corn market.

Chicago wheat: OIA recommends that bullish positions and the long put position recommended on March 19 be liquidated.

May Chicago wheat lost 12.00 cents on volume of 127,647 contracts. Volume increased slightly from March 31 when 125,334 contracts were traded and May wheat advanced 1.75 cents while total open interest increased by 4,196 contracts. On April 1, total open interest increased by 1,735 contracts, which relative to volume is approximately 40% less than average. However, during the past 3 days beginning on March 28, May Chicago wheat prices have fallen 25.25 cents while total open interest has increased by 6355 contracts. This is most definitely bearish open interest action relative to the price decline. The May contract lost 4,11 of open interest, which makes the total open interest increased more impressive (bearish).

With bearish open interest action, combined with the likelihood of May wheat generating a short-term sell signal, and corn and the bean complex about to rollover, we think it is prudent to liquidate the bullish position recommended on February 6. Additionally, the long put recommended on March 19 to protect profits should be liquidated as well.

Kansas City wheat: OIA recommends that bullish positions and the long put position recommended on March 19 be liquidated.

May Kansas City wheat lost 10.50 cents on volume of 23,250 contracts. Total open interest increased by 841 contracts, which relative to volume is approximately 55% above average meaning that new shorts were aggressively entering the market and driving prices lower. The May contract lost 1,00 of open interest, which makes the total open interest increased more impressive (bearish). 

Sugar #11: On April 2, May sugar generated a short-term sell signal (sugar market closes early) which reverses the short-term buy signal of March 27. Sugar remains on an intermediate term buy signal, but if the high for the day is below 16.79, an intermediate term sell signal will be generated.

May sugar lost 59 points on very heavy volume of 174,545 contracts. Volume took out the previous high volume made on March 6 of 171,748 contracts, but was below volume traded on February 28 of 177,138 contracts. On April 1, total open interest increased by 4,348 contracts, which relative to volume is average. The May contract lost 13,230 of open interest, which makes the total open interest increase much more impressive (bearish).  The sizable increase of open interest on a decline of the magnitude seen on April 1 is an indication that market participants are digging in and refusing to liquidate . According to the COT report , which was tabulated on March 25, managed money is long sugar by ratio of 2.82:1. Beginning on March 26 (which is the start of the new reporting period) through April 1, open interest increased by 3,994 contracts while May sugar gained only 21 points. In short, there is plenty of fuel provided by managed money sellers to drive prices further to the downside. Wait for a countertrend rally before considering bearish positions.

Live cattle:

April live cattle lost 1.10 cents on fairly light volume of 49,341 contracts. Volume was the highest since March 27 when 51,938 contracts were traded and April cattle advanced 67.5 points while total open interest increased by 1,079 contracts. On April 1, total open interest declined by only 569 contracts, which relative to volume is approximately 50% less than average. The April contract lost 2,302 of open interest, which makes the total open interest decline more impressive (bullish). We recommend that clients stay with the April contract until they are required to liquidate before 1st notice day on April 7. We anticipate there may be some fireworks as the nearby cattle contract approaches 1st notice day. As we pointed out in yesterday’s report, cattle has made 3 attempts to break out of the high-end of its trading range during the past month, but has failed to do so. As a result, we recommend that sell stops on bullish positions be in place.

WTI crude oil:

May WTI crude oil lost $1.84 on volume of 481,045 contracts. Volume increased from the 456,638 contracts traded on March 27 when May WTI crude oil advanced $1.02 and total open interest increased by 11,031 contracts. On April 1, total open interest increased by 2,445 contracts, which relative to volume is approximately 75% below average. The May contract lost 7,691 of open interest, which makes the total open interest increase more impressive (bearish). It is apparent that the short-term buy signal generated on March 27 was false and it appears that a short-term sell signal is inevitable. During the rally, we expressed our skepticism and as result, recommended that clients remain on the sidelines. As this report is being compiled on April 2, May WTI is trading 43 cents lower and has made a daily low of $98.86, which is the lowest print since 99.80 made on March 25. Stand aside.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.4 million barrels from the previous week. At 380.1 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories decreased by 1.6 million barrels last week, and are below the lower limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 0.6 million barrels last week but are at the lower limit of the average range for this time of year. Propane/propylene inventories rose 0.9 million barrels last week and are near the lower limit of the average range. Total commercial petroleum inventories decreased by 1.3 million barrels last week.

Natural gas:

May natural gas lost 9.5 cents on volume of 229,945 contracts. Total open interest declined by a massive 21,228 contracts, which relative to volume is approximately 250% above average meaning liquidation was off the charts heavy. The May contract lost 10, 800 of open interest, which means there was additional liquidation in the forward months. Another point, the liquidation in the May contract was not the result of an imminent 1st notice day and the contract still has approximately 30 days left before market participants must liquidate. Just as corn had a huge spike in open interest on a modest advance, the massive decline of open interest on a relatively modest loss to new lows appears to be capitulation. As this report is being compiled on April 2, May natural gas is trading 10.5 cents higher on low volume, but overnight made a new low for the move at 4.221. We think there will be a tremendous opportunity on the long side once the summer months approach. At this juncture, we have no recommendation. Natural gas remains on a short-term sell signal, but an intermediate term buy signal.

Euro:

The June euro advanced 16 pips on very light volume of 115,481 contracts. Total open interest declined by 219 contracts, which relative to volume is minuscule and dramatically below average. As this report is being compiled on April 2, the June euro is trading 30 pips lower and has made a daily low of 1.3751, which takes out yesterday’s low of 1.3768 but not the low made on March 31 of 1.3717. As we have pointed out since March 25 (see extract below), the euro would not resume its advance until the daily lows were above OIA’s key pivot points. From March 25 through April 1 , the June euro has advanced 0.35%, which is essentially unchanged. Stand aside.  

From the March 25 report:

“For the euro to resume its advance, the low for the day must first be above 1.3788 and then 1.3823. The euro remains on a short and intermediate term buy signal. We have no recommendation.”

British pound:

The June British pound declined 42 pips on light volume of 60,717 contracts. Total open interest declined by 132 contracts. As this report is being compiled on April 2, the June pound is trading 4 pips lower and has made a low for the day of 1.6613, which is above yesterdays low of 1.6610. We think the British pound is likely to rollover and yesterday the Canadian dollar generated a short-term buy signal for the 1st time in several months. We particularly like the long side of CADGBP. The pound remains on a short-term sell signal, but an intermediate term buy signal.

From the March 31 report:

“For the British pound to reverse the short-term sell signal generated on March 19, the low of the day must be above 1.6641 and 1.6663. The pound is beginning to look like a candidate for bearish positions. Although open interest action has been terrific on the advance, the fact remains that managed money is long by a ratio of 5.00:1, which is the highest reading we have seen in at least a couple of months. Additionally, the beginning of the new COT tabulation period starts on March 26 and from March 26 through March 31, total open interest has increased by 9,454 contracts while the pound has advanced 1.41 cents. Chances are managed money is even more net long than they were in the last COT report.”

Canadian dollar: On April 1, the June Canadian dollar generated a short-term buy signal, but remains on an intermediate term sell signal.

The June Canadian dollar advanced 9 pips on very light volume of 39,165 contracts. Total open interest declined by 1,075 contracts, which relative to volume is approximately average. Since the rally in the Canadian dollar began on March 20 through April 1, total open interest has declined by 15,322 contracts indicating that large numbers of shorts are driving prices higher with short covering. Usually, after the generation of a buy signal, the market has a tendency to setback from 1-3 days. The market is overbought relative to the 20 day moving average of .5422 We recommend initiating new bullish positions on any setback in the CADGBP cross and use.5415 as an exit point, the March 27 low.

Australian dollar:

The June Australian dollar lost 28 pips on light volume of 62,805 contracts. Total open interest increased by 1,291 contracts, which relative to volume is approximately 20% below average. The Aussie is significantly overbought, and have no recommendation at this juncture. Wait for a setback before considering bullish positions.

Gold:

June gold lost $3.80 on light volume of 122,057 contracts. Total open interest declined by 4,110 contracts, which relative to volume is approximately 40% above average. As this report is being compiled on April 2, June gold is trading $7.50 higher on the day. Gold remains on a short-term sell signal, but an intermediate term buy signal. We have no recommendation at this juncture.

S&P 500 E mini:

The June S&P 500 E mini gained 13.25 points on light volume of 1,215,290 contracts. Total open interest increased by 1,329 contracts, which is minuscule and dramatically below average. For the past 3 days, the E mini has gained 37.25 points, yet total open interest has increased only 7,139 contracts. This is not exactly a vote of confidence by market participants. As we indicated in the Weekend Wrap of March 30, if the Dow Jones Industrial Average and the S&P 500 cash index made daily lows above OIA’s key pivot points, we would recommend the initiation of out of the money calls to offset some of the loss in long puts. We recommended this action on March 31 and though open interest action is abysmal relative to the price advance, maintain this position coupled with long puts for those clients who hold long equity positions.