The USDA will release its supply and demand report (WASDE) for the grain complex on April 9. We think it is wise to be on the sidelines.

Soybeans:

May soybeans lost 1.50 cents on very light volume of 148,189 contracts. Volume declined from April 3 when 162,371 contracts were traded and May soybeans advanced 13.00 cents while total open interest increased by 3,703 contracts. On April 4, total open interest declined by 5,849 contracts, which relative to volume is approximately 55% above average, meaning the open interest decline was heavy on a modest loss. The May contract lost 7,798 of open interest. The May contract made a high of 14.87, but closed in the mid-point of the trading range. As this report is being compiled on April 7, May soybeans are trading 8.25 cents lower after making a daily high of $14.79 1/2. We are bullish soybeans later in the current crop year, but as we have said before, the market is loaded with managed money longs and this makes the market vulnerable to significant downside. The report issued by the USDA on April 9 will likely hold the direction for soybeans and the rest of the grains. Soybeans remain on a short and intermediate term buy signal.

Soybean meal:

May soybean meal lost $1.00 on volume of 60,550 contracts. Total open interest increased 568 contracts, which relative to volume is approximately 50% below average. The May contract lost 3,906 of open interest. As this report is being compiled on April 7, May soybean meal is trading $4.70 lower after making a high of $481.40, which is below the April 4 high of 482.00. Like soybeans, we recommend that clients remain on the sidelines, at least until after the report. May soybeans remain on a short and intermediate term buy signal.

Corn:

May corn gained 1.75 cents on volume of 248,782 contracts. Volume fell slightly from trading on April 3 when 260,797 contracts were traded and May corn advanced 4.50 while total open interest increased by a massive 15,405 contracts. On April 4, total open interest increased by 5,210 contracts, which relative to volume is approximately 20% below average, but open interest increases have been the norm for several consecutive days beginning on March 27. As we warned in the April 6 Weekend Wrap, corn is loaded to the gills with managed money longs, which makes it highly vulnerable to significant downside. As this report is being compiled on April 7, May corn is trading 6.50 cents lower and has made a daily high of $5.0 2 1/2, which was the high on April 4. Clients should be on the sidelines. May corn remains on a short and intermediate term buy signal.

Sugar #11: OIA recommends that bearish positions be initiated in July sugar and that Friday’s high, (April 4) of 17.93, or slightly above be used as an exit point

May sugar advanced 17 points on volume of 104,987 contracts. Volume increased from the 92,301 contracts traded on April 3 when May sugar advanced 21 points and total open interest increased by 1,409 contracts. On April 4, open interest declined by 820 contracts, which relative to volume is approximately 60% below average. The May contract lost 8,993 of open interest. On April 2, May sugar generated a short-term sell signal, and the market has had a 2 day rally of Friday. As this report is being compiled on April 7, May sugar is trading 35 points lower after making a daily high of 17.35, which is 4 points shy of the high made on Friday of 17.39. The hefty long position of manage money will provide fuel for the downside move.

From the April 3 report: 

“OIA protocols indicate that the rally could extend as high as 17.61, and more likely to 17.42. Although this is the second day of the countertrend rally, we  prefer to wait one more day before recommending bearish positions. May sugar generated a short-term sell signal on April 2.”

Cocoa: OIA recommends the initiation of bearish positions in July cocoa and that Friday’s high of 2998.00 should be used as an exit point for bearish positions.

May cocoa advanced $49.00 on heavy volume of 45,413 contracts. Volume was the highest since February 12 when 51,446 contracts were traded. On April 4, total open interest declined by 2,004 contracts, which relative to volume is approximately 75% above average meaning that liquidation was extremely heavy on the advance. The May contract lost 7,935 of open interest. There  was not sufficient buying in the forward months to offset the decline in the May contract. As this report is being compiled on April 7, May Cocoa is trading $3.00 lower after making a daily high of $2978.00. As we pointed out in the April 3 report, we didn’t think cocoa would extend its rally much beyond $2983.00. Additionally we stated that action on April 7 would be key, and there was no follow through from Friday’s strong advance.

From the April 3 report:

“On April 2, May cocoa generated a short-term sell signal and we recommended that clients wait for a countertrend rally before initiating bearish positions. April 4 the first day of the countertrend rally, and it shouldn’t extend much beyond today’s high of 2,983. We would expect some follow-through,  on Monday, but the market should weaken on Monday. If cocoa closes significantly higher on Monday, it is likely the sell signal generated on April 2 was false. At this juncture stand aside, but market action on April 7 will be key.”

Cotton: 

May cotton advanced 1.42 cents on volume of 24,618 contracts. Considering the magnitude of the advance, volume was approximately 6 percent above April 3 of 23,035 contracts when May cotton lost 53 points and total open interest declined by 162 contracts. Additionally, volume was below the 25,442 contracts traded on April 2 when May cotton lost 56 points and total open interest declined 187 contracts. 

In other words, the advance on Friday, which was more than twice the size of the declines of the 2 previous days did not generate significantly higher volume. On April 4, total open interest increased by 1,043 contracts, which relative to volume is approximately 55% above average meaning that new longs were aggressively entering the market and driving prices higher (93.23). As this report is being compiled on April 7, May cotton is trading 1.57 cents lower on the day and has made a low of 90.53, which took out 90.61 made on April 3. As we pointed out in the April 3 report, April 7 would be important day to determine whether cotton has the wherewithal to resume its advance. It clearly does not, and we think it is only a matter of time before cotton generates a short-term sell signal.

From the April 3 report:

“As this report is being compiled on April 4, May cotton is trading 1.45 cents higher and has made a daily high of 93.23, which is the highest print since April 1 when May cotton a daily high is exactly 93.23. Like cocoa, market action on April 7 will be key to determining whether cotton will resume its upward trend, or reverse to generate a short-term sell signal. Cotton remains on a short and intermediate term buy signal.”

WTI crude oil:

May WTI crude oil advanced 85 cents on volume of 457,648 contracts. Volume increased from the 407,557 contracts traded on April 3 when May WTI advanced 67 cents and total open interest increased by 5,536 contracts. On April 4, total open interest increased by 6,894 contracts, which relative to volume is approximately 40% below average. The May contract lost 7,335 of open interest. From April 3 through April 4, May WTI has advanced $1.52 but the open interest increases on both days has been significantly below average. This indicates a lack of enthusiasm for the upside of crude.

As this report is being compiled on April 7, May WTI is trading $1.01 lower and has made a daily low of 99.94, which is the lowest print since 99.07 made on April 3. As we pointed out in the April 3 report, May WTI must make a daily low above $100.74 in order for it to continue to move higher. May WTI remains on a short and intermediate term buy signal.

Natural gas:

May natural gas lost 3.1 cents on very light volume of 149,974 contracts. Total open interest increased by a massive 8,392 contracts, which relative to volume is approximately 120% above average meaning both longs and shorts were heavily entering the market, but prices moved only fractionally lower. The May contract lost 1,194 of open interest. Based upon the COT report released Friday, managed money has gotten increasingly bearish on natural gas. Though it remains on a short-term sell signal and an intermediate term buy signal, we are not terribly bearish on natural gas at this juncture. We think there will be a tremendous opportunity on the long side as the summer months approach when cooling homes and offices is a priority. Stand aside. 

Euro:

The June euro lost 12 pips on volume of 227,490 contracts. Total open interest declined by 5,645 contracts, which relative to volume is average. On April 3, the June euro generated a short-term sell signal and it remains on an intermediate term buy signal. As is usually the case after the generation of a sell signal, the market has a tendency to rally from 1-3 days. After the rally exhausts itself is the time to initiate bearish positions. As this report is being compiled on April 7, the June euro is trading 39 pips higher on very low volume and has made a daily high of 1.3747. We prefer to wait for another day or two before recommending bearish positions.

British pound:

The June British pound lost 9 pips on volume of 80,330 contracts. Total open interest declined by 2,157 contracts, which relative to volume is average. The pound remains on a short-term sell signal, but an intermediate term buy signal.

Canadian dollar:

The Canadian dollar advanced 45 pips on healthy volume of 67,535 contracts. Total open interest declined by 284 contracts, which relative to volume is approximately 80% below average. As this report is being compiled on April 7, the June Canadian dollar is trading 11 pips higher and has made a daily high of 91.09, which is 2 pips shy of the high made on April 4 of 91.11.

On April 1, the June Canadian dollar generated a short-term buy signal as did the Canadian-sterling cross (CADGBP). Unfortunately, both have taken off without much of a setback, which would have enabled clients to initiate bullish positions. Do not chase the market higher.

Australian dollar:

The June Australian dollar advanced 59 pips on volume of 81,526 contracts. Total open interest increased by 3,122 contracts, which relative to volume is approximately 50% above average meaning that new longs were heavily entering the market and driving prices to 92.62, a new high for the move. As this report is being compiled on April 7, the June Aussie dollar is trading 24 pips lower. As indicated in the April 6 Weekend Wrap, managed money has made a switch heavily to the long side, which makes the Aussie dollar vulnerable to a setback. Do not chase the market.

Platinum:

July platinum gained $5.40 on light volume of 6,345 contracts. Total open interest increased by a massive 494 contracts, which relative to volume is approximately 210% above average meaning that new longs were heavily entering the market at the high-end of the range. As this report is being compiled on April 7, July platinum is trading sharply lower showing a loss of $21.90. As we pointed out in the April 6 Weekend Wrap, platinum would not generate a short-term buy signal until the low for the day was above 1446.10. Platinum remains on a short-term sell signal, but an intermediate term buy signal. Stand aside.

S&P 500 E mini:

The June S&P 500 E mini lost 23.00 point on heavy volume of 2,500,175 contracts. Total open interest declined by 16,101 contracts, which relative to volume is approximately 65% below average. As this report is being compiled on April 7, the June E mini is trading 21.75 points lower on the day and has made a daily low of 1836.25 on heavy volume. Maintain long puts and out of the money calls if holding long equity positions.