Due to the switching out of positions from June into September, the open interest stats in currencies are massively distorted. As a consequence, we will not provide an analysis on currency futures in today’s report.
July corn lost 7.50 cents on volume of 447,132 contracts. Total open interest declined by 2,217 contracts, which relative to volume is approximately 75% below average. The July contract accounted for a loss of 22,931 of open interest., Yesterday, the July contract made a high of 4.39, which was the highest print since June 8 (4.39 1/4), the high for the move.
As this report is being compiled on June 16, the July contract is trading 4.50 cents lower and has not taken out the June 10 print of 4.20. The first sign that corn is likely to generate a short-term sell signal will be if the daily high is below OIA’s pivot point of 4.23 7/8. A confirmed short term sell signal will occur if the daily high is below OIA’s key pivot point for June 16 of 4.09 3/8.
From the June 14 research note on corn:
“Yesterday’s action was negative and follows the disappointing open interest increase on June 13.On June 10, the July contract lost 3.50 cents on volume of 615,677 contracts and total open interest increased by 6,682, which indicates that new short-sellers were entering the market and driving prices lower (4.20).”
“In summary, for the past 3 days open interest action relative to price is advances and declines has been bearish. This confirms our belief that corn prices are topping.”
July soybeans lost 13.50 cents on volume of 252,117 contracts. Surprisingly, volume was the lowest since May 31 when the July contract lost 8.00 cents on volume of 216,550 contracts and total open interest declined by 322. On June 15, total open interest increased by 3,064 contracts, which relative to volume is approximately 45% below average.The July contract lost 5,744 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in July and increase total open interest.
Yesterday’s action was clearly negative because it revealed that short sellers were driving prices lower and longs were not liquidating. According to the COT report tabulated on June 7, managed money was long soybeans by a stratospheric ratio of 13.03:1. However, this was down from the record high short ratio of 14.52:1 made two weeks ago.
As this report is being compiled on June 16, the July contract is trading 21.00 cents below yesterday’s close and has made a new low for the move of 11.28 1/2, which is the lowest print since 11.27 1/4 made on June 3. Although, it is premature to call a short term sell signal, it appears likely that soybeans are headed lower after a small rebound.
A short term sell signal will become more likely if the July contract makes a daily high below OIA’s pivot point for June 16 of 11.51 3/4. A short term sell signal will occur when the daily high is below OIA’s key pivot point for June 16 of 11.04 1/8.
For clients who are long at lower levels, we recommend that partial profits be taken and that sell parameters are in place. As readers of our reports know, we have been discouraging the initiation of new bullish positions and have been warning that soybeans have a tendency to top out in the June-July time frame.
Brent crude oil: August and September Brent crude oil will generate short-term sell signals on June 16. Both contracts remain on intermediate term buy signals.
WTI crude oil: July and August WTI crude oil will generate short-term sell signals on June 16. Both contracts remain on intermediate term buy signals.
July WTI crude oil lost 48 cents on volume of 1,078,405 contracts. Volume increased from June 14 when the July contract lost 39 cents on volume of 931,251 contracts and total open interest declined by 21,293. Additionally, volume was the strongest since June 10 when the July contract declined by $1.49 on volume of 1,129,805 contracts and total open interest increased by 8,535.
On June 15, total open interest declined by 3,530. The July contract accounted for a loss of 34,555 of open interest, which means there was almost enough open interest increases to offset the decline in July. Back on June 8, OIA warned that momentum in crude oil was stalling and this was further confirmed on June 13 when gasoline generated a short-term sell signal.
Additionally, heating oil will generate a short-term sell signal on June 16. Usually, after the generation of a short-term sell signal, markets have a tendency to rally from 1-3 days and this is the opportunity to initiate bearish positions. If in fact the United Kingdom votes to exit the European Union, this may provide additional pressure for the petroleum complex. Wait for a rally before initiating bearish positions.
From the June 8 research note on WTI:
“Yesterday’s action followed the disappointing activity of June 7 when the July contract gained 67 cents on volume of 995,483 contracts and total open interest declined by 627 while the July contract lost 55,061 on June 7. In summary, during the past two sessions, as the July contract closed in on nearly one year highs, July WTI gained $1.54 while total open interest has increased only 174 contracts. While we are not suggesting that the bull move is over, it is a sign that momentum is stalling.”
Heating oil: July and August heating oil will generate short-term sell signals on June 16. Both contracts remain on intermediate term buy signals.
Gasoline: July and August gasoline will generate intermediate term sell signals on June 16. On June 13 July and August gasoline generated short-term sell signals.
July gasoline lost 1.99 cents on heavy volume of 254,892 contracts. Total open interest increased by a massive 10,546 contracts, which relative to volume is approximately 55% above average. The July contract lost 4,193 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in July and increase total open interest substantially. Yesterday’s action was extremely bearish because it indicates that new short-sellers were piling into the market at the low end of the recent trading range.
Gasoline has been the under performer of the petroleum complex, which is extremely unusual during the peak summer driving season. Additionally, managed money never substantially increased their net long position, even as prices advanced. Stand aside.
From the June 9 research note on gasoline:
“The COT report released last Friday showed that managed money was long gasoline by a ratio of 1.64:1, however managed money was long heating oil by ratio of 1.78:1 and WTI by 4.33:1. This underscores the lack of enthusiasm for gasoline by professionals and is the first time in memory that heating oil had a higher long ratio than gasoline.”
August gold advanced 20 cents on volume of 215,173 contracts. Total open interest increased again, this time by 9,619 contracts, which relative to volume is approximately 75% above average meaning a battle ensued between buyers and sellers and buyers were able to move the market slightly higher. The June contract accounted for a loss of 296 of open interest.
From June 8 through June 15 total open interest has increased every day for a total of 58,646 contracts while August gold has advanced by $41.30. To put the collective open interest increase in perspective consider that for each dollar increase in the price of gold from June 3 through June 15, it has taken an open interest increase of 1,430 contracts. While open interest increases during the past several days on price advances is bullish, we think it has been overdone relative to the price advance and that hedging is taking place at the high end of the trading range.
As this report is being compiled on June 16, the August contract is trading $3.50 higher on the day after skyrocketing to 1318.90 (over $30.00 higher) on extremely heavy volume, which takes out the May 2 previous contract high of 1308.00. The market then reversed dramatically, most likely spurred by heavy trade selling.
As we pointed out in previous reports, the massive increase of open interest is dangerous to anyone long the market because selling pressure is going to be substantial when gold reverses. Undoubtedly, much of the buying is due to the upcoming vote in the United Kingdom to exit the European Union, and this may be a “buy on the rumor-sell on the news” type of event for gold.
Contrary contrary to most analysts, we think that if the vote is to exit, the dollar will skyrocket and precious metals will be crushed, especially if the heavy net long position of speculators continues into June 23, which is likely. OIA recommends a stand aside posture and the COT report, which is released tomorrow will give us a better picture of the extent to which managed money has increased their net long position.
S&P 500 E-mini: The September S&P 500 E-mini will generate a short-term sell signal on June 16 provided the daily high is below OIA’s key pivot point for June 16 of 2065.84. We have no recommendation.