Bloomberg Access:{OIAR<GO>}

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.

Corn:

July corn lost 4.75 cents on heavy volume of 555,762 contracts. Volume fell dramatically from June 8 when the July contract gained 3.50 on volume of 747,204 contracts and total open interest increased by 18,358. On June 9, total open interest declined just 426 contracts. The July contract accounted for a loss of 41,594 and there were not enough open interest increases in the forward months to offset the total loss in the July contract.

Yesterday, the July contract made a low of 4.23 1/4 and as this report is being compiled on June 10, the July contract has made another new low of 4.20 after making a daily high of 4.37, which is below the high for the move of 4.39 1/4 made on June 8. Today’s low is the lowest print since 4.19 1/4 made on June 6. We have been warning clients about the possibility of a seasonal top in corn and today’s COT report will reveal the extent to which managed money has increased their net long position from last week’s 2.26:1.  If long, sell parameters should be in place and new long positions should be avoided.

WTI crude oil:

July WTI crude oil lost 67 cents on strong volume of 1,083,464 contracts. Total open interest increased by 441 contracts, which is minuscule number, but it should be noted that the July contract lost 65,410 of open interest, which means there were sufficient open interest increases in the forward months to offset the massive decline in July and increase total open interest fractionally. Yesterday’s action was clearly bearish. As this report is being compiled on June 10 the July contract is trading $1.23 lower and has made a daily low of 49.22, which is the lowest print since 49.44 made on June 7.

The first sign that July WTI is getting close to generating a short-term sell signal will be if it makes a daily high below OIA’s pivot point of $49.37. A confirmed short term sell signal will occur if the daily high is below OIA’s key pivot point for June 10 of 48.14. Our concern about crude oil is highlighted by the abysmal performance of gasoline, and this is the time when gasoline should be strengthening.

The July gasoline contract will generate a short-term sell signal if the daily high is below OIA’s key pivot point of   1.5923.Currently, the July contract is trading 5.79 cents lower or -3.58% versus heating oil which is trading -2.05% and crude oil -2.65%.

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. We think once WTI generates a short-term sell signal it will be a relatively low risk bearish trade, especially because of the lopsided long position of managed money, who will add selling pressure.

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.”

Natural gas:

July natural gas skyrocketed by 14.9 cents on record-setting volume of 802,192 contracts. Volume was the heaviest of 2016 and for the past year. On June 9, total open interest increased by 22,736 contracts, which relative to volume is average, but the July contract accounted for a loss of 21,355, which means there were more than enough open interest increases to offset the loss in July and increase total open interest to an average number.

Yesterday’s performance was outstanding, and yesterday’s high of $2.630 is the highest print since 2.635 made on January 8, 2016. We think July natural gas will struggle to move above the November 16, 2015 high of 2.685 and as we pointed out in previous reports, natural gas has a tendency to top out in mid June.

On June 1, OIA announced that July natural gas generated a short-term buy signal and had been on an intermediate term buy signal. Unfortunately, the market never pulled back sufficiently for us to recommend bullish positions. At this juncture, we would recommend against entering new bullish positions at current levels, especially because the seasonal trend may become negative.

On June 9, the Energy Information Administration announced that working gas in storage was 2,972 Bcf as of Friday, June 3, 2016, according to EIA estimates. This represents a net increase of 65 Bcf from the previous week. Stocks were 660 Bcf higher than last year at this time and 722 Bcf above the five-year average of 2,250 Bcf. At 2,972 Bcf, total working gas is above the five-year historical range.

From the June 6 research note on natural gas:

“Yesterday’s performance was outstanding, especially because managed money remains short natural gas by a ratio of 1.44:1. The total open interest increase in yesterday’s trading confirms that speculators are not covering short positions to any great degree. This makes natural gas vulnerable to further advances.”

“On June 1, OIA announced that July and August natural gas generated short-term buy signals and they have been on intermediate term buy signals. However, the market has not had a pullback which would allow clients to initiate bullish positions. We recommend waiting for a pullback before considering bullish positions however, our concern at this date is that natural gas tends to top in mid June.”

Copper: On June 10, July and September New York copper will generate short-term sell signals and remains on intermediate term sell signals. We have no recommendation.

Gold: On June 9, August and October gold generated intermediate term buy signals and both contracts will generate short-term buy signals on June 10.

August gold advanced $10.40 on volume of 170,901 contracts. Volume fell from June 8 when the August contract gained 15.30 on volume of 198,201 contracts and total open interest increased by 10,642. On June 9, total open interest increased again, this time by 8,627 contracts, which relative to volume is approximately 100% above average. The June contract accounted for a loss of 1,119 of open interest.

As this report is being compiled on June 10 the August contract is trading $4.90 above yesterday’s close and has made a new high for the move of 1280.90 as the equity markets fall sharply. Overnight, the August contract made a low of 1267.30, which is above OIA’s key pivot point for June 10 and means that gold is now on short and intermediate term buy signals.

At this juncture, clients should look to buy setbacks and this may occur when and if the equity market begins to rally again. Some of the Brexit anxiety may manifest itself in higher gold prices, but clients should be very careful about holding gold into the vote on June 23. The reason: If the vote is to exit the union, the dollar may strengthen dramatically, which could cause gold to move sharply lower.

Silver: July and September silver will generate short-term buy signals on June 10. This reverses the short-term sell signals of May 19. Both contracts remain on intermediate term buy signals.

July silver advanced 28.3 cents on volume of 76,096 contracts. Total open interest increased by 1,610 contracts, which relative to volume is approximately 20% below average, but an open interest increase on yesterday’s advance is positive. In yesterday’s research note, we mentioned that open interest action during recent advances was tepid. Yesterday, silver vindicated itself in part, and now that it is on a short-term buy signal, open interest action relative to price advances and declines should be positive. If in this week’s COT report, managed money has reduced their net long position, this would be a very favorable set up for silver going into next week. Silver should be traded from the long side only. We recommend bullish positions on setbacks.

From the June 8 research note on silver:

“It should be noted that the percentage advance in silver on June 8 was substantially greater than gold. This continues on June 9 as silver is trading 1.85% above yesterday’s close while gold is +0.83%. Again the tepid open interest action in silver is of concern when taking into account the magnitude of the move. On June 9, the July contract has made lows above the pivot points we wrote about in yesterday’s research note of 16.659 and 16.795. While this is positive, it is important to see substantial total open interest increases on advances, especially after silver generates a short term buy signal.”

S&P 500 E-mini: The June and September S&P 500 E-mini remain on short and intermediate term buy signals.

The June S&P 500 E-mini is trading 23.75 points lower. We wanted clients to know that the first sign of potential trouble would be if the June contract makes a daily low is below OIA’s pivot point for June 10 of 2076.81. A confirmed sell signal would occur if the daily high was below OIA’s key pivot point for June 10 of 2067.12.

With the Federal Reserve meeting next week and a high likelihood that interest rates will not be raised, we tend to think the market will recover and test the high for the move of 2119.75 made on June 8. Early next week, clients should consider purchasing call options or bull call spreads in July forward contracts.