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In yesterday’s trading, volume in almost all the instruments we cover was substantially below average, and this included the grain complex even though they rallied sharply on May 1.

WTI crude oil:

June WTI crude oil lost 49 cents on surprisingly light volume of 678,024 contracts. Volume was the weakest since April 17 when WTI lost 53 cents on volume of 730,431 contracts and total open interest declined by 39,343. On May 1, total open interest increased by 9,582 contracts, which relative to volume is approximately 40% below average, but a total open interest increase on yesterday’s decline confirms that new short-sellers were entering the market and driving prices lower (48.59). The June contract accounted for a loss of 6,547 of open interest and there were enough open interest increases in the forward months to offset the decline in June and increase total open interest.

As this market is being compiled on May 2, the June contract is trading lower again, down 42 cents and has made a daily low of 48.36, which is the lowest print since 48.20, the low for the move made on April 27. On April 24, OIA announced that June WTI crude generated a short term sell signal and has been on an intermediate term sell signal as well.  Do not short crude at current levels and  do not buy it.

Corn: July corn did not generate a short term buy signal in yesterday’s trading, nor will it on May 2.

July corn advanced by a strong 11.00 cents on surprisingly light volume of 517,837 contracts. We say surprisingly light because on April 27 when the July contract gained just 2.50 cents, volume traded was 483,400 while total open interest declined by 54,552. On April 26 when July corn lost 5.00 cents, volume traded was 593,730 contracts while total open interest declined by 36,794. Most tellingly, on April 25, July corn gained 6.25 cents, and volume traded was a spectacular 670,172 contracts while total open interest declined by 26,521.

On May 1, total open interest declined by 13,220 contracts, which relative to volume is average. The May contract lost 4,424 of open interest and obviously there were additional open interest declines in the forward months. Based upon yesterday’s volume and terrible open interest action, corn is clearly not ready to make a substantial move right now. Continue to stand aside until such time that corn generates a short term buy signal.

Chicago wheat: On May 1, July Chicago wheat generated a short term buy signal, but remains on an intermediate term sell signal.

July Chicago wheat advanced 23.75 cents on strong volume of 212,262 contracts. Total open interest declined massively, by 14,902 contracts, which relative to volume is approximately 185% above average. Liquidation was extremely heavy on yesterday’s strong advance. This should come as no surprise because managed money is extremely net short Chicago wheat and the wheat market was powered higher by short sellers.

In the latest COT report tabulated on April 25, managed money added 164 contracts to their long positions and also added 17,088 to their short positions. Commercial interests added 5,073 to their long positions and liquidated 24,470 of their short positions. As of the April 25 tabulation date, managed money was short by ratio of 3.33:1, up from the previous week of 3.10:1 at a substantial increase from the ratio two weeks ago of 2.85:1.

As this report is being compiled on May 2, the July contract is trading 3.00 cents below yesterday’s close and has made a daily high of 4.61 1/2, which is above yesterday’s print of 4.57 and is the highest since 4.64 1/4 made on February 16. The catalyst for yesterday’s move was severe storm damage in major wheat growing areas and the Kansas City contract was the star performer due to potential damage in hard red winter wheat.

Though the fundamentals for wheat are negative, the supply demand equation may change somewhat due to the damage and more will be known about the shape of the crop in the coming weeks. For now, the path of least resistance is higher, especially with the very heavy net short position of managed money.

Kansas City wheat: On May 1, July Kansas City wheat generated a short term buy signal, and an intermediate term buy signal will be generated on May 2.

July Kansas City wheat skyrocketed 28.50 cents on extremely heavy volume of 105,352 contracts. To put yesterday’s volume in perspective, consider that the average daily volume year to date for Kansas City wheat is 48,270 contracts. On May 1, total open interest declined by 1,697 contracts, which relative to volume is approximately 35% below average, and this is not surprising because managed money is short Kansas City wheat.

According to the most recent COT report tabulated on April 25, managed money added 5,263 to their long positions and also added 7,807 to their short positions. Commercial interests liquidated 3,373 of their long positions and also liquidated 9,039 of their short positions. As of the April 25 tabulation date, managed money was short Kansas City wheat by ratio of 1.21:1, up from the previous week of 1.19:1 and the ratio of 1.15:1 made two weeks ago.

As this report is being compiled on May 2, the July contract is trading 3.00 cents above yesterday’s close and has made a new high for the move of 4.74 3/4, which takes out the March 20 high of 4.70. It appears the July contract is headed toward the high of 4.98 1/4 made on February 16. However, we expect to see consolidation and after the generation of a short term buy signals, markets have a tendency to pullback and this can last from 1-3 days.

In the case of very bullish action such as what is occurring in the Kansas City contract, the move may be extended for a day or two, but expect corrective activity in the period immediately ahead. At this juncture we do not have a specific recommendation, but both markets should be traded from the long side (Chicago and Kansas City). 

Soybeans: July soybeans did not generate a short term buy signal on May 1, it is conceivable this may occur on May 2. For a short term buy signal to be generated, the low of the day must be above OIA’s key pivot point for May 2 of 9.64 1/2 and the low thus far in trading has been 9.65 1/4.

July soybeans advanced 14.00 cents on surprisingly light volume of 151,915 contracts. To put yesterday’s volume in perspective, consider that the year to date average daily volume for soybeans is 214,905 contracts. Participation in the rally was low. On May 1, total open interest increased by 3,520, which relative to volume is approximately just 5% below average. The May contract lost 1,124 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in May and increase total open interest at a fairly impressive level.

The COT report released on Friday revealed that managed money liquidated 3,196 of their long positions and added 89 contracts to their short positions. Commercial interests liquidated 31,147 of their long positions and also liquidated for 58,629 of their short positions. As of the latest report, managed money is short soybeans by a ratio of 1.64:1, up from the previous week of 1.58:1 and the ratio two weeks ago of 1.41:1. Three weeks ago, managed money was short soybeans by ratio of 1.05:1.

In summary, managed money has been building a short position, which will provide fuel for the upside if in fact beans generate a short term buy signal. The fact that open interest did not decline in yesterday’s trading confirms that short-sellers are digging in and refusing to liquidate, a not so smart thing to do, especially in soybeans.

The moving averages for the July contract are in a slightly bearish setup but not at a level that is unacceptable. The 50 day moving average for the July contract stands at 9.92 1/8 while the 200 day moving average is slightly above it at 10.09 3/4. The year to date moving average for July is 10.17 1/8.

However, it is important to keep in mind that the May-June and July time frame tends to be the most bullish for soybeans. This is somewhat different from soybean oil which tends to top out in May. We think the soybean contract could provide a substantial low risk opportunity and volatility is low, which makes options cheap. Please call or email for more detailed analysis and advice.

Soybean oil: July soybean oil did not generate a short term buy signal on May 1, nor will it on May 2. However, it appears quite possible, a short term buy signal may be generated in tomorrow’s trading.

July soybean oil advanced 45 points on very light volume of 63,888 contracts. To put yesterday’s volume in perspective, consider that the average daily volume year to date for soybean oil is 120,993 contracts. However on May 1, total open interest exploded higher, up 5,346 contracts, which relative to volume is approximately 275% above average and this indicated that new buyers were moving aggressively in the soybean oil and sending prices higher (32.21).

The COT report released last Friday revealed that managed money added 8614 contracts to their long positions and liquidated 1406 of their short positions. Commercial interests liquidated 5,220 of their long positions and also liquidated 7460 of their short positions. As of the April 25 tabulation date, managed money was short soybean oil by ratio of 1.58:1, down from the previous week of 1.83:1 and the ratio two weeks ago of 1.92:1.

If soybean oil generates a short term buy signal in tomorrow’s trading and soybeans generate a short term buy signal today, the complex will have two of the three products on short term buy signals, and this increases the likelihood of a sustained advance in the complex. Soybean meal has been the weak sister for the past two sessions, although we think meal will eventually generate a short term buy signal if  the other two members are on short term buy signals. Our preferred trade is to be long soybeans after it has generated the buy signal.

Gold: June New York gold will generate a short term sell signal on May 2, and remains on an intermediate term buy signal.