July soybeans advanced by an astounding 57.50 cents on surprisingly light volume of 571,446 contracts. To put the volume action in context consider this: On April 20, July soybeans had a range of 36.00 cents and volume traded was 804,244. On April 21, the trading range for the day was 32.50 cents and total volume traded was 645,958. On April 22 the range from high to low was 37.75 cents while total volume traded was 540,063 contracts.
Although, volume was disappointing, total open interest was a barn burner, increasing by of 30,229 contracts, which relative to volume is approximately 110% above average, meaning aggressive new buyers were entering the market in huge numbers and driving prices to a new contract high of $10.91 1/2, which is the highest print since 10.86 3/4 made the week of November 10, 2014.
As we pointed out previously, soybeans would need a catalyst to send it substantially higher and it appears that yesterday’s USDA report lit the match when the department substantially lowered the carryout for the current season, which was a major surprise to the market. As this report is being compiled on May 11 the July contract is trading 8.50 cents lower and has made a daily high of 10.91, which is slightly below yesterday’s print of 10.91 1/2. With respect to new positions, we recommend a stand aside posture because frankly it is too difficult and dangerous to trade. Do not short this market.
July soybean meal advanced by the $20.00 daily limit on surprisingly light volume of 170,578 contracts. Total open interest increased by 7,511 contracts, which relative to volume is approximately 75% above average. As this report is being compiled on May 11, the July contract is trading nearly unchanged on the day, but has made another new contract high of 367.40, which is the highest print since 374.80 made the week of July 6, 2015. Like soybeans, do not short this market. We have no recommendation.
July corn advanced 12.00 cents on heavy volume of 463,439 contracts. Volume was the strongest since April 28 when the July contract gained 6.50 cents on volume of 470,368 contracts and total open interest declined by 8,207. On May 10, total open interest increased by 6,495 contracts, which relative to volume is approximately 40% below average, but the May contract accounted for a loss of 555 and July -8679, which means there were sufficient open interest increases in the forward months to offset the decline in the two delivery months and increase total open interest.
Yesterday’s action was positive and corn made a high of 3.86, which was the highest price since 3.95 made May 3. As this report is being compiled on May 11 the July contract has reversed course and is trading lower by 5.25 cents and is the weakest member of the grain complex. July corn remains on short and intermediate term buy signals. We have no recommendation.
Cotton: July cotton will generate a short-term sell signal on May 11, but remains on an intermediate term buy signal. We have no recommendation.
Coffee: On May 10, July New York coffee generated a short-term buy signal, which reversed the May 3 short-term sell signal. The July contract remains on an intermediate term buy signal.
WTI crude oil:
June WTI crude oil gained $1.22 on substantial volume of 1,264,283 contracts. Total open interest declined by 12,715 contracts, which relative to volume is approximately 50% below average. The June contract accounted for a loss of 45,635 of open interest. Yesterday’s action was negative because there were insufficient open interest increases in the forward months to offset the decline in June.
As this report is being compiled after the release of the EIA report which showed a substantial draw in inventories, the June contract is trading $1.33 higher and has made a daily high of 46.13, which is the highest print since 46.07 made on May 5. The June contract remains on short and intermediate term buy signals. We have no recommendation.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.4 million barrels from the previous week. At 540.0 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.2 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 1.6 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.3 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories decreased by 1.4 million barrels last week.
Copper: On May 10, July New York copper generated an intermediate term sell signal after generating a short-term sell signal on May 6. We have no recommendation.
June gold lost $1.80 on volume of 204,834 contracts. Total open interest declined by 7,429 contracts, which relative to volume is approximately 20% above average meaning liquidation was substantial on the modest decline. Yesterday, the June contract made a low of 1258.30, which is the lowest print since $1239.10 made on April 28.
As this report is being compiled on May 11, the June contract is trading $8.90 above yesterday’s close and has made a daily high of 1280.80, which is below the May 9 print of 1289.50. We want to see more downside action in gold before recommending bullish positions and as we pointed out before, managed money is heavily long and the early summer months are not favorable for precious metals performance. Continue to stand aside.
S&P 500 E-mini:
The June S&P 500 E-mini advanced 23.25 points on surprisingly light volume of 1,427,985 contracts. Volume was substantially below that of May 6 when the June contract gained 8.75 points on volume of 1,828,566 and total open interest declined by 4,162. On May 10, total open interest exploded higher, up 35,826 contracts, which relative to volume is average, but yesterday’s open interest increase was a very healthy number.
Yesterday the June contract made a high of 2079.75, which is the highest print since 2077.50 made May 2. This has not been taken out on May 11 and the June contract currently is trading 8.25 points lower and has made a daily low of 2067.50, which is above yesterday’s low of 2048.00.
On May 6, the June contract generated a short-term sell signal, and since then the E-mini has had two days of a counter trend rally (May 9 and May 10) and now is headed lower. In yesterday’s research note, we mentioned it was likely that the short term sell signal would reverse and we think this is still in the cards.
However, we would change our minds if the June contract makes a daily high below OIA’s pivot point of 2061.35. The 21 day average true range is approximately 23 points, which would imply a downside target of at least 2038.00 if the sell signal is confirmed. This would bring the June contract close to the recent low for the move of 2030.50 made on May 6. Our best guess at this juncture is for the June contract to test the April 20 high of 2105.25. A reversal of the sell signal would occur if the daily low is above OIA’s key pivot point for May 11 of 2081.81. We have no recommendation.