Cocoa: On May 17, July New York cocoa generated an intermediate term sell signal after generating a short-term sell signal on May 12. We have no recommendation.
July soybeans advanced 15.75 cents on volume of 261,080 contracts. Volume was the strongest since May 12 when the July contract lost 6.25 cents on volume of 341,055 contracts and total open interest increased by 3,864. Volume traded yesterday was disappointing considering the magnitude of the move and indicates that many would be participants are sitting on the sidelines as soybean trades near its contract high of 10.91 1/2 made on May 10.
On May 17, total open interest exploded higher, up 22,726 contracts, which relative to volume is approximately 240% above average meaning aggressive new buyers were entering the market in large numbers and driving prices to a high of 10.86 3/4. The August contract accounted for loss of 1,828 of open interest.
As this report is being compiled on May 18, the July contract is trading 5.50 cents lower after making a fractional new high of 10.88. Although we have been expecting a substantial pullback after making the contract high on May 10, the market has been trading firmly. At this juncture, we cannot recommend bullish positions even though we think there is a high likelihood the market will trade higher. The risk is too high.
Another major consideration: managed money is long by a stratospheric 9.22:1, which is up substantially from the previous week of 5.53:1. Just two weeks ago, managed money was long soybeans by ratio of 3.65:1. This makes the soybean market highly vulnerable to sharp setbacks. Soybeans typically top out in June or July. However, if there is a weather event when soybeans begin to enter their critical growing stage in August, all bets are off. We want to emphasize: clients should NOT short this market.
WTI crude oil:
June WTI crude oil advanced 59 cents on unimpressive volume of 1,034,136 contracts. Volume fell below that of May 16 when the June contract gained $1.51 on volume of 1,155,647 contracts and total open interest declined by 4,525. On May 17, total open interest declined by a massive 45,837 contracts, which relative to volume is approximately 75% above average, but is a huge number that represents massive liquidation powered by short sellers covering positions. The June contract accounted for a loss of 83,185 and there was only enough open interest increases in the forward months to offset a little more than 50% of the open interest decline in June.
As this report is being compiled on May 18, the July contract is trading 36 cents above yesterday’s close and has made a new high for the move of 49.56. The volume and open interest stats for the past two days confirm there is a high degree of skittishness in the market as prices continue to advance to multi-month highs. On April 12, WTI crude generated a short-term buy signal, which reversed the April 4 short-term sell signal and the market has not gotten close to generating a short-term sell signal.
OIA is the only analyst (to the best of our knowledge) who said that higher prices are ahead until a sell signal is generated. The COT report revealed that managed money was long by ratio 3.07:1, which is down sharply from the previous week of 3.94:1 and the ratio two weeks ago of 4.07:1. It will be interesting to see what the ratio is in this Friday’s report. The tabulation date for this week’s report was May 17.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.3 million barrels from the previous week. At 541.3 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 2.5 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 3.2 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.0 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories decreased by 0.7 million barrels last week.
Natural gas: June and July natural gas will generate short-term sell signals on May 18. Both contracts remain on intermediate term buy signals. We have no recommendation.
Euro: On May 18, the June and September euro will generate short-term sell signals, but remain on intermediate term buy signals.
The June euro lost 10 pips on volume of 128,544 contracts. Total open interest increased by a substantial 5,079 contracts, which relative to volume is approximately 40% above average meaning that new short-sellers were entering the market and driving prices fractionally lower. As this report is being compiled on May 18 the June contract is trading 34 pips lower and has made a new low for the move of 1.1264, which is the lowest print since 1.1271 made on April 26.
A weaker euro has major implications for strength in the dollar index because it represents approximately 58% of the movement of the index. A strong dollar index has negative implications for commodities, crude oil and precious metals in particular. We have no recommendation.
The June British pound advanced 66 pips on volume of 99,482 contracts. Volume exceeded May 13 when the June contract lost 86 pips on volume of 92,493 contracts and total open interest increased by 518. On May 17, the total open interest declined by 875 contracts, which relative to volume is approximately 55% below average, but a total open interest decline on yesterday’s relatively firm advance indicates that short sellers were powering the market higher, NOT new buying.
As this report is being compiled on May 18 the pound is trading sharply higher again, up 1.75 cents on heavy volume. Subscribers to OIA-Direct, were notified earlier that out of the money short call positions should be covered and move to the sidelines. The June pound remains on short and intermediate term buy signals.
Yen: despite the relatively strong move down on May 18, the June yen will NOT generate a short-term sell signal on May 18. For a sell signal to occur, the high of the day must be below OIA’s key pivot point for May 18 of .9151. We have no recommendation.
S&P 500 E-mini:
The June S&P 500 E-mini lost 19.25 points on heavy volume of 1,995,839 contracts. Volume was dramatically higher than that of May 16 when the June contract gained 19.25 points (the exact amount lost on May 17) on volume of 1,428,359 contracts and total open interest increased by 15,005. On May 17, total open interest declined just 4,767 contracts.
As this report is being compiled on May 18, the June contract is trading 13.75 points higher and has made a daily high of 2057.75, which is below yesterday’s print of 2069.50. The market has been trading in a choppy manner ever since it made its high for the move of 2105.25 on April 20. On May 6, OIA announced that the June and September contracts generated short-term sell signals. Currently, both contracts remain on intermediate term buy signals. We have no recommendation