Coffee: On May 24, July coffee generated a short-term sell signal, but remains on an intermediate term buy signal. It appears likely that an intermediate term sell signal will be generated this week. We have no recommendation.
Lean hogs: On May 24, July and August lean hogs generated intermediate term sell signals after generating short-term sell signals on May 20.
August lean hogs gained 7.5 points on light volume of 30,344 contracts. Total open interest declined by a massive 3,546 contracts, which relative to volume is approximately 300% above average, meaning that liquidation was off the charts heavy. The June contract, which enters first notice day during the next couple of days lost 2,889 of open interest, July -782.
As this report is being compiled on May 25 the August contract is trading nearly unchanged on the day and has made a fractional new high of 79.300, which is above yesterday’s print of 79.000. As we said in yesterday’s report, increasing corn and meal prices are negative for live cattle and lean hogs and if feed costs continues to advance, they will have a depressing effect on livestock Wait for a rally before initiating new bearish positions.
July corn gained 0.25 cents on volume of 301,015 contracts. Total open interest increased by a massive 19,607 contracts, which relative to volume is approximately 160% above average meaning a battle ensued between buyers and sellers and buyers were able to edge the market just fractionally higher. Yesterday the July contract made a high of 4. 03 1/4 and this has been taken out on May 25 with a high of 4.04 3/4, which is the highest print since 4.07 1/4 made on April 21.
Yesterday, was the third consecutive total open interest increase on a price advance, and it is important to remember there are large numbers of managed money shorts remaining in the corn market. If price prices break above the April 21 high, short sellers would likely begin covering aggressively sending prices higher.
According to the latest COT report released last Friday, managed money was long corn by a ratio of 1.36:1, which was up from the previous week of 1.22:1, but down from the ratio two weeks ago of 1.41:1. July corn remains on short and intermediate term buy signals. Do not short corn.
WTI crude oil:
July WTI crude oil advanced 54 cents on light volume of 793,512 contracts. However, volume did increase from May 23 when the July contract lost 33 cents on volume of 699,363 contracts and total open interest increased by 2,461. On May 24, total open interest exploded higher, up 29,120 contracts, which relative to volume is approximately 25% above average meaning aggressive new buyers were entering the market in large numbers and driving prices higher (49.27). The June contract accounted for loss of 1,400.
As this report is being compiled on May 25 the July contract is trading 52 cents above yesterday’s close and has made a new high for the move of 49.62, which takes out the previous print of 49.56 made May 18. July WTI remains on short and intermediate term buy signals. Do not attempt to pick a top in this market.
The Energy information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.2 million barrels from the previous week. At 537.1 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 2.0 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories remained unchanged while blending components inventories increased last week. Distillate fuel inventories decreased by 1.3 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories fell 0.1 million barrels last week but are above the upper limit of the average range. Total commercial petroleum inventories decreased by 0.9 million barrels last week.
Gold: June and August gold will generate intermediate term sell signals on May 25 after generating short term sell signals on May 23.
June gold lost $22.30 on record-setting volume for 2016 of 466,683 contracts. Total open interest declined by 8,603 contracts, which relative to volume is approximately 25% below average, but yesterday’s total open interest decline is the sixth one in a row and began on May 17. The June contract, which enters first notice day shortly lost 56,603 of open interest. Yesterday, was the tabulation date for the upcoming COT report to be released this Friday and it will reflect the bulk of liquidation seen for the past several days.
As this report is being compiled on May 25, the June contract is trading $6.70 lower and has made a daily low of 1217.70, which takes out major support at 1225.40 made on April 14. The next area of support is 1207.70 made on March 28 and below that the February 16 print of 1192.10. Continue to stand aside.
July silver lost 16.9 cents on volume of 46,831 contracts. Total open interest increased by 101 contracts and the July contract accounted for a loss of 400 of open interest. Yesterday’s total open interest increase was the second in a row on a price decline. On May 23 the July contract lost 10.9 cents and total open interest increased by 1,339. This is good news for anyone who eventually wants to get long silver.
During the past couple of days, we have observed that though gold is making major new lows, silver is making only fractional new lows. For example, on May 19 silver made its low for the move of 16.350 and on May 23 made a low slightly below that of 16.325. Yesterday, July silver made a low 16.21 and the low thus far on May 25 has been 16.185.
Silver was the first to generate a short-term sell signal (May 19) and though gold has generated an intermediate term sell signal on May 25, the July contract is quite a distance from an intermediate term sell signal. For this to occur, the high of the day must be below OIA’s key pivot point for May 25 of $15.943.This number intersects the April 14 low of 15.965.
Due to the extreme volatility of silver and the 10% decline from the high of 18.06 made on May 2, we think huge numbers of speculative longs and been squeezed out of the market, which means substantially reduced selling pressure from distressed longs. In order to send silver prices considerably lower, new short-sellers have to be willing to enter the market at current levels, and we think speculators are going to be reluctant to initiate major new bearish positions.
The June British pound advanced by a strong 1.45 cents on volume of 106,223 contracts. Total open interest exploded higher, up 6,158 contracts, which relative to volume is approximately 120% above average. Yesterday, the pound made a new high for the move of 1.4644 and this has been taken out on May 25 with another new high for the move of 1.4731. We recommend that clients stand aside. The British pound volatility index is skyrocketing making options expensive and we think it is going to be difficult to make money in the pound safely.
S&P 500 E-mini: The June and September S&P 500 E-mini will generate short-term buy signals on May 25. This reverses the May 6 short-term sell signals. Both contracts remain on intermediate term buy signals.
The June S&P 500 E-mini advanced 29.75 points on volume of 1,612,614 contracts. Total open interest increased by 30,818 contracts, which relative to volume is approximately 20% below average, but an open interest increase on yesterday’s advance is positive.
As this report is being compiled on May 25, the June contract is trading 14.50 points higher and has made a daily high of 2092.00, which is the highest print since 2094.25 made on April 28.The June contract is headed for a test of the April 20 high of 2105.25 and we would not be surprised to see the all-time high made during the month of May 2015 tested as well (2134.00). We have no recommendation.
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