Soybeans:

July soybeans lost 26.75 cents on surprisingly light total volume of 145,067 contracts. Volume was lower than May 22 when July soybeans advanced 13.50 cents on volume of 229,996 contracts and total open interest increased by 6,113 contracts. Additionally, volume was below that of May 21 when July soybeans advanced 35.50 on volume of 154,518 contracts and total open interest increased by 4,905 contracts. In other words, volume was light on yesterday’s trade even though prices dropped sharply.It is positive to see volume shrink when prices decline and increase on price advances.

On May 27, total open interest declined by 5,451 contracts, which relative to volume is approximately 45% above average meaning that liquidation was fairly substantial on the decline, which is healthy open interest action. The July contract lost 9,125 of open interest and there were open interest increases in the August through November 2014 contracts. As this report is being compiled on May 28, July soybeans are trading 2.25 cents higher and have made a daily high of 15.02. Yesterday, July soybeans closed at 14.88 3/4 and the low on May 28 has been 14.82 3/4. We consider today’s pullback in the early going as the 3rd day of the countertrend move after July soybeans generated a short-term buy signal on May 22.Unless soybeans are on their way to reversing the short-term buy signal, clients should be looking to position themselves for a move higher. As confirmation, July soybeans should make a daily low above 14.97 1/8.Our preference however, is to be long soybean meal.

Soybean meal:

July soybean meal lost $8.40 on volume of 56,981 contracts. Total open interest increased by 2,348 contracts, which relative to volume is approximately 55% above average. The July contract lost 1,003 of open interest and it was the new crop December contract that accounted for an increase of open interest of 2,691.We suspect this was the result of commercial trade activity, not speculative.As this report is being compiled on May 28, July soybean meal is trading $3.10 higher after making a daily low of 492.70, which is fractionally below yesterday’s low of 493.10.

OIA recommends that bullish positions be initiated in soybean meal. This can take the form of writing (shorting) puts in the July contract, buying calls in the August contract or purchasing futures in the July contract. Clients should use today’s low of (492.70) as the exit point for bullish positions. Additionally, on May 20, OIA recommended that clients purchase July 2014 soybean meal and sell the August 2014 contract. The May 12 low of $23.00 premium to July should be the exit point for the spread.

Corn:

July corn lost 8.25 cents on surprisingly low volume of 191,492 contracts. Although volume was above May 23 of 150,544 when July corn advanced 1.25 cents, it was below that of May 22 when July corn advanced 2.25 cents on volume of 210,185 contracts and open interest increased by 5,076 contracts. Low volume indicates a lack of participation and the total open interest decline of 148 contracts indicates that some market participants are digging in and refusing to liquidate. However, the July contract lost 6,170 of open interest, but there was sufficient open interest increases in the forward months to offset most of the decline in the July contract.

As this report is being compiled on May 28, July corn is trading 0.50 cents higher on the day, but has made a new low for the move at $4.66 1/2, which is the lowest print since February 28, 2014 (4.57 1/4). Additionally, July corn closed under its 200 day moving average of 4.72 7/8. Corn remains on a short and intermediate term sell signal. We have no recommendation because the market has not had a countertrend rally, which would enable clients to initiate bearish positions. Like many other commodities, corn has been on a downward trajectory since early May with very small intermittent rallies.

Chicago wheat: On May 27, July Chicago wheat generated an intermediate term sell signal, after generating a short-term sell signal on May 14.

July Chicago wheat lost 11.50 cents on volume of 88,138 contracts. Surprisingly, volume was the lowest since May 16 when July Chicago wheat lost 4.00 cents on volume of 74,070 contracts and total open interest increased by 1889 contracts. Like corn, we view the low volume traded on May 27 when wheat had a major decline as a sign that some participants are digging in and refusing to liquidate. On May 27, total open interest declined by 1,915 contracts, which relative to volume is approximately 15% below average.

The past 2 days of price and open interest declines stand in stark contrast to the period of May 16 through May 22 when open interest increased by 20,098 contracts and July Chicago wheat declined by 19.00 cents. In short, total open interest has only been declining since May 23. We know that managed money was long Chicago wheat by ratio of 1.56:1 on the COT tabulation date of May 20. It appears that many speculators may be liquidating at the bottom of the 3 month trading range. As this report is being compiled on May 28, July Chicago wheat has made another new low at 6.33, which is the lowest print since March 4, 2014 (6.25 1/4). Since early May, July Chicago wheat has headed straight down, without a sufficient countertrend rally to enable clients to initiate bearish positions. As a result, we recommend a stand aside posture.

Kansas City wheat:

July Kansas City wheat lost 6.75 cents on volume of 13,515 contracts.Surprisingly, volume was the lowest since March 6, 2014 when 13,216 contracts were traded and July Kansas City wheat closed at 7.05 3/4. On May 27, total open interest increased by 652 contracts, which relative to volume is approximately 90 percent above average meaning that new short sellers were entering the market aggressively and driving prices to new lows for the move (7.36). As this report is being compiled on May 28, July KC wheat is trading 3.50 cents lower and has made a new low for the move at 7.29 1/4, which is the lowest print since April 11 (7.23 1/4).Like Chicago wheat, Kansas City wheat has not had a sufficient countertrend rally to enable clients to initiate bearish positions. As a result, we recommend a stand aside posture.

Cotton:

July cotton lost 1.34 cents on volume of 25,084 contracts. Volume shrank dramatically from May 23 when July cotton lost 1.47 cents on volume of 35,385 contracts and total open interest declined by 2702 contracts. On May 27, total open interest declined only 153 contracts, which relative to volume is approximately 65% less than average, which indicates that longs may be digging in and refusing to liquidate, even though July cotton made a new low for the move at 84.85 on May 27.

As this report is being compiled on May 28, July cotton is trading 33 points lower and has made a new low for the move at 83.86, which is its lowest print since January 15 when the low was exactly 83.86. From May 6 through May 27, July cotton has declined every day with the exception of May 8 and May 21. In short, the market has not had a countertrend rally, which would enable clients to initiate bearish positions. However, in the May 13 report, we advised clients to initiate bearish positions if they were unwilling to wait for a countertrend rally and use May 14 high of 92.13 as an exit point for bearish positions. In the report of May 21, OIA advised clients to lower their exit point to the May 22 high of 90.66.

On May 23, OIA recommended liquidating partial positions, or alternatively buy calls against bearish positions because a countertrend rally is coming and it could be significant.

Coffee:

July coffee lost 2.55 cents on volume of 17,499 contracts. Total open interest increased by 842 contracts, which relative to volume is approximately 95% above average meaning that aggressive new short sellers were entering the market and driving prices lower (1.7775). The July contract accounted for loss of 964 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on May 28, July coffee is trading 3.80 cents lower and has made a new low for the move at 1.7080, which is the lowest print since April 2 (1.7000).July coffee has had a sharp collapse since making its contract high at $2.190, and undoubtedly there are speculators who are still in the market and nursing some pretty significant losses. For July coffee to generate an intermediate term sell signal, the high of the day must be below 1.7740. Stand aside.

Sugar #11:

July sugar lost 35 points on heavy volume of 152,026 contracts. Volume was the highest since April 16 when 170,810 contracts were traded. On May 27, total open interest increased by 6993 contracts, which relative to volume is approximately 75% above average meaning that aggressive new short sellers were entering the market and driving prices to new lows for the move (16.95, which is the lowest print since February 21 (16.93). This breaks below previous support of 17.07 made on May 8 and 17.05 made on March 24. On May 22, July sugar generated a short-term sell signal, and will generate an intermediate term sell signal on May 28. Unfortunately, the market has not had a countertrend rally, which would enable clients to initiate bearish positions. As a result, we recommend a stand aside posture.

Live cattle:

August cattle lost 37.5 points on light volume of 36,464 contracts. Total open interest declined by 415 contracts, which relative to volume is approximately 45% less than average. The June contract accounted for loss of 4,575 of open interest. As this report is being compiled on May 28, August cattle is trading 37.5 points higher. In order for cattle to resume its uptrend, the low of the day must be above 1.37550. Preferably, we want to see large numbers of speculative longs lose interest and/or get blown out of the market before we feel comfortable recommending bullish positions.

WTI crude oil: The Energy Information Administration report on crude oil will be released tomorrow.

July WTI crude oil lost 24 cents on volume of 337,164 contracts. Total open interest increased by 1,725 contracts, which relative to volume is approximately 75% below average. The July contract accounted for loss of 5,678 of open interest. As this report is being compiled on May 28, July WTI is trading 82 cents lower and is at the low of the day. WTI remains on a short and intermediate term buy signal, but as we have said before, we see no reason to be involved in the market. The increase in the price of domestic crude has been based upon the logistics of moving inventory in and out of Cushing Oklahoma and to Gulf coast refineries. We think a much better play is coming in natural gas.

Natural gas:

July natural gas advanced 10.6 cents on heavier than normal volume of 235,227 contracts. Volume increased over that traded on May 23 when July natural gas advanced 4.8  cents on volume of 146,143 contracts and total open interest declined by 3,561 contracts. On May 27, total open interest increased by 529 contracts, which relative to volume is minuscule and dramatically below average. However, this is the 1st open interest increase on a price advance since April 29 when June natural gas advanced 3.2 cents on volume of 216,618 contracts and total open interest increased by 2,952 contracts. The June contract lost 10,021 of open interest, which makes the total open interest increase much more impressive (bullish).

As this report is being compiled on May 28, July natural gas is trading 10.4 cents higher and has taken out the May 9 high of 4.610.Yesterday, the July 2014-November 2014 spread closed at 2.8 cents premium to July, which is the highest close for the spread going back to August 12, 2013. We wrote about the bullish spread action in the May 11 report to prepare clients for the upcoming bullish move in natural gas.The open interest increase on May 27 is the 1st indication that market participants are becoming friendly to natural gas, and this is coming at the time when the ratio of longs to shorts in the managed money category is at the lowest level since December 2013. In short, there is plenty of firepower on the sidelines that will re-enter natural gas once they realize natural gas is in a new bull market.

From the May 11 Weekend Wrap:

“Although, it appears inevitable that natural gas is going to generate a short-term sell signal, we wanted to bring to your attention that near-term spreads have been acting in a very bullish fashion even as natural gas prices have declined. For example, the June 2014-September 2014 spread closed at a 2.3 cents premium to June on May 9, which is the highest close for the spread since February 21, 2014 when the June-September 2014 spread closed at 3.6 cents premium to June and the June contract closed at $4.773. The low for the spread occurred on April 17 when June sold at a 7 tick premium to the September 2014 contract and June natural gas closed at $4.754. Spreads widening out as the general price level declines is bullish. OIA thinks natural gas is going to be a terrific candidate on the long side once short-term selling is out-of-the-way and temperatures begin to rise throughout the US. Keep in mind that despite the decline seen this week, natural gas remains the out performer for the 2nd quarter and is the 2nd best performer year to date.”

Gold:

June gold lost $26.20 on huge volume of 351,192 contracts.Volume traded on May 27 was the highest of 2014 and took out the previous high of 335,523 contracts traded on March 27 when June gold closed at a $1294.80. Surprisingly, open interest increased only 1,607 contracts,, which is 75% below average. This is a very puzzling number. There was switching out of the June contract into August, and it appears that participants were willing to roll their positions over into August rather than liquidate. For example, the June contract lost 24,827 of open interest and August gained 24,411. It is apparent that longs continued to dig in and refused to liquidate even as gold prices made a new low for the move at 1263.20, which is the lowest print since February 7  (1256.00). Yesterday, the 50 day moving average of $1299.60 closed  below the 200 day moving average of 1300.10. We expect this to be a topic of the financial press in the coming days, and will likely beget more selling. We think gold is likely to test the $1188 low of December 19, 2013 and the 1179 low of June 28, 2013.

From the May 26 Weekend Wrap: 

“It  is only a matter of time before gold breaks out of its current consolidation pattern, which began on April 17. From April 17 through May 22 (final stats only) open interest has increased 35,440 contracts, but June gold advanced only $1.10, essentially unchanged for 26 sessions.The hefty open interest increase during 26 days has been unable to move the market one way or the other. A sharp move in either direction will be the path of least resistance for gold.”

“One of the compelling reasons to buy puts is that volatility as measured by the gold volatility index GVZ Is close to its 52-week low of 12.81 made on January 6, 2014 and is dramatically below the 52-week high of 33.60 made on June 27, 2013. The 50 day moving average of GVZ is 15.73 and the 200 day moving average is 19.28. The volatility index closed at 14.52 on May 23.”

Platinum:

July platinum lost $10.50 on volume of 12,038 contracts. Total open interest declined by a massive 564 contracts, which relative to volume is approximately 75% above average meaning that liquidation was heavy on the decline.As this report is being compiled on May 28, July platinum has made a new low for the move at $1442.70, which is the lowest print since May 13 (1435.60). Remarkably, July platinum remains on a short and intermediate term buy signal.

British pound:

The June British pound lost 8 pips on volume of 83,981 contracts. Total open interest declined by 1,447 contracts, which relative to volume is approximately 25% below average. On May 28, the June British pound has fallen sharply, down 103 pips and has made a new low for the move at 1.6694. The June pound will likely generate a short-term sell signal tomorrow.

From the May 23 report:

“As the May 16 report indicated, if the June pound was able to make a low above OIA’s key pivot point, the rally would likely resume and that new contract highs were possible. However, the pound has not been able to accomplish this and as a result has been trading in a sideways pattern. We think it is highly likely the pound will generate a short-term sell signal and for this to occur, the high for the day must be below OIA’s key pivot point of 1.6796.”

S&P 500 E mini:

The June S&P 500 E mini gained 12.25 points on very light volume of 926,913 contracts. Total open interest increased by 21,297 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on May 28, the E mini is trading 1.75 points higher on the day. Maintain long put protection if holding long equity positions, and long equity positions should be offsetting losses in the long puts.