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Soybeans:

July soybeans lost 13.75 cents on volume of 398,289 contracts. Total open interest declined by 6,775 contracts, which relative to volume is approximately 25% below average. The May contract lost 1,161 of open interest and there were additional open interest losses in the forward months.

Yesterday, July soybeans made a new contract high of 10.57 and this is the highest print since 10.59 made the week of July 6, 2015. The 10.50 area represents substantial resistance going back to November 2014. As this report is being compiled on May 4, the July contract is trading 13.50 cents higher and has made a daily high of 10.45 3/4.

According to the latest COT report released last Friday, managed money is long by a stratospheric 5.53:1, which means there will be an absence of speculative short covering to power the market higher. Two weeks ago, managed money was long by a ratio of 2.01:1. The only way prices can continue their advance is for new buyers to step in at current levels in order to support the market. On March 7, OIA announced that soybeans generated a short-term buy signal and an intermediate term buy signal on March 11.

Though we think soybeans can eventually move higher, we think it is premature and speculators should not enter a new positions at current levels. For those of you long at lower levels, please call if you need an evaluation of your strategy.

Coffee: On May 3, July New York coffee generated a short-term sell signal and on May 4 has generated an intermediate term sell signal.

July coffee lost 40 points on volume of 35,224 contracts. Total open interest exploded higher, up 4,356, which relative to volume is approximately 425% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices lower (1.1915). Coffee should not be traded from the long side in our view until such time that the spreads begin to invert, otherwise the likelihood is that clients will be whipsawed.

WTI crude oil:

June WTI crude oil lost $1.12 on heavier than normal volume of 1,036,016 contracts. Volume was the strongest since April 21 when the June contract lost $1.00 on volume of 1,038,870 contracts and total open interest declined by 18,407. On May 3, total open interest declined just 7,039 contracts, which relative to volume is approximately 60% below average. The June contract accounted for a loss of 13,718 of open interest.

As this report is being compiled on May 4, the June contract is trading nearly unchanged after rallying to a high of 44.88, which is below yesterday’s high print of 45.35. In our view, crude can go in either direction and it remains on short and intermediate term buy signals. We recommend a stand aside posture.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 543.4 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 0.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and 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 rose 0.7 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 2.1 million barrels last week.

Gold:

June gold lost $6.60 on heavy volume of 248,572 contracts. Volume increased from May 2 when the June contract gained 5.30 on volume of 231,089 contracts and total open interest declined by 1,019 contracts while the June contract made a new contract high 1306.00. The action on May 2 was negative.

On May 3, total open interest increased by a massive 17,273 contracts, which relative to volume is approximately 170% above average, meaning that new short-sellers were entering the market and driving prices lower (1284.00). Yesterday’s action also was negative and after making a high of 1303.90 in the early going continued to sell off for the remainder of the session.

As this report is being compiled on May 4, the June contract is trading $11.20 lower and has made a daily low of 1277.30.We think gold can continue to move lower into the 1250-1256 area before stabilizing. Longer-term, we think gold is headed higher, but as mentioned in prior reports, May and June are not terrific months seasonally for precious metals.

From the May 2 research note on gold:

“Gold is undergoing consolidation and we expect this to last for another couple of days. Interestingly, on May 3, when the equity market was down sharply, this did not boost gold prices and instead acted as a negative influence. Additionally, the dollar was sharply lower and this did not keep gold prices aloft.”

Australian dollar: On May 4, the June Australian dollar will generate a short-term sell signal, and remains on an intermediate term buy signal.

The June Australian dollar lost 1.66 cents on heavy volume of 172,215 contracts. This was the highest volume since March 10 when 212,134 contracts were traded and the June contract closed at 74.21. Surprisingly, total open interest declined just 3,459 contracts, which relative to volume is approximately 20% below average. Considering the magnitude of the decline and the huge volume, we would have expected a total open interest decline of a substantially greater number.

The COT report revealed that leverage funds are long the Australian dollar by a massive 5.44:1, which is up from the previous week of 3.85:1 and nearly double the ratio two weeks ago of 2.90:1. In summary there are large numbers of money managers who remain long the Australian dollar and they collectively will exert selling pressure as prices move lower. Now that the Australian dollar is on a short-term sell signal, the market should have a counter trend rally, which should last from 1-3 days and this will be the opportunity to initiate bearish positions.

British pound:

The June British pound lost 1.27 cents on heavy volume of 125,262 contracts. Total open interest declined just 421 contracts, which relative to volume is approximately 80% below average. The total open interest decline also was surprising considering that during the rally the British pound experienced total open interest increases. This indicates that newly minted longs are not liquidating despite the pound falling from its high for the move of 1.4771 to yesterday’s low of 1.4531.

As this report is being compiled on May 4, the June contract is trading 54 pips lower and has made a new low for the move of 1.4460, which is the lowest print since 1.4475 made on April 27. Despite the move lower, the pound has not generated short or intermediate term sell signals and we are reluctant to recommend bearish positions until this occurs.

Dow Transportation Index: On May 4 the Dow Jones transportation Index will generate a short-term sell signal, but remains on an intermediate term buy signal.

Nikkei 225: On May 3, the June Nikkei 225 index generated short and intermediate term sell signals.

S&P 500 E-mini: The June S&P 500 E-mini will generate a short-term sell signal if the daily high is below OIA’s key pivot point for May 4 of 2057.61. 

SPX: The S&P 500 cash index (SPX) will generate a short-term sell signal on May 4. It remains on an intermediate term buy signal.

Clients should begin to position themselves on the bearish side of the indices because we see lower prices ahead.

10 Year Treasury Note:

It appears likely that the June 10 year note will generate short and intermediate term buy signals within the next couple of days. The employment report will be released Friday and this could be the catalyst for the move. ADP released their estimate for the upcoming report and it was substantially below numbers of the past three years. Currently, the 10 year note remains on short and intermediate term sell signals, but we think this is about to change and clients should take note and exit bearish positions.