On May 6, the major currencies are rallying strongly. We will issue reports on these tomorrow.

Soybeans:

July soybeans lost 7.50 cents on extremely light volume of 99,590 contracts. Remarkably, volume traded on May 5 was the lowest of 2014. On May 5, total open interest increased by 1251 contracts, which relative to volume is approximately 45% less than average. However, this is bearish. The May contract lost 1,497 of open interest and July -732, which makes the total open interest increased more impressive (bearish). There was light volume on the decline, which indicates participation was low and the open interest increase tells us that some participants are getting increasingly bearish. Our conclusion is that soybean prices have further to fall. As this report is being compiled on May 6, July soybeans are trading 9.50 cents lower and have made a new low for the move at 14.43 1/4. In order for July soybeans to generate a short-term sell signal, the high of the day must be below OIA’s key pivot point of 14.58. Stand aside.

Soybean meal:

July soybean meal lost $1.70 on light volume of 41,847 contracts.Total open interest declined by 994 contracts, which relative to volume is approximately 10% below average. The May contract lost 1,579 of open interest and July -825. As this report is being compiled on May 6, July soybean meal is trading $3.50 lower and has made a new low for the move at 471.00, which is the lowest print since 469.80 made on April 25. For July soybean meal to generate a short-term sell signal, the high of the day in the July contract must be below OIA’s key pivot point of $469.00. Stand aside

Soybean oil:

July soybean oil lost 34 points on volume of 51,504 contracts. Total open interest increased by 1,691 contracts, which relative to volume is approximately 35% above average meaning that new short sellers were aggressively entering the market and driving prices to new lows for the move (41.07). The May contract lost 408 of open interest and July -1200, which makes the total open interest increase more impressive (bearish). As this report is being compiled on May 6, July soybean oil is trading 5 points higher on the day. We recommend waiting until the market rallies close to its 200 day moving average of 41.96 before entering bearish positions. Yesterday’s high was 41.88, and we want to see a test of this high.

Corn:

July corn advanced 8.50 cents on volume of 202,929 contracts. Volume was slightly below the 222,731 contracts traded on May 2 when July corn lost 7.50 cents and total open interest declined by 5,073 contracts. On May 5, total open interest declined by 3,615 contracts, which relative to volume is approximately 25% less than average. However, the decline of total open interest when corn prices advanced is bearish. The May contract lost 916 of open interest and July -7563. As this report is being compiled on May 6, July corn is trading 6.50 cents higher and has made a daily high of 5.16 1/2. At this juncture we see no reason to be involved in corn. July corn remains on a short and intermediate term buy signal.

Chicago wheat:

July Chicago wheat advanced 13.00 cents on volume of 96,448 contracts. Volume increased markedly from May 2 when July Chicago wheat advanced 8.75 cents on volume of 71,210 contracts and total open interest declined by 1227 contracts. On May 5, total open interest increased by 3018 contracts, which relative to volume is approximately 20% above average, meaning that new longs were entering the market and driving prices to new highs (7.40 1/2).As this report is being compiled on May 6, July Chicago wheat is trading 9.00 cents higher and has made a new high for the move to 7.44.The wheat market continues to rocket higher on concerns of tension in Ukraine along with hot-dry weather, in addition to the abysmal condition of the hard red wheat crop. Stand aside due to the over bought condition of the market.

Kansas City wheat:

July Kansas City wheat advanced 10.25 cents on volume of 23,848 contracts. Volume fell significantly from May 2,when July KC wheat advanced 17.75 cents on volume of 29,896 contracts and total open interest increased by 1573 contracts. On May 5, total open interest declined by 533 contracts, which relative to volume is approximately 10% below average. The May contract lost 137 of open interest and July -710. The decline of total open interest in yesterday’s trading looks to be the result of market participants taking chips off the table as prices rocket to their highest level since early 2013. As this report is being compiled on May 6, July KC wheat is trading 14.75 cents higher and has made a new high for the move at $8.55 1/2,which takes out the 2013 high of 8.47 made on January 16, 2013. The market is massively overbought, and we continue to discourage clients from entering bullish positions. If tension in Ukraine diminishes, we could see a series of limit down days. Stand aside.

Live cattle:

August live cattle lost 10 points on light total volume of 31,843 contracts. Total open interest declined by 1,016 contracts, which relative to volume is approximately 40% above average meaning that liquidation was substantial on a minor decline. As this report is being compiled on May 6, August cattle is trading 72.5 points higher and has made a daily high of 1.38325, which takes out yesterday’s high of 1.38000. In the April 30 report (written on May 1), we recommended buying the June 2014 contract and selling August 2014 cattle. When we recommended this spread, it closed at 67.5 points premium to June and yesterday closed at 27.5 points premium to June. The fact that the spread closed at a new low for the move concerns us about the overall direction of cattle prices in the short-term. Granted supplies get tighter as 2014 progresses, but the summer grilling season usually sees a seasonal boost in demand.We still think there is a good possibility the premium of the June contract to August will widen, but clients should hold the spread based solely upon their risk tolerance and sound money management principles.

WTI crude oil:

June WTI crude oil lost 28 cents on very light volume of 362,666 contracts.Volume was the lowest since March 31 when 340,482 contracts were traded and the June contract closed at $100.82. On May 5, open interest increased by 1,061 contracts, which relative to volume is approximately 85% below average. The June contract lost 8,674 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on May 6, June WTI is trading 61 cents higher and has made a daily high of 100.42, which is 2 cents below yesterdays high of 100.44. On April 30, June WTI generated a short-term sell signal. Since WTI has not had much of a rally, we recommended writing out of the money calls in yesterday’s report rather than initiate a more aggressive bearish position.Continue to hold short calls.

Heating oil and gasoline will generate short-term sell signals on May 6.

Natural gas: Clients should consider adding new bullish positions in natural gas. The exit point recommended is the May 5 low of 4.651. Maintain the previous partial bullish position along with the short call position recommended on April 22.

June natural gas advanced 1.1 cents on very light volume of 119,560 contracts. Volume traded on May 5, was the lowest of 2014. On May 5, total open interest declined by a massive 9,350 contracts, which relative to volume is approximately 210% above average meaning that liquidation was extremely heavy on a modest advance. The June contract lost 11,470 of open interest. For some strange reason, market participants have been heavily liquidating positions in natural gas,  yet the market continues to hold up remarkably well.

As this report is being compiled on May 6, June natural gas is trading 10.1 cents higher and has made a daily high of $4.806. This advance is taking place in the shadow of a COT report that shows manage money holding a very low long to short ratio of 1.58:1, which is the lowest print since April 1 when managed money was long by 1.54:1. This was the lowest reading recorded during 2014. We suspect this week’s report will show an even lower ratio and today is the tabulation date for Friday’s report. Hot dry weather is abundant in the southern plains states, and as we said in previous reports, if natural gas is to continue its advance, physical demand needs to increase.

The natural gas market has shown considerable resilience and we think there is a very good chance that June natural gas will take out the April 30 high of 4.852 and the February 24 high of 4.893. On April 29, we recommended a new bullish positions in natural gas and the clients were stopped out the next day for a small loss. Although this could happen again, we think the odds have shifted due to increasingly hot temperatures, which will definitely affect speculator psychology. We know managed money has reduced their participation, but will come back in droves if natural gas breaks out into new high territory.

From the May 2 report:

“We like the way natural gas is trading and recommend that the partial bullish position coupled with the short call continue to be held. However, if natural gas penetrates the April 25 low of 4.644, we would liquidate the remainder of the bullish position, and continue to hold the short call position.”

Australian dollar:

The June Australian dollar advanced 12 pips on light volume of 43,522 contracts. Total open interest declined by a massive 2,498 contracts, which relative to volume is approximately 120% above average meaning that liquidation was very heavy on a modest advance. For the past 4 days beginning on April 30, open interest has declined each day and the 4 day total is 7,749 contracts. As this report is being compiled on May 6, The June Australian dollar is trading 84 pips higher and has made a daily high of 93.43. Since the low on May 6 is 92.45, which is below OIA’s key pivot point of 92.64 we cannot determine with certainty whether the Australian dollar will resume its uptrend. However, there has been a considerable amount of liquidation which puts the market in much stronger hands.

From the May 4 Weekend Wrap:

“On Friday May 2, the June Australian dollar made a new low for the move at 91.75, which is the lowest print since 91.60 made on April 3. However, the June contract snapped back from the low to close only 4 pips lower on the day. Conceivably, the low made on Friday may be an interim low, or a major low from which the Australian dollar recovers and eventually resume its uptrend. Also, preliminary stats show a decline of open interest of 2,714 contracts, which would make it the 3rd day in a row that open interest has declined. This may be the kind of wash out required to put the Australian dollar on a more healthy footing.”

Gold:

June gold advanced $6.40 on light volume of 134,507 contracts. Total open interest increased by a massive 9,250 contracts, which relative to volume is approximately 160% above average meaning that new longs were very aggressive and pushed June gold to a new high for the move at $1315.80. As this report is being compiled on May 6, June gold is trading $1.50 higher, but has not taken out yesterday’s high. The price and open interest action for May 2 and 5 has been extremely positive, but as we stated in yesterday’s report, for gold to generate a short-term buy signal, the low the day must be above $1305.90 and then 1315.00.

Platinum: On May 5, July platinum generated a short and intermediate term buy signal.

July platinum gained $7.70 on light volume of 6621 contracts. Total open interest declined by a massive 548 contracts, which relative to volume is approximately 235% above average meaning that liquidation was very heavy on the advance. As this report is being compiled on May 6, July platinum is trading $6.30 higher and has made a daily high of 1459.60, which is the highest print since 1468.30 made on April 15. As is usually the case after the generation of a buy signal, the market has a tendency to pullback from 1-3 days, which is the opportunity to enter bullish positions. Until the market corrects, stand aside.

Copper: We are suspending coverage in copper because we see no trading opportunity at this juncture.

S&P 500 E mini:

The June S&P 500 E mini gained 1.25 points on light volume of 1,178,585 contracts. Total open interest increased by 10,784 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on May 6, the E mini is trading 11.25 points lower, but has not taken out yesterday’s low of 1860.50. Maintain long put protection if holding long equity positions.