Bloomberg Access: {OIAR<GO>}

WTI crude oil:

June WTI crude oil lost 55 cents on volume of 1,262,203 contracts. Total open interest increased by 24,093 contracts, which relative to volume is approximately 20% below average, and an open interest increase on yesterday’s decline confirms that new short-sellers continue to enter the market and on Tuesday drove prices to a low of $45.53, which was slightly below Monday’s print of 45.73. Making the total open interest increase even more impressive was the fact that the June contract lost 43,382, which means there were sufficient open interest increases in the forward months to offset the decline in June and increase total open interest.

From May 4 through May 9, the June contract lost $1.94 while total open interest in this time frame increased by 42,898. In summary new short-sellers have been driving prices lower rather than the liquidation of long positions. This tells us that longs are refusing to liquidate and stubbornly hanging on. The COT report indicates that managed money remains long by a ratio of 2.19:1.

As this report is being compiled on May 10, the June contract is rocketing higher, up $1.67 or +3.64% and has made a daily high of $47.67, which is slightly below the May 4 print of 47.75.  The impetus for today’s rally is the EIA storage report which showed a draw of 5.2 million barrels. We think the practical effect of the rally is is to blowout some recent short-sellers and tomorrow’s open interest stats will tell the tale.

On May 5, the June contract closed 70 cents higher after making a low of 43.76, which was the low for the move and then rallied to a high of 46.68. The important point is that total open interest declined by 911 contracts even though volume traded was one of the highest in the history of the exchange of 1,748,544 contracts. Based upon current volume, we think it will be difficult for it to get anywhere near the May 4 number. Although, we cannot discount a move somewhat higher from here, especially if WTI is headed for a short term buy signal, this should be the extent of the rally.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.2 million barrels from the previous week. At 522.5 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories decreased by 0.2 million barrels last week, but are above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 1.6 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories increased by 2.0 million barrels last week but are in the lower half of the average range. Total commercial petroleum inventories decreased by 3.6 million barrels last week.

Soybeans:

Yesterday, July soybeans advanced 9.25 cents on volume of 159,721 contracts. Total open interest increased by 1,401 contracts, which relative to volume is approximately 55% below average, but yesterday’s open interest decline on the price advance is one of those rare occurrences that has been absent from most soybean rallies. The May contract lost 213 of open interest, but this goes off the board shortly and the July 2017 contract lost 2,950. In summary, the open interest increases came from the back months and liquidation was occurring in July, the month that holds the most open interest.

As this report is being compiled on May 10 after the release of the World Agriculture Supply Demand report, the July contract is trading 2.75 cents lower after making a new high for the move of 9.89, the highest print since 9.89 made on March 27, 2017. In our May 5 note on soybeans, we gave our reasons for recommending liquidating bullish positions and moving to the sidelines. Not much is changed since then: corn still has not generated a short term buy signal, nor has soybean meal. Also, July soybeans are unable to close at their highs. This indicates that new sellers enter the market whenever beans rally. Stand aside.

From the May 5 note on soybeans:

“We recommend the liquidation of bullish positions in soybeans for a number of reasons: First, the July contract recently made three new highs for the move. On May 2, the July contract made a high of 9.78 1/2 and was unable to hold the high and closed lower. On May 4, the July contract made a high of 9.80 and again was unable to hold the high and closed lower. And finally on Friday, May 5, July made a high of 9.83 and for a third time could not hold the high and closed lower.”

“If this were not bad enough, soybean meal has been unable to generate a short term buy signal. The corn market is in the doldrums and has been unable to generate a short term buy signal.”

10 Year Treasury Note:

The June 10 year treasury note lost 7.5 points on volume of 1,118,204 contracts. Total open interest increased by 19,026 contracts, which relative to volume is approximately 25% less than average and yesterday’s total open interest decline on lower prices indicates that new short-sellers continue to enter the market.

This follows the action on May 8 when the 10 year lost 5 points and total open interest increased by 19,218. On May 4, OIA announced that the June 10 year note generated a short term sell signal and has been unable to generate an intermediate term sell signal. We think this is just around the corner, and as we had indicated in yesterday’s research note, we are waiting for rally before recommending bearish positions. Also pointed out previously, the June contract is trading right around its 10 week moving average, therefore in our view, it is neither overbought nor oversold. As a result, rallies will be tame and we don’t expect a move much beyond 125-258.

As this report is being compiled on May 10, the June contract is trading nearly unchanged on the day after making a daily high of 125-055 which is slightly above yesterday’s high of 125-020, but above yesterday’s low print of 124-240.

Dollar index:

The June dollar index skyrocketed by 60.8 points on volume of 29,977 contracts.  The magnitude of the move was impressive, but volume was not. On May 9, total open interest increased by 454 contracts, which relative to volume is approximately 40% below average and the open interest increase was disappointing as well. Though, it is getting close to generating a short term buy signal, the June contract is trading nearly unchanged on May 10. For it to generate a short term buy signal, the low of the day must be above OIA’s key pivot point for May 10 of 99.293, and the low in trading thus far has been 99.250.

The COT report released last Friday revealed that leverage funds added 4,022 to their long positions and also added 3,241 to their short positions. As of the May 2 tabulation date, leverage funds were long the dollar index by ratio of 3.97:1, down sharply from the previous week of 5.93:1 and a dramatic decline from the ratio two weeks ago, the high ratio for the year thus far of 8.90:1.

The moving average setup is slightly bearish with the 50 day moving average for the June contract  standing at 100.099, which is below the 100 day moving average of 100.654. However, the 50 day moving average is trading above the 200 day moving average of 99.031. Much of the strength in the dollar index will be determined by the path of the euro, which comprises about 58% of the dollar index’s movement. We think the euro is in a corrective mode and have written extensively about this. Therefore, if  our call is correct, the dollar index will likely generate a short term buy signal within the next couple of days. No recommendation.

AUD/CAD: AUD/CAD is getting close to generating short and intermediate term sell signals. If and when this happens, it would reverse the short and intermediate term buy signals generated on April 28, 2017.