Soybeans:

July soybeans lost 3.25 cents on light pre-holiday volume of 115,339 contracts. Total open interest increased by 5,367 contracts, which relative to volume is approximately 75% above average meaning that a battle occurred between longs and shorts and shorts were able to drive prices lower. The July contract accounted for loss of 1,991 of open interest, which makes the total open interest increase more impressive (potentially bearish). On May 22, July soybeans generated a short-term buy signal, and as is usually the case, the market has a tendency to correct from 1-3 days.

As this report is being compiled on May 27, July soybeans are trading 27.50 cents lower and is making new lows as this report is being compiled. Soybeans closed at $15.15 1/2 on Friday and the high for soybeans on May 27 is 15.15 1/4. In short, the market began declining when it reopened for the evening session at 7:00 p.m. CST on May 26 and was unable to rally above Friday’s close. May 27 is the 2nd day of the correction, and we recommend waiting for a 3rd day before contemplating the initiation of bullish positions. July soybeans topped out at 15.36 3/4 (contract high) on May 22, and as of this writing, is trading approximately 48 cents from the high. Speculators have seen profits erode on the pullback from the high and undoubtedly a fair number of speculators are showing losses on positions. We will take another look at soybeans tomorrow and evaluate today’s volume and open interest stats along with price action on Wednesday.

Soybean meal:

July soybean meal advanced $1.10 on volume of 47,658 contracts. Total open interest increased by 1,468 contracts, which relative to volume is approximately 30% above average meaning that new longs were initiating new positions at an above average rate, but were unable to move prices beyond a fractionally higher close. The July contract accounted for loss of 1,078 of open interest, which makes the total open interest increase potentially bullish. As this report is being compiled on May 27, July soybean meal is trading $8.50 lower after making a new contract high at $508.00 on May 22. We are more bullish on soybean meal than soybeans, and prefer that clients be long soybean meal. However, we advise waiting for one more day to determine how far the correction will carry.

Corn:

July corn advanced 1.25 cents on volume of 150,544 contracts. Total open interest increased by 5,292 contracts, which relative to volume is approximately 40% above average, which means there was a battle between shorts and longs and longs were able to move prices fractionally higher at the close. The July contract lost 5,895 of open interest, which makes the total open interest increase potentially bullish. However, July corn generated a short-term sell signal on May 15th and intermediate term sell signal on May 21. As this report is being compiled on May 27, July corn is trading 6.25 cents lower and has made a new low for the move at $4.70, which is the lowest print since March 4, 2014 (4.70). If corn closes below $4.72 7/8, this would be the first close below the 200 day moving average. Stand aside.

Chicago wheat:

July Chicago wheat lost 6.75 cents on volume of 106,980 contracts. Total open interest declined by 3,685 contracts, which relative to volume is approximately 45% above average meaning that liquidation was fairly heavy on the decline. The July contract lost 1,498 of open interest. As this report is being compiled on May 27, July Chicago wheat is trading 9.25 cents lower and will generate an intermediate term sell signal on May 27. When Chicago wheat opened yesterday evening at 7:00 p.m. CST, it gapped lower and has been trading on the downside ever since. The lessening of tension due to the election of a new Ukrainian Prime Minister undoubtedly fueled the negative psychology. However, Chicago wheat began its descent on May 9 and has closed lower each day with the exception of May 19. In approximately 3 weeks, July Chicago wheat has collapsed approximately $1.00. The remarkable aspect of this is that managed money remained long Chicago wheat by a ratio of 1.56:1 as of May 20. July Chicago wheat generated a short-term sell signal on May 14, however wheat never had a countertrend rally, which would have enabled 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 14,672 contracts. Total open interest declined by 206 contracts, which relative to volume is approximately 45% below average. The July contract accounted for loss of 1,045 of open interest. As this report is being compiled on May 27, July Kansas City wheat is trading 3.25 cents lower and has made a new low for the move at 7.36, which takes out the previous low of 7.36 3/4 made on April 22. Despite the slide in Kansas City wheat prices of over $1.00, the key moving averages continue to be in a bullish set up. For example the 20 day moving average is 7.98 1/2, 50 day 7.75, 100 day 7.14 1/8 and 200 day 7.07 7/8. July Kansas City wheat generated a short-term sell signal on May 19, and for it to generate an intermediate term sell signal the high of the day must be below OIA’s key pivot point of 7.28 1/2. Stand aside.

Cotton: On May 23, July cotton generated an intermediate term sell signal after generating a short-term sell signal on May 12.

July cotton lost 1.47 cents on heavy volume of 35,385 contracts. Volume was the heaviest since April 11 when 45,052 contracts were traded. On May 23, total open interest declined by 2,702 contracts, which relative to volume is approximately 210% above average meaning that liquidation was very heavy on the decline to new lows for the move (85.26).As this report is being compiled on May 27, July cotton is trading 86 points lower and has made a new low for the move at 85.06, which is the lowest print since February 3 (85.00).

Like wheat, cotton began its collapse in early May and has closed lower at each day since May 6. There have been only 2 days when cotton closed higher.Unfortunately, if clients did not initiate bearish positions per the May 13 report, the market did not provide them with another opportunity to initiate new bearish positions.There is a high likelihood that July cotton will close under its 200 day moving average of 85.93, and for clients who initiated positions per the May 13 report, we recommend protection of profits. Clients can liquidate part of the position, or alternatively buy calls, because a rally is most certainly on the horizon.

From the May 13 report:

“For clients who are looking to initiate bearish positions but are not willing to wait for more of a rally, today’s high of 92.13 is a reasonable exit point for bearish positions. There is support between 89.71 (March 24 low) -90.02 (April 11 low), which if broken, will bring on the classical bar charting guys who will begin piling in on the short side. July cotton is trading below its 50 day moving average of 92.02 and the 20 day moving average of 92.91.”

Coffee:

July coffee gained 55 points on volume of 13,313 contracts. Total open interest increased by 377 contracts, which relative to volume is average. The July contract lost 541 of open interest, which makes the total open interest increase somewhat bullish. However, July coffee generated a short-term sell signal on May 12, and remains on an intermediate term sell signal. The market has not a countertrend rally to merit the initiation of bearish positions. We recommend a stand aside posture. As this report is being compiled on May 27, July coffee is trading 2.10 cents lower on the day.

Sugar #11:

July sugar lost 1 point on light pre-holiday volume of 62,933 contracts. Total open interest declined by 1,292 contracts, which relative to volume is approximately 20% below average. The July contract accounted for loss of 5,417 of open interest. On May 22, July sugar generated a short-term sell signal, but remains on an intermediate term buy signal. Usually, after the generation of a sell signal, the market has a tendency to rally from 1-3 days. As this report is being compiled on May 27,, sugar is not cooperating with a rally and is trading 34 points lower. It has made a new low for the move at 16.95, which breaks previous support of 17.07 made on May 8 and 17.05 made on March 24. Today’s low in July sugar is the lowest print since February 21 (16.93). Stand aside and wait for a countertrend rally before initiating bearish positions.

Live cattle:

August live cattle lost 1.525 cents on light pre-holiday volume of 43,493 contracts. Total open interest increased by a massive 4,749 contracts, which relative to volume is approximately 305% above average, meaning liquidation was extremely heavy on the decline. The June contract lost 4,470 of open interest and August -2,111. As this report is being compiled on May 27, August cattle is trading 35 points lower on the day. Continue to stand aside. Cattle needs to wash out massive numbers of speculative longs before it can resume its uptrend.

WTI crude oil:

July WTI crude oil advanced 61 cents on volume of 340,060 contracts. Total open interest declined by 8,919 contracts, which relative to volume is average. The July contract lost 11,509 of open interest, which we consider to be a major negative because the July contract is not close to expiration. Additionally, there was not sufficient open interest increases in the forward months to offset the decline in the July contract. This occurred as July made a new high for the move at 104.50, which took out the previous high of 104.29 made on May 21.

As this report is being compiled on May 27, July WTI is trading 25 cents lower and the high of the day of $104.50 matches that of May 23. Though WTI remains on a short and intermediate term buy signal, we think it remains vulnerable to the downside. In order for WTI prices to advance new buyers must be willing to step up and pay ever higher prices when US supplies of WTI are plentiful. Additionally, there is formidable resistance on the continuation chart going back to September 2013. For example WTI made a high of 104.99 during the week of April 14, 2014 and 105.22, the week of March 3, 2014. Prior to this, was the high of 105.12 during the week of September 23, 2013. We have no recommendation at this juncture.

Natural gas:

July natural gas advanced 4.8 cents on light volume of 146,143 contracts. Total open interest declined by 3,561 contracts, which relative to volume is average. The June contract lost 4,465 of open interest and July -1,535. As this report is being compiled on May 27, July natural gas is trading 9.1 cents higher on the day. The July contract continues to gain on August, September, October and November. As we pointed out in the weekend reports going back to May 11, the widening of the spread is bullish for natural gas, and we expect to see a major move. However, natural gas remains on a short and intermediate term sell signal, therefore we have no recommendation to make at this juncture. Please see the weekend reports on natural gas of May 11, 18, 27.

Gold:

June gold lost $3.30 on surprisingly heavy volume of 233,419 contracts. Volume was the highest since March 28 when 246,499 contracts were traded and June gold closed at $1294.30. On May 23, total open interest declined by 8529 contracts, which relative to volume is approximately 45% above average meaning that liquidation was extremely heavy considering the minor decline in the June contract. As this report is being compiled on May 27, June gold is trading $23.40 lower and has made a new low for the move at 1264.30 and is the lowest print since February 7 of 1256.00.In yesterday’s report OIA recommended the purchase of puts in the August or October contracts. Please see the May 27 Weekend Wrap, which cites the reasons for our bearish views on gold.

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 $20.30 on heavy volume of 16,384 contracts. Volume was the strongest since May 14 when 18,443 contracts were traded and July platinum closed at $1485.70. On May 23, total open interest declined only 85 contracts. The July contract lost 646 of open interest and October gained 583. Regardless, the fact that total open interest didn’t decline by a substantial number is negative for platinum because participants are refusing to liquidate.With the ratio of managed money longs to shorts at an astronomical 14.14:1, there is plenty of fuel to fund further liquidation, especially since gold is clearly headed lower. As this report is being compiled on May 27, July platinum is trading $5.20 lower on the day. We have no recommendation. Platinum remains on a short and intermediate term buy signal.

Euro:

The June euro lost 24 pips on volume of 125,426 contracts. Total open interest increased by 3,656 contracts, which relative to volume is approximately 5% above average.As this report is being compiled on May 27, the June euro is trading 5 pips lower and has made a new low for the move at 1.3612, which takes out Friday’s low of 1.3614. Since generating a short-term sell signal on May 12 and an intermediate term sell signal on May 14, the June euro has not had a sufficient countertrend rally to enable clients to initiate bearish positions. As a result, we recommend a stand aside posture.

British pound:

The June British pound lost 46 pips on volume of 55,641 contracts. Total open interest declined by 2,068 contracts, which relative to volume is approximately 50% above average meaning that liquidation was fairly heavy on the decline. As this report is being compiled on May 27, the June euro is trading 24 pips lower, but made a daily high of 1.6880, which took out Friday’s high of 1.6873. 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.

From the May 16 report:

“However, the market may stall at OIA’s key pivot point of 1.6861. If the June pound is able to make a low above the pivot point, it is possible that new contract highs may be seen.”

S&P 500 E mini:

The June S&P 500 E mini gained 6.75 points on volume of 771,328 contracts. Total open interest increased by 2,572 contracts, which is minuscule and dramatically below average. As this report is being compiled on May 27, the S&P 500 E mini has definitively broken out to new all-time highs, and it appears that another leg higher is in the offing. While we have been recommending long put protection, we realize this position will continue to lose money as the market moves higher. We have advocated this only for clients who hold long equity positions with the idea that appreciation of equity would offset any decline in put values. We think it is within the realm of possibility the market may encounter a surprise exogenous event that could cause a serious decline.