Soybeans:

July soybeans lost 9.75 cents on light volume of 168,578 contracts. Total open interest declined by 3,085 contracts, which relative to volume is approximately 25% less than average. The May contract accounted for loss of 7,295 of open interest. The market made a new high for the move at $14.23 3/4, but sold off to close lower. As this report is being compiled on May 1, July soybeans are trading 24.50 cents lower and have made a low of $13.65 1/2. Soybeans remain on a short and intermediate term sell signal. Stand aside.

Corn:

July corn lost 9.75 cents on fairly heavy volume of 340,289 contracts. Total open interest declined by 11,560, which relative to volume is approximately 35% above average, meaning that liquidation was fairly heavy on the decline. Corn made a new high of $6.69 in the early going of the evening session on April 29, and has been selling off ever since. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat:

July wheat gained 14.50 cents on heavy volume of 147,140 contracts. Total open interest declined by 5,803, which relative to volume is approximately 55% above average, meaning that liquidation was heavy as prices advanced. The May contract accounted for loss of 1,789 of open interest. For the past 2 days, wheat prices have advanced 38.50 cents while total open interest has declined 13,238 contracts. This is bearish open interest action relative to the price advance.

July wheat broke out to a new high for the move at $7.36 3/4. This is the highest price since March 28 ($7.40 1/2). It is possible that July wheat will generate a short-term buy signal on May 2. On April 29, July wheat closed above its 50 day moving average of $7.11 1/2 in the July contract for the first time since early December. Upside targets for wheat are 7.42 1/2, 7.69 3/4 and 7.82 3/8. If clients are short wheat, we recommend they cover their positions immediately.

Live Cattle:

June live cattle lost 65 points on volume of 51,380 contracts. Open interest increased by 3,123 contracts, which relative to volume is approximately 140% above average, meaning that new market participants were making heavy commitments, but shorts were in control. As this report is being compiled on May 1, cattle is trading 1.025 higher. We are awaiting confirmation of a short-term buy signal.

Crude oil:

June crude oil lost $1.04 on heavy volume of 617,511 contracts. Open interest increased by a massive 26,186 contracts, which relative to volume is approximately 65% above average. The massive increase of open interest on the decline is extremely bearish, and it confirms the week technical condition of the market.

From the April 29 report: “June WTI crude gained $1.50 on very light volume of 466,236 contracts. Open interest increased only 1,730 contracts, which relative to volume is approximately 85% less than average. From the time the rally began in earnest on April 24 through April 29, crude oil advanced $5.32 while open interest increased 26,129 contracts. This is an abysmal increase of open interest relative to the volume of the past 4 trading sessions.”

We have reprinted two news clips from Dow Jones, which are related to the release of the petroleum stats from the Energy Information Agency. The massive stock increases in crude along with the declining demand for gasoline is a sign of increasing supply coupled by weaker demand.  We see this reflecting an economy that is slowing, and is confirmed by the treasury note market, which has reached highs last seen in December. Crude remains on a short and intermediate term sell signal.

Imports Push U.S. Crude Oil Stocks to Highest Level Since April 1981

By David Bird

  NEW YORK–Rising crude oil imports pushed U.S. crude oil stocks up 1.7% to
395.3 million barrels in the latest week, their highest level since April 1981,
government data show.

  The 6.7-million-barrel rise in crude inventory was the most in any week since
September, weekly data from Energy Information Administration show.  Crude
stocks on April 26 stood at their highest-ever level on EIA’s weekly reports
which began in August 1982. Stocks last topped current levels on EIA monthly
data in April 1981. 

Late-April Gasoline Stock Cover at 14-Year High

  12:45 EDT – Implied gasoline demand dropped 3.8% last week to the lowest
end-April level in 10 years, at 8.415M b/d, EIA data show. During last four
weeks, demand (at 8.5M b/d) is at 12-year low for this time of year. 

Natural gas:

June natural gas lost 4.9 cents on volume of 302,921 contracts. Open interest declined 6,825 contracts, which relative to volume is approximately 10% below average. Natural gas remains on a short and intermediate term buy signal. Stand aside.

Copper:

July copper lost 3.90 cents on volume of 61,896 contracts. Open interest declined by 3,276, which relative to volume is approximately 110% above average, which means new shorts were entering the market and driving prices lower. As this report is being compiled on May 1, July copper is trading 11.15 cents lower. Copper remains on a short and intermediate term sell signal. Although this market should be traded from the short side, it does have dramatic countertrend rallies, which can make trading copper a hazardous undertaking. Unfortunately the options market is illiquid, which makes it difficult to manage risk. Stand aside.

Gold:

June gold gained $4.70 on volume of 168,892 contracts. Open interest declined 1,646 contracts, which relative to volume is approximately 50% less than average. Though we have seen dollar weakness for the past 4 trading sessions including May 1, gold has been unable to mount any momentum for a move significantly higher. As this report is being compiled, gold is trading $26.60 lower and has made a new low for the move at $1439.70. We think it is highly likely the market is going to retest the low of $1321.50 made on April 16. Gold remains on a short and intermediate term sell signal. Stand aside.

Silver:

July silver gained 1.9 cents on volume of 46,287 contracts. Open interest declined 2,833 contracts, which relative to volume is approximately 165% above average, meaning that liquidation was extremely heavy. As this report is being compiled on May 1, silver is trading 81.5 cents lower. Silver remains on a short and intermediate term sell signal. Stand aside.

Australian dollar:

The Australian dollar gained 5 points on light volume of 78,409 contracts. Open interest increased by 3,028 contracts, which relative to volume is approximately 50% above average. In the report of April 29, we suggested that clients write out of the money calls because we couldn’t find an acceptable stop-loss point for short futures positions. As this report is being compiled, the Australian dollar is trading 71 points lower. It remains on a short and intermediate term sell signal.

Euro:

The June euro gained 65 points on volume of 285,501 contracts. Open interest declined by a mere 83 contracts. As this report is being compiled on May 1, the June euro is trading 35 points higher and has made a new high for the move at 1.3248. This is the highest price for the euro since February 25 when it made a high of 1.3323 and closed at 1.3131. On April 30, the June euro closed at 1.3166, which is above the February 25 close. The euro will generate a short-term buy signal on May 1, and likely generate an intermediate term buy signal on May 2. As is usually the case after the generation of a buy signal, the market tends to pullback for 1-2, and possibly 3 days.

S&P 500 E mini:

The S&P 500 E mini gained 4.00 point on light volume of 1,559,668 contracts. Open interest increased by a mere 3,452 contracts. The number of stocks trading above their 50 day moving average on the New York Stock Exchange advanced to 1,627 on April 30, from 1,570 on April 29. To put the April 30 number in context consider the following: On January 4, 2,056 stocks traded above their 50 day moving average, on the NYSE and on April 30, 1,627. The only problem is, the S&P 500 cash index has rallied 131 points, or 8.94%, and the Dow Jones Industrial Average has rallied 1,404 points or 10.45%.

In other words, as the market has rallied sharply, the number of stocks trading above their 50 day moving average continues to fall. Another indicator is the number of new highs minus the number of new lows. For all exchanges, the number of new highs minus new lows peaked on January 2 at 1,102. On April 30 when the S&P 500 closed at its all-time high, the total number of new highs minus new lows was 648. In short, as the market has been moving sharply higher, the number of stocks making new highs is shrinking and the number of stocks trading above their moving average is declining. We view these as canaries in the coal mine, and though the market may continue to move higher, we think it is trading on borrowed time.