Soybeans:

May soybeans lost 8.50 cents on volume of 179,164 contracts. Open interest increased by 6,378 contracts, which in relation to volume is approximately 40% above average, meaning that new shorts were aggressively entering the market and driving prices lower. This is the second day in a row when soybean prices have declined and open interest has increased. This behavior is a new pattern and it indicates increased bearishness on the part of market participants. As this report is being compiled, soybeans are trading 14.25 cents lower and have made a new low for the move at $13.56. Areas of support for May soybeans are $13.44, which was the January 11, 2013 low, 13.37 3/4, the November 16, 2012 low and 13.23 3/4, the low for June 28, 2012. Soybeans remain on a short and intermediate term sell signal, but we recommend clients remain on the sidelines until a bear market rally occurs.

From the April 3 report:

“Prior to March 12, the last increase of open interest on a price decline occurred on February 8 when May soybeans lost 34.25 cents and open interest increased by 2,308 contracts on volume of 319,712 contracts. On February 7, May soybeans lost 0.75 cents on volume of 267,908 contracts and open interest increased by 8,997 contracts. Until April 3, the open interest increase of 8,997 when soybeans lost 0.75 cents was the largest open interest increase on a price decline for of 2013. In short, the open interest increase on April 3 is anomalous and the largest for 2013. This represents a major shift in the way soybeans have traded for the past 3 months. April 3 marked the first time that a large number of new shorts aggressively entered soybeans to drive prices lower. Additionally, this occurred at the lower end of the trading range which makes this either a courageous move, or one that is foolhardy. Although the market is weak and is trading in a very negative fashion, we prefer to wait for rallies before implementing bearish positions. As time passes, the loading of soybean cargoes in Brazil will eventually begin increasing, which will provide surplus product.”

Corn:

May corn lost 11.50 cents on heavier than normal volume of 379,822 contracts. Volume increased nearly 21,000 contracts from April 3 when May corn advanced 1 cent and open interest declined 12,249 contracts. On April 4, open interest increased by 390 contracts, which is minuscule and dramatically below average. The May contract lost 14,607 of open interest, and open interest increased in the July 2013 through March 2015 contracts. New shorts were entering the market at a much heavier rate than indicated by total open interest and driving prices lower. On March 28, May corn lost 40 cents on heavy volume of 655,122 contracts and open interest increased by 16,834 contracts.

For the past 5 trading sessions, corn has fallen a total of $1.05.1/4, and open interest has declined by a total of 38,788 contracts. The minor decline of open interest combined with a large number of speculative longs point to more selling ahead. The market looks extremely weak, and any rally will be met by major selling from longs with large losses. Therefore, it is likely that rallies will be shallow and short-lived until the bulk of speculative longs have liquidated.

Wheat:

May wheat lost 2.50 cents on heavy volume of 188,636 contracts. Volume fell by approximately 30,000 contracts from April 3 when May wheat advanced 25.75 cents and open interest increased 4,099 contracts. On April 4, open interest declined 1,396 contracts, which in relation to volume is approximately 75% less than average.

The large numbers of managed money shorts, combined with two days of heavy volume and a net open interest increase of 2,703, is an indication the bottom is in for wheat, and that higher prices may be in the offing. Wheat remains on a short and intermediate term sell signal, and needs to advance beyond $7.16 1/2, before a short-term buy signal could be generated. Additionally, May wheat needs to close over $7.00 3/4 in order to maintain its upward momentum. Stand aside.

Crude oil:

May WTI crude oil lost $1.19 on heavy volume of 782,882 contracts. Open interest increased by a staggering 33,497 contracts, which in relation to volume is approximately 65% above average, meaning that new shorts were heavily entering the market and driving prices lower. On April 4, May Brent crude oil declined 77 cents on volume of 938,475 contracts. Volume declined by 177,216 contracts from April 3 when Brent crude oil fell $3.58 and open interest increased by 26,422 contracts. On April 4, Open interest declined 4329 contracts, which in relation to volume is minuscule and dramatically below average.

From the report of April 3:

For the past 8 trading sessions beginning on March 22 through April 3, open interest in WTI has increased 76,027 contracts and May crude oil has advanced $2.00. In short, since March 22 through April 3, May crude oil has advanced just $2.00, and it has taken an increase of 76,027 contracts to move the needle. This is not the stuff that bull markets are made of. Brent crude oil advanced 14 cents in the same 8 day period. From March 22 through April 3, open interest in Brent crude has declined 6,334 contracts. The performance of WTI and Brent from a price and open interest standpoint could not be more different. Stand aside.

The problem with the dramatic open interest increase on April 4 for WTI, is that large numbers of longs have entered the market between March 22 and April 4, but have not liquidated. This means more liquidation is ahead. In the upcoming Weekend Wrap, we will perform a price and open interest analysis from the time that crude oil began its rally on March 4 through April 4. It appears likely that an intermediate term sell signal will be generated for WTI on April 5, but not a short-term sell signal. Usually this is a neutral to slighly negative reading, however with gasoline, heating oil and Brent crude oil on short and intermediate term sell signals, we consider it inevitable before a short-term sell signal is generated in WTI. 

Heating oil:

May heating oil lost 3.84 cents on volume of 172,721 contracts. Open interest increased by 6,464 contracts, which in relation to volume is approximately 40% above average, meaning that new shorts were entering the market and driving prices lower. This is the second day in a row that heating oil declined and open interest increased. Heating oil remains on a short and intermediate term sell signal. Stand aside.

Gasoline: On April 5, May gasoline generated an intermediate term sell signal.

May gasoline lost 1.53 cents on volume of 222,836 contracts. Volume fell approximately 10,000 contracts from April 3 when May gasoline fell 12.68 cents and open interest declined by 2,916 contracts. For the past 4 trading sessions beginning on April 1, open interest has declined 8,623 contracts while May gasoline declined 21.19 cents. Although it is positive that open interest declined along with price, it is a rather small amount of liquidation considering the magnitude of the decline and the large number of managed money longs in the market. Gasoline is now on a short and intermediate term sell signal. Stand aside.

Natural gas:

May natural gas advanced 4.7 cents on volume of 436,340 contracts. Volume increased from April 3 when 333,237 contracts were traded and open interest increased by 2,457 contracts while May natural gas lost 6.9 cents.

For the past 13 trading sessions beginning on March 18 through April 4, open interest has increased 155,513 contracts while natural gas has advanced 5.3 cents. The massive open interest increase combined with a fractional advance shows the bears remain in control. However, this may be changing, if only temporarily because on April 5, May natural gas trading 17.4 cents higher on heavy volume. The market has been well supported on pullbacks and with the large build of open interest, we thought natural gas would have a decline to at least $3.76. We have suggested that sell stops be placed at 3.885, which means that on April 4, longs have been stopped out with hefty profits. For those clients who have wanted to stay long futures or options, we had suggested they write out of the money calls against these positions. Natural gas remains on a short and intermediate term buy signal.

Copper:

May copper gained 1.85 cents on volume of 78,254 contracts. Open interest increased by 596 contracts, which in relation to volume is approximately 60% less than average. Copper remains on a short and intermediate term sell signal. Stand aside.

Gold:

June gold lost $1.10 on heavier than normal volume of 202,096 contracts. Open interest declined by 4,508 contracts, which in relation to volume is approximately 10% less than average. As this report is being compiled, June gold is trading $27.90 higher. On April 4, Gold made a new low for the move at 1539.40. The next area of support is the May 30, 2012 low of 1532.10. Gold remains on a short and intermediate term sell signal. Stand aside.

Platinum:

July platinum lost $24.10 on volume of 19,360 contracts. Open interest declined by 1,054 contracts, which in relation to volume is approximately 120% above average, meaning that liquidation was extremely heavy on the decline. As this report is being compiled, July platinum is trading 20.60 higher. Platinum remains on a short and intermediate term sell signal. Stand aside.

Silver:

May silver lost 3 cents on fairly heavy volume of 64,065 contracts. Open interest increased by a massive 2,880 contracts, which in relation to volume is approximately 75% above average. On April 4, silver made a fractional new low at $26.575, which was slightly lower than the previous day of $26.670. As this report is being compiled, silver is trading 48.8 cents higher. Silver remains on a short and intermediate term sell signal. Stand aside.

Australian dollar:

The Australian dollar lost 34 points on very heavy volume of 135,107 contracts. Volume was the highest since March 14 when 195,954 contracts were traded and the June Australian dollar closed at 1.0308. On April 4, open interest declined by a massive 9,200 contracts, which in relation to volume is approximately 160% above average, meaning that liquidation was extremely heavy.

On April 4, the Australian dollar made a low of 1.0329, which was slightly above the low made on April 1 of 1.0327. Yesterday, we thought it was a possibility that if the lows held and open interest declined, we would have a fairly low risk area to implement new bullish positions. However, as this report is being compiled on April 5, the Australian dollar broke beneath the April 1 and April 4 lows. The Japanese yen is trading at new lows and undoubtedly this is having an impact on the Australian dollar. However, this may not be the case, if the Japanese consumer decides to take flight from the yen and jump into alternative currencies that will hold their value. The Australian dollar remains on a short and intermediate term buy signal.

Euro:

The June euro gained 91 points on heavy volume of 448,724 contracts. Open interest declined only 3,757 contracts, which in relation to volume is approximately 60% less than average. In short, the small decline of open interest on the rally on April 4, did not convince shorts to cover their positions. As this report is being compiled, the euro is trading 70 points higher and has made a new high for the move at 1.3047. The euro remains on a short and intermediate term sell signal. Stand aside.

S&P 500 E mini:

The S&P 500 E mini gained 6.00 points on volume of 2,007,478 contracts. Open interest increased by 11,321 contracts, which in relation to volume is approximately 70% below average. The number of stocks trading above their 50 day moving average on the New York Stock Exchange increased to 1,325 on April 4 from 1,260 on April 3. Interestingly, new highs minus new lows for the entire stock universe fell to 98 stocks on April 4, from 126 stocks on April 3. As we have been saying for a number of weeks, the market internals have been getting weaker. The Russell 2000 has been the index which has manifested the weakness that is beginning to engulf the other indices.We continue to advocate writing calls that are significantly out of the money, and/or writing calls that are significantly out of the money combined with buying calls that are further out of the money. However, with the market lower on April 5, we would wait for a rally before implementing this strategy, if you have not already done so.