On April 10, the USDA will release its world agriculture supply demand report.

Soybeans:

May soybeans lost 10.25 cents on volume of 208,815 contracts. Open interest increased by 3,944 contracts, which in relation to volume is approximately 25% less than average. The May contract lost 12,195 of open interest, which makes the total increase that much more impressive. For the past 3 trading sessions beginning on April 3, soybean prices have declined every day bringing the total loss to 32.25 cents while open interest has increased each day for a total of 14,533 contracts. Relative to the 3 day volume total, the open interest increase has been average. This represents a very healthy increase in open interest during a price decline at the lower end of the trading range. We think the market is due for a short-term bounce, and the upcoming World Agriculture Supply Demand report by the USDA may be the impetus for a further rally. This should provide an opportunity to implement bearish positions. If the bird flu situation worsens, further downside pressure will be seen in soybean prices. Soybeans remain on a short and intermediate term sell signal. Clients should stand aside until after the April 10 report.

Corn:

May corn lost 1 cent on volume of 343,908 contracts. Open interest increased by 2,312 contracts, which in relation to volume is approximately 75% less than average. For the past 2 trading sessions beginning on April 4, May corn has lost 12.50 cents while open interest has increased 2,702 contracts. Relative to volume, the open interest increase during the past 2 days is minuscule and dramatically below average. It is easy to see that market participants have become more bearish on soybeans than corn during the past 2 sessions. However, according to the latest COT report (see Weekend Wrap), managed money is considerably more bullish on soybeans than corn. The long to short ratio in soybeans is 3.46:1, and corn 2.43:1. Like soybeans, if the bird flu situation in China worsens, corn consumption could continue to decline. Corn remains on a short and intermediate term sell signal. Clients should stand aside until after the April 10 report, with the exception of calls that were written out of the money before the March 28 USDA report.

Wheat:

May wheat advanced 5 cents on volume of 115,668 contracts. Volume declined approximately 73,000 contracts from April 4 when May wheat lost 2.50 cents and open interest declined 1,396 contracts. On April 5, total open interest increased 424 contracts, which in relation to volume is approximately 75% less than average. Open interest increased in the July 2013 through July 2014 contracts. The small increase of open interest is somewhat impressive considering the May contract lost 8,060 of open interest, and that managed money is short wheat by a ratio of 1.47:1. For the past 3 days beginning on April 3, price and open interest action has acting in a bullish congruent fashion. The May wheat-May corn spread widened to 70 cents on April 5 premium to May wheat, which is the highest level since January 18 when the spread closed at 70.50 premium to May wheat. It has been confirmed that China bought 1 million tons of soft red winter wheat from unknown destinations. The European Union has been exporting at an aggressive pace, and it is likely that stocks have been reduced to pipeline levels. In all likelihood, this should shift a considerable amount of demand to the United States.

From the April 4 report on wheat:

“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: On April 5, WTI generated a short and intermediate term sell signal.

May crude oil lost 56 cents on fairly heavy volume of 662,698 contracts. Open interest declined 77 contracts. The May contract lost 20,892 of open interest, which explains the minor decline of total open interest. Based upon past history, we expect WTI to have a bounce after the generation of a short and intermediate term sell signal. The market continues to trade in a lackluster fashion.

For the past 10 trading sessions beginning on March 22 through April 5, open interest in WTI has increased 109,447 contracts and May crude oil has advanced 25 cents. In short, since March 22 through April 5, WTI is unchanged on a massive open interest increase. This is bearish market action.

On April 5, Brent crude oil lost $2.22 on heavy volume of 1,043,694 contracts. Open interest increased by 17,660 contracts, which in relation to volume is approximately 30% less than average. For the past 3 days, Brent has declined by a total of $6.57 while open interest has increased by 39,753 contracts. The price and open interest action in Brent is confirming its status as being more bearish than WTI. Brent crude oil declined $2.85 from March 22 through April 5, while open interest in Brent crude has increased 6,334 contracts. The performance of WTI and Brent from a price and open interest standpoint could not be more different. Stand aside.

Heating oil:

May heating oil lost 5.38 cents on volume of 185,963 contracts. Open interest increased by 4,931 contracts, which in relation to volume is average. For the past 3 trading sessions beginning on April 3, heating oil has declined by a total of 17.76 cents while open interest has increased by 15,819 contracts. This is confirming the bearish set up in heating oil, however the market is overdue for a good-sized rally. Stand aside.

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

May gasoline lost 3.51 cents on lighter than normal volume of 145,362 contracts. Open interest declined by 3,029 contracts, which in relation to volume is approximately 15% below average. For the past 4 days, open interest has declined by a total of 10,956 contracts while May gasoline declined 23.79 cents. Gasoline is now on a short and intermediate term sell signal. The market is massively oversold and is due for a good-sized rally. Stand aside.

Natural gas:

May natural gas gained 17.8 cents on volume of 792,024 contracts. Volume increased by approximately 356,000 contracts from April 4 when May natural gas advanced 4.7 cents and open interest increased by 10,143 contracts. On April 5, volume exceeded that of March 14 when 758,506 contracts were traded and open interest increased by 28,319 contracts while May natural gas advanced 13.2 cents. On April 5, volume was the highest since October 11, 2012 when 792,388 contracts were traded and May natural gas closed at $3.959. On April 5, open interest increased by a massive 36,890 contracts, which in relation to volume is approximately 80% above average. The total open interest increase is even more impressive when taking into account that the May contract lost 7,494 of open interest.

As noted in previous reports, tops or temporary tops in markets are often made with massive increases in open interest accompanied by heavy volume. For clients who have wanted to stay long, we advised writing calls against these positions as a way of mitigating downside risk. Natural gas remains on a short and intermediate term buy signal.

Copper:

May copper declined .0075 on volume of 66,886 contracts. Open interest declined by 784 contracts, which in relation to volume is approximately 45% less than average. Last week, the 50 day moving average crossed below the 200 day moving average on the copper continuation chart. We continue to advise clients to wait for a rally before implementing bearish positions. We want to see copper rally to at least the $3.45 level before considering bearish positions. The short to long ratio by managed money is at major highs, which makes copper vulnerable to short covering rallies. Stand aside.

Gold:

June gold gained $23.50 on heavier than normal volume of 215,999 contracts. Open interest increased by 1,199 contracts, which in relation to volume is approximately 75% below average. We want to see gold rally to at least its 50 day moving average of $1612.62 on the gold continuation chart before contemplating bearish positions. Our preferred trade would be to write out of the money calls rather than short the futures or purchase long puts.

Platinum: We are suspending reporting on platinum until we see a trading opportunity.

Silver:

May silver gained 45.3 cents on volume of 57,030 contracts. Open interest increased by 2,174 contracts, which in relation to volume is approximately 50% above average, meaning that new longs were entering the market aggressively and pushing prices higher. As we said in the April 7 Weekend Wrap: “Although silver is on a short and intermediate term sell signal, the market is overdue for a good-sized rally. Perhaps the action on April 5 is a sign that silver is going to chase out shorts who are late to the party. The lows of July 12, 2012, December 29, 2011 and September 26, 2011, should cause anyone to temper their bearishness in the current market.”

Australian dollar:

The Australian dollar lost 39 points on heavy volume of 126,502 contracts. Volume declined approximately 8,500 contracts from April 4 when the June Australian dollar lost 34 points and open interest declined 9,200 contracts. On April 5, open interest declined 7,598 contracts, which in relation to volume is approximately 140% above average. During the past 7 sessions beginning on March 27, open interest has declined 25,329 contracts while the Australian dollar has declined 94 points, or just short of 1 cent. This is bullish congruent price and open interest action. We remain bullish on the Australian dollar, and the only fly in the ointment is the possibility of a major yen collapse, which could take the Australian dollar down temporarily to the 1.0250 level. On the other hand, if Japanese consumers begin to panic about the declining purchasing power the yen, they  may convert their yen holdings into the Australian dollar, US dollar and Singapore dollar.

Euro:

The June euro gained 75 points on volume of 298,647 contracts. Open interest declined by a massive 13,636 contracts., Which in relation to volume is approximately 80% above average.  During the past 2 days beginning on April 4, open interest has declined by 17,393 contracts while the euro has advanced 1.66 cents. This market action is indicative of shorts who are covering and longs that are happy to recoup some of their losses. We like the short side of the euro, but want to see more shorts get chased out before contemplating bearish positions.

From the April 2 report on the euro:

“The market looks weak, but a surprise rally could be on the horizon. Managed money is massively short the euro at this juncture.”

S&P 500 E mini:

The S&P 500 E mini lost 7.50 points on volume of 2,271,891 contracts. Open interest declined by 1,561 contracts. The number of stocks trading above their 50 day moving average on the New York Stock Exchange fell to 1296 on April 5 from 1325 on April 4. We think the market continues to undergo a corrective phase, however the collapse of the yen and the rally in the Nikkei is giving the E mini a bid. We continue to recommend writing calls that are significantly out of the money, or coupled with buying calls that are further out of the money.