Soybeans:

May soybeans gained 6 cents on volume of 107,582 contracts. Volume was the lowest since December 31 when 90,394 contracts were traded. For the past 5 trading sessions beginning on March 31, volume has been successively lower each day. On March 27, open interest declined 670 contracts, which in relation to volume is approximately 70% below average. The May contract accounted for loss of 4,079 of open interest. As this report is being compiled, May soybeans are trading 46.25 cents lower as a result of the USDA report. We will report on this in the upcoming Weekend Wrap. On March 18, May soybeans generated a short and intermediate term sell signal. We have recommended that clients stand aside soybeans. The USDA reported that 66,400 tons of soybeans were sold for the 2012-2013 season, and 607,700 were sold for the 2013-2014 season. 

Soybean meal:

May soybean meal gained $2.90 on volume of 53,500 contracts. Open interest declined 1,590 contracts, which in relation to volume is approximately 20% above average. The May contract lost 2,022 of open interest. The price and open interest action on March 27 was a reversal from March 26 when May soybean meal advanced $2.40 and open interest increased by 1,761 contracts.  The USDA reported that 137,200 tons of soybean meal was sold for the 2012-2013 season and 3,900 tons for the 2013-2014 season. As this report is being compiled, May soybean meal is trading $17.10 lower and has made a new low for the move at $404.00. Soybean meal has been on a short and intermediate term sell signal and we have been recommending that clients stand aside.

Soybean oil:

May soybean oil closed unchanged on volume of 75,073 contracts. Total open interest declined by 5,385 contracts, which in relation to volume is approximately 180% above average, meaning that liquidation was heavy. The USDA reported that 12,600 tons of soybean oil was sold for the 2013-2013 season. Soybean oil remains on a short and intermediate term sell signal. As this report is being compiled, May soybean oil is trading 89 points lower. Stand aside.

Corn:

May corn gained 5 cents on volume of 228,447 contracts. Total open interest increased by 10,869 contracts, which in relation to volume is approximately 75% above average. The May contract gained 2,623 of open interest. The USDA reported that 295,200 tons of corn was sold for the 2012-2013 season and 18,900 tons sold for the 2013-2014 season. On March 18, May corn generated a short-term buy signal and generated an intermediate term buy signal on March 19. We have been cautiously bullish, and have recommended that clients write out of the money calls against long positions and maintain stops at the March 22 low of $7.20. As this report is being compiled, May corn is trading down the 40 cent limit.

From the May 25 report:

“During the past 8 days beginning on March 14, May corn has advanced 23.25 cents while open interest has increased a total of 98,154 contracts. The massive increase in open interest relative to the rather minor advance during the past 8 days is troubling. Like natural gas, when a series of huge increases in open interest occurs and the price advance is relatively tepid, a correction, or perhaps a reversal in trend may be on the horizon.”

“Additionally, there has been a lack of follow-through after corn closes higher. For example on March 26, corn is trading 3.50 cents lower and has made a low of $7.25 1/2, despite closing at 7.33 1/4, which is May corn’s highest close since March 21 (7.33). We attribute this to heavy trade selling, which is occurring at the high-end of the trading range going back to early February. Clients that have profitable long positions in futures or options might consider writing out of the money calls, to provide a measure of protection in the event that corn prices begin to slide.”

Wheat:

May wheat gained 5.25 cents on volume of 83,238 contracts. Open interest declined 5,363 contracts, which in relation to volume is approximately 150% above average meaning that longs and shorts were liquidating heavily as the market advanced. On March 26, May wheat advanced 4.25 cents and open interest declined by 1,906 contracts. The USDA reported that 580,300 tons of wheat was sold for the 2012-2013 season and 248,300 tons for the 2013-2014 season. Wheat has been on a short and intermediate term sell signal, and as this report is being compiled, May wheat is trading 50.75 cents lower. Stand aside.

Crude oil: On March 27, May crude oil generated a short-term buy signal

May crude oil gained 24 cents on light volume of 458,517 contracts. Volume declined by approximately 98,000 contracts from March 26 when May crude advanced $1.53 and open interest increased 18,917 contracts. On March 27, open interest increased by 14,587 contracts, which in relation to volume is approximately 20% above average. For the past 4 trading sessions beginning on March 22, open interest has increased 58,130 contracts while May crude oil has advanced $4.13. While this is bullish open interest action relative to the price advance, we remain skeptical of crude being able to move significantly higher. Brent crude oil advanced $2.72 in the same 4 day period. The disparity between the performance of WTI versus Brent in this four-day time frame, reflects the difference of WTI being on a short and intermediate term buy signal, and Brent being on a short and intermediate term sell signal. The key question, is whether the spread between the two continues to widen in favor of WTI, or that Brent begins to catch up.

Our lack of bullish enthusiasm for WTI is due to the non-confirmation by other members of the complex to generate buy signals For example, Brent crude oil remains on a short and intermediate term sell signal. Gasoline remains on a short-term sell signal and heating oil remains on a short and intermediate term sell signal. On March 27, the Brent crude contract showed greater strength than WTI, but this is not the case on March 28. We will be carefully monitoring the spread relationship between the two, and if this spread reverses, we will see a sharp pullback in WTI and an advance in Brent. This would increase the likelihood of buy signals in Brent. The generation of a short-term buy signal two days after the intermediate term buy signal occurred, increases the likelihood of a pullback, perhaps a sharp one. Do not chase the rally in WTI.

Natural gas:

May natural gas gained 7.7 cents on volume of 428,231 contracts. Volume was the highest since March 21, when 670,643 contracts were traded and open interest increased by 24,867 while May natural gas lost 2.4 cents. On March 27, open interest increased by 12,813 contracts, which in relation to volume is approximately 20% above average.

For the past 8 trading sessions beginning on March 18, open interest has increased 103,587 contracts while natural gas has advanced 16.6 cents. The massive open interest increase compared to the relatively small advance, is of concern. There is heavy selling as the market advances, which is capping the prices. We have witnessed the same phenomenon in corn, and today’s corn report reprints the March 25 comments. Speculators have rushed in on the long side, which makes anyone long vulnerable to a significant pullback. For clients that are long futures or options, we have suggested they write out of the money calls.

Copper:

May copper gained .0010 on volume of 61,123 contracts. Open interest increased by a massive 3,547 contracts, which in relation to volume is approximately 125% above average, meaning that longs and shorts were unable to move the market in either direction. As this report is being compiled, May copper is trading 4.10 cents lower. The Shanghai Composite Index continues to trade poorly, and in the March 24 Weekend Wrap, we wrote about the series of lower highs in the index going back to late 2011. Copper remains on a short and intermediate term sell signal.

Gold:

June gold gained $11.50 on volume of 238,713 contracts. Open interest declined by 1,921 contracts, which in relation to volume is approximately 60% less than average. The April contract accounted for loss of 20,396 of open interest, and April expiration is the reason  for heavy volume. As this report is being compiled, June gold is trading down $12.10. Gold remains on a short and intermediate term sell signal. Stand aside.

Platinum:

July platinum gained $13.70 on volume of 16,878 contracts. Open interest declined by 1,605 contracts, which in relation to volume is approximately 275% above average. The decline of open interest can be attributed to the expiration of the April contract. Platinum remains on a short and intermediate term sell signal. Stand aside.

Silver:

May silver lost 6.7 cents on volume of 51,180 contracts. Volume increased approximately 25,000 contracts from March 26 when May silver lost 13.6 cents and open interest declined 7 contracts. Additionally, volume traded on March 27 was the highest since March 8 when 54,354 contracts were traded and open interest declined by 1,322 contracts while May silver advanced 14 cents. As this report is being compiled, May silver is trading 29.2 cents lower. Silver remains on a short and intermediate term sell signal. Stand aside.

Australian dollar:

The Australian dollar lost 42 points on volume of 79,628 contracts. Open interest declined by 1,682 contracts, which in relation to volume is approximately 20% less than average. As we said in the March 25 and 26 reports, expect occasional sharp pullbacks. As this report is being compiled, the Australian dollar is trading 31 points lower and has made a low for the move at 1.0337. The Australian dollar should be well supported at the 1.0250-1.0270 level. However, with the very large build of open interest during the past several days, the Australian dollar needs to shed some of the weak longs. When the June Australian dollar generated a short-term buy signal on March 15, we recommended that clients write out of the money puts, and this trade has been working well.

Euro:

The June euro lost 83 points on fairly light volume of 289,611 contracts. Volume on March 27, increased only slightly from March 26 by approximately 24,000 contracts. The euro made a new low for the move at 1.2758. Open interest increased by a massive 15,496 contracts, which in relation to volume is approximately 115% above average, which is the largest open interest increase relative to volume in many months. The euro remains on a short and intermediate term sell signal, and as this report is being compiled, the euro is trading 51 points higher. At this juncture, we think it is unwise to enter new bearish positions and clients should stand aside.

S&P 500 E mini:

The S&P 500 E mini lost 0.50 points on light volume of 1,570,104 contracts. Open interest increased by 17,905 contracts, which in relation to volume is approximately 50% less than average. Stocks trading above their 50 day moving average on the NYSE on March 27 totaled 1,582, which is down from 1,597 on March 26. Despite the fact that the E mini is massively overstretched, the increases of open interest indicate that market participants are willing to make commitments at stratospheric levels. We have advocated writing calls that are significantly out of the money, and think the strategy makes sense. However, if the S&P 500 E mini closes above 1560.50, there is a high likelihood of a retest of the October 11, 2007 high of 1586.