Soybeans:

July soybeans lost 0.75 cents on extremely low volume of 102,773 contracts. Open interest increased by 1,019 contracts, which relative to volume is approximately 50% less than average. The May contract accounted for loss of 1,605 of open interest. As this report is being compiled on May 3, July soybeans are trading 21.25 cents higher. Soybeans remain on a short and intermediate term sell signal. Stand aside.

Corn:

July corn gained 15.25 cents on volume of 202,242 contracts. Open interest declined by 4,324 contracts, which relative to volume is approximately 10% less than average. The May contract accounted for loss of 4,579 of open interest. As this report is being compiled on May 3, July corn is trading 2.75 cents higher. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat: On May 2, July wheat generated a short-term buy signal.

July wheat gained 7.50 cents on volume of 69,414 contracts. Open interest increased by 198 contracts, which is minuscule and dramatically below average. The May contract accounted for loss of 661 of open interest.

From the May 1 report:

“If the May 2 low of $7.17 3/4 holds for the rest of the trading session, July wheat will generate a short-term buy signal. However, this is not the point to implement bullish positions. As is usually the case, a pullback ensues after the generation of a buy signal. We don’t think the pullback will last very long, perhaps just one day and this is the move you want to buy”

On May 3, July wheat has pulled back to $7.16 1/2, which is a bit below the low of May 2. We would implement bullish positions in wheat and use the low of May 3 as an exit point for long futures positions.

Live Cattle: On May 2, June live cattle generated a short-term buy signal

June live cattle gained 1.175 on volume of 65,700 contracts. Open interest declined by 2,759 contracts, which relative to volume is approximately 55% above average, meaning that liquidation was very heavy on the advance. This is bearish open interest action relative to the price advance. Additionally, the June contract lost 7,564 of open interest.

From the May 1 report:

It is highly likely that June cattle will generate a short-term buy signal on May 2. However, similar to wheat, cattle is likely to have a pullback and this is the move you want to buy.

Cattle is in fact having a pullback  on May 3 and is trading 1.050 lower and has made a low of 1.21850 cents. We recommend implementing bullish positions, but we would wait until the end of the session before implementing a long futures position. If the market looks like it is going to close near the lows, we would hold off until Monday.

Crude oil:

June crude oil gained $2.96 on volume of 638,292 contracts. Open interest increased by 5,359 contracts, which relative to volume is approximately 55% less than average. The tepid open interest action relative to the price advance is a pattern that has been in evidence since the beginning of the rally. For example on April 29, June crude oil advanced $1.50 and open interest increased by 1,730 on volume of 466,236 contracts. On April 25, crude oil advanced $2.21 on volume of 560,626 contracts while open interest increased 6,522. The largest increase of open interest on a price advance occurred on April 24 when crude advanced $2.25 on volume of 497,695 contracts and open interest increased by 13,012 contracts.

Although, the advance on May 2 was the largest for calendar year 2013, the minor increase in open interest indicates a reluctance on the part of participants to make commitments at ever higher prices. Perhaps this is due to the report by the Energy Information Administration on May 1 that showed stocks of crude oil at their highest levels in over 20 years. As this report is being compiled on May 3, June crude oil is trading $1.68 higher and has made a new high for the move at $96.04. It is quite possible that a short and intermediate term buy signal will be generated on Monday. At this juncture, we advise a stand aside position until we get more clarification on the trend in crude oil prices.

Natural gas:

June natural gas closed 30.1 cents lower on volume of 550,296 contracts. Volume was the highest since April 18 when natural gas advanced 18.7 cents on volume of 666,421 contracts and open interest increased by 23,346 contracts. On May 2, open interest declined 17,947 contracts, which relative to volume is approximately 30% above average. The decline of natural gas prices on May 2 is the largest nominal decline in at least one year. Despite this, volume was significantly below April 18 when the market advanced by a smaller percentage than the percentage decline on May 2. It appears, that natural gas has made a top or temporary top on April 18 and the heavy volume and large increase of open interest at the top is another confirming factor. On May 1, June natural gas attempted to break through the April 18 high, but failed to do so. This afternoon, the COT report will be released and we will  know more about the net long position of managed money. Based upon what we have seen thus far, more liquidation is likely. Our downside targets are $3.91 and 3.83. Natural gas remains on a short and intermediate term buy signal. Stand aside.

Copper:

July copper gained 2.45 cents on volume of 85,601 contracts. Open interest declined by 4,134 contracts, which relative to volume is approximately 75% above average. This is bearish open interest action relative to the price advance. On May 3, July copper is trading 20.40 cents higher on very heavy volume and has made a new high for the move at $3.3170. Most markets are trading higher due to the risk on environment created as a result of the employment report. We view the employment report as mediocre, and in our view confirms the bubble like qualities  of some markets. As we have said before, copper is much too volatile to trade, and the options market is illiquid. Copper remains on a short and intermediate term sell signal. Stand aside.

Gold:

June gold gained $21.40 on volume of 163,210 contracts. Open interest increased by 5,216 contracts, which relative to volume is approximately 20% above average. As we have said in previous reports, gold needs to time to trade between its recent high and low and find stasis, before it is possible to generate a buy signal. Although many markets are trading sharply higher, gold is not one of them and as this report is being compiled on May 3, gold is trading $3.10 lower. Gold remains on a short and intermediate term sell signal. Stand aside.

Silver:

July silver gained 48.7 cents on volume of 57,246 contracts. Open interest declined 850 contracts, which relative to volume is approximately 40% below average. Like gold, silver needs to trade between its recent high low and find stasis before a buy signal can be generated. Silver remains on a short and intermediate term sell signal. Stand aside.

Australian dollar:

The Australian dollar lost 36 points on volume of 106,765 contracts. Open interest declined 216 contracts, which is minuscule and dramatically below average. The Australian dollar generated a short and intermediate term sell signal on April 23. When the market was trading much higher, we advised clients to write out of the money calls. As this report is being compiled on May 3, the Australian dollar is trading 61 points higher. Stay with the short call position.

Euro:

The June euro lost 1.56 cents on heavy volume of 440,801 contracts. Volume was the highest since April 4 when 448,724 contracts were traded and the June euro closed at 1.2944. On May 2, open interest declined by only 3,242 contracts, which relative to volume 60% below average. The meager decline of open interest is disappointing, and we suspect there is more downside before the euro begins to move higher. The excerpt from the report on May 1 (below) sums up our feelings on the euro. On May 1, the June euro generated a short-term buy signal.

From the May 1 report:

“We envision a further pullback to 1.3016, and 1.2993. Our worst-case scenario is a pullback to 1.2960. A more conservative way of playing the pullback in the euro is to write out of the money puts. We want to see what the open interest stats tell us about the action on May 2. Our preference would be to see a hefty open interest decline.”

S&P 500 E mini:

The S&P 500 E mini gained 15.00 points on volume of 1,661,800 contracts. Open interest increased by 26,929 contracts, which relative to volume is approximately 35% less than average. The number of stocks trading above their 50 day moving average on the New York Stock Exchange on May 2 was 1,561, which increased from 1,416 on May 1. As this report is being compiled on May 3, the S&P 500 has rocketed to new highs along with the other major indices. The accepted reason for equity prices moving sharply higher is the employment report, which came in above expectations, but was certainly no barn burner. The move to new highs based upon the employment report, (which at another time would have been considered mediocre) is confirmation of an equity market bubble. With this in mind, there is no telling how high the rally will go before a correction (or something worse) occurs. Despite the move higher, we continue to advise put protection, especially if clients hold larger than normal equity positions.