Soybeans:

July soybeans lost 18 cents on very light volume of 101,223 contracts. Open interest declined by 4,860 contracts, which relative to volume is approximately 80% above average, meaning that liquidation was very heavy on the decline. The May contract accounted for loss of 580 of open interest. Soybeans remain on a short and intermediate term sell signal. Stand aside.

Corn:

July corn lost 24.75 cents on volume of 221,077 contracts. Open interest increased by 3,500 contracts, which relative to volume is approximately 35% less than average. The May contract accounted for loss of 2,140 of open interest, which makes the increase of open interest that much more impressive. Despite the sharp move lower, July corn remains on a short-term buy signal. The performance of corn after it generated a short-term buy signal on May 3, has been disappointing and open interest action relative to price has been as well. We recommend that clients stand aside.

Despite the move sharply lower on May 6, corn will not reverse the buy signal of May 3. No positions have been recommended, and we advise clients to stand aside until we get clarification on the buy signal. 

Wheat:

July wheat lost 18.25 cents on volume of 98,995 contracts. Open interest increased by 2,420, which relative to volume is average. The May contract accounted for loss of 662 of open interest. Like corn, since July wheat generated a short-term buy signal on May 2, open interest action relative to price has been disappointing. For example, during the past 2 days, wheat has declined 25.75 cents, and open interest has increased a total of 4,198 contracts. This is bearish open interest action relative to the price decline. Per the advice given in the May 2 report, longs should be out of bullish positions based upon the penetration of the May 3 low of $7.16 1/2. Despite the move sharply lower, wheat remains on a short-term buy signal and an intermediate term sell signal.

Live Cattle:

June the cattle lost 52.5 points on volume of 50,251 contracts. Open interest increased by 2,720 contracts, which relative to volume is approximately 120% above average, meaning that new shorts were entering the market aggressively and driving prices lower. This action was more impressive considering that the June contract lost 2,300 of open interest. Since generating a short-term buy signal on May 2, price and open interest have been acting in a bearish congruent fashion. It appears that June live cattle will generate a short-term sell signal on May 7, which will reverse the short-term buy signal generated on May 2. Stand aside.

Crude oil: On May 6, June crude oil generated a short and intermediate term buy signal.

June WTI crude oil advanced 55 cents on volume of 645,120 contracts. Open interest increased 9,372, which relative to volume is approximately 40% below average.

If we compile the days when crude oil advanced: April 24, April 25, April 29, May 2, May 3, May 6, we find that crude oil prices advanced a total of $11.09 while open interest increased by a total of 44,515 contracts. This is a very light increase of open interest considering the magnitude of the advance. This tells us participants are less than enthusiastic about making new commitments to crude oil.

The reluctance of market participants is good news for anyone looking to get long the market. This tells us there is money still on the sidelines, which move into crude at any time. Reinforcing the buy signal in WTI, it appears that Brent crude and heating oil will generate short-term buy signals on May 7. As is usually the case once a buy signal has been generated, a pullback lasting from 1-2 and possibly 3 days is to be expected. The Energy Information Administration report will be released on May 8, and this may be the impetus for a pullback. Downside targets for the pullback are $93.52, 93.18, and 92.71. Stand aside until the market corrects.

Heating oil:

June heating oil gained 3.58 cents on very light volume of 99,497 contracts. Open interest increased by a very modest 959 contracts, which relative to volume is approximately 50% less than average. Since the rally began on May 2 through May 6, June heating oil has advanced 13.13 cents on very light volume. As of the latest COT report, managed money is short by a ratio of 1.56:1, which is at the high-end of the range for managed money shorts. It is likely that heating oil will generate a short-term buy signal on May 7. Look for resistance at the 50 day moving average of $2.95, and then 2.97. After the generation of the short-term buy signal, there should be a pullback lasting 1-2 and possibly 3 days.

Gasoline:

June gasoline gained 4.03 cents on volume of 119,775 contracts. Open interest increased 2,502 contracts, which relative to volume is approximately 20% less than average. Gasoline has been the major laggard of the petroleum complex, and as this report is being compiled on May 7, gasoline is trading 2.03 cents lower, while heating oil is  up 1.07 cents. Eventually, we believe that gasoline will join the rest of the complex by generating a short-term buy signal. Until this occurs, stand aside.

Natural gas:

June natural gas lost 3 cents on very light volume of 234,727 contracts. Volume was the lowest since February 4 when 207,771 contracts were traded. Open interest declined by 1,789 contracts, which relative to volume is approximately 55% less than average. Since making its most recent top at $4.444 on May 1, natural gas has declined by 33.2 cents while open interest has declined 14,234 contracts. While this is positive open interest action relative to the price decline, the decrease of open interest is quite minor relative to the size of the  correction. The latest COT report showed that managed money was long at 1.40:1, which is the highest reading since natural gas generated a short-term buy signal on March 1. The relatively tepid decline of open interest since May 1 tells us there is more liquidation ahead, and the market could have another severe decline. June natural gas generated a short-term sell signal on May 3. Stand aside.

Copper: Until we see a compelling trade in the making, we are suspending reporting on copper.

Gold: Until we see a compelling trade in the making, we are suspending reporting on gold.

Silver: Until we see a compelling trade in the making, we are suspending reporting on gold.

Australian dollar:

The Australian dollar lost 70 points on volume of 79,314 contracts. Volume shrank approximately 28,000 contracts from May 3 when the Australian dollar gained 61 points and open interest declined 5,732 contracts. On May 1, the Australian dollar declined 68 points on volume of 100,878. The shrinkage of volume on May 6 may have indicated that longs were digging in, but this may not be the case for long. The Reserve Bank of Australia has lowered its interest rate, and as this report is being compiled, the Australian dollar is trading 65 points lower and has made a new low at 1.0125. On April 23, we announced that the Australian dollar had generated a short and intermediate term sell signal. On April 29 and 30, we recommended that clients write out of the money calls on the Australian dollar. This trade has worked out well and clients should continue to hold the short call position.

Euro:

The June euro lost 32 points on very light volume of 134,193 contracts. Open interest increased by 4,333 contracts, which relative to volume is approximately 30% above average. On May 1, the June euro generated a short-term buy signal, but remains on an intermediate term sell signal. After the generation of the buy signal, the market pulled back for 2 days, and made a low of 1.3035 on May 3. Although we think the euro is going higher, we would like to see a test of the low. At this juncture, the euro can move either way, but think it is possible to see 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.

S&P 500 E mini:

The S&P 500 E mini gained 5.00 points on very low volume of 971,490 contracts. This was the lowest volume for 2013, and is typical volume found during pre-holiday trading. Open interest increased by 8,749 contracts, which relative to volume is approximately 50% less than average. During the past 3 days, the E mini has advanced 36.25 points while open interest has increased 38,383 contracts. The low volume and tepid increase in open interest of the past 3 days indicates a reluctance by participants to make commitments at ever higher prices. Since the rally began in earnest on April 22, through May 6, open interest has increased by 117,191 contracts while the E mini has advanced 66 points in this time frame. We continue to recommend put protection, especially for those who hold equity positions.