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Note: The USDA supply demand report will be released Thursday morning May 10.
Volume on May 7 across-the-board was lighter than usual. I have taken this into account when evaluating the markets.
July soybeans closed 12 1/2 cents lower on very light volume of 154,325 contracts. Open interest increased on the decline by 1,023 contracts. Although it can be positively viewed that volume declined significantly (down approximately 45,000 contracts from the previous day) on the price decline, I see this as a negative. Open interest is at record levels, and the lack of volume on the downside correction in my view, indicates that speculators are complacent. When this kind of unanimity permeates the market, watch out. The open interest situation in soybeans is very similar to that of corn when open interest was at very high levels. The safe time to get back into the market is when a lot of the distressed longs have given up. Stand aside.
July corn lost a 1/4 cent on very light volume of 203,591 contracts. Open interest increased by 7,218 contracts. The bulk of the open interest increase occurred in the December 2012 through the 2013 contracts. However, in the July contract, open interest increased by 1,378 contracts. Although the open interest increase was rather minor, it does indicate that the overwhelming bulk of liquidation is over. The May contract closed at a 45 cent premium to July and this is indicating that corn stocks are very tight. My opinion is that speculators should be looking to enter the market on the long side. There are a number of good exit points on the downside that would allow speculators to control their risk. For example, corn made a low on May 4 of $6.04, but closed at $6.20 indicating there was demand entering at lower levels. Although open interest action on May 4 was negative, it appears at this juncture that May 4 was a major low in the market. Remember, outside markets can negatively impact the corn market even with its strong fundamentals, and that the majority of liquidation has already occurred. Speculators have to keep in mind that selling of soybeans can negatively the impact corn prices, if only temporarily.
June crude oil lost 55 cents on fairly light volume of 594,512 contracts. Open interest declined by 12,790 contracts, which was the first meaningful decline in open interest since April 19 when it declined by 22,793 contracts, and crude oil closed at $102.72. The market reached a new low for the move at $95.34, which was the lowest price for June crude oil since December 20, 2011 when the market made a low of $94.81. The action on May 7 generated the first intermediate term sell signal in several months. Although my bias for quite some time has been for lower prices, it is unwise for speculators to short the market. Geopolitical tensions could turn this market on a dime. Any potential profit generated by a further downside move isn’t worth the possible risk of crude moving sharply higher. Stand aside.
June gasoline lost a fraction (17 ticks) on extremely low volume of 101,847 contracts. Open interest increased for the fourth consecutive day by 1,409 contracts. The market made a new low for the move at $2.9102, which was the lowest price since January 25 when the market reached a low of $2.8852 The trading range on Monday was 7.70 cents which is approximately 40% greater than the 21 day average true range of 5.92 cents. Despite the wide range, participation was light. As I commented at the top of this post, volume was light in most commodity markets across-the-board. Stand aside.
July copper gained 5.25 cents on light volume of 43,170 contracts. Open interest increased by 1,061 contracts. The trading range from Monday was 11.20 cents, which was almost 50% above its 21 day average true range of 7.68 cents. The market remains on a short-term sell signal and an intermediate term buy signal. Stand aside.
June gold closed $6.10 lower on light volume of 107,057 contracts. Open interest increased on the decline by 4,503 contracts. As I write this on May 8, June gold is lower by $35.50. Please consult your investment advisor or broker before embarking upon a gold buying program for a long-term investment.
July silver closed 31 cents lower on extremely light volume of 32,376 contracts. Open interest increased by 219 contracts. As I write this on May 8, silver is down 68 cents. Stand aside.
The June Euro lost 35 points on volume of 227,945 contracts. Open interest increased by 8,295 contracts. The market made a new low for the move at 1.2957, which was the lowest price for the Euro since January 25, 2012 when the market made a low of 1.2941. Stand aside.
S&P 500 E mini:
The June S&P 500 E mini closed 3.25 points higher on volume of 1,611,925 contracts. Open interest declined by 6,754 contracts. Long put protection should already be in place.