On May 10, the USDA will release its World Agriculture Supply Demand report.

We are initiating coverage on soybean meal, because it is likely to generate a short-term buy signal on May 9.

Soybeans:

July soybeans gained 8.50 cents on volume of 136,539 contracts. Volume was the highest since May 1 when 149,504 contracts were traded and open interest declined by 2,271 contracts while July soybeans lost 26 cents. On May 8, open interest increased by a massive 5,022 contracts, which relative to volume is approximately 45% above average, meaning that new buyers were entering the market aggressively and pushing prices higher. What makes this even more impressive was that the May contract lost 1,323 of open interest. Price and open interest action on May 8 was in sharp contrast to the action on May 7 when soybeans gained 13 cents on very low volume of 99,091 contracts and open interest declined 274 contracts. As this report is being compiled on May 9, July soybeans are trading 15.75 cents higher. If the low of $13.87 holds on May 9, soybeans will generate a short-term buy signal. The USDA releases its world supply demand report, and we recommend that clients stand aside until after the report is released. If soybeans generate a short-term buy signal as we expect, look to buy setbacks.

Soybean meal:

July soybean meal gained $4.30 on volume of 59,407 contracts. Open interest declined by 710 contracts. The May contract accounted for loss of 958 of open interest. It is highly likely that July soybean meal will generate a short-term buy signal on May 9. Wait until after the release of the USDA report before initiating bullish positions on setbacks.

Soybean oil: Soybean oil will not generate a short-term buy signal on May 9.

Corn:

July corn lost 7 cents on volume of 167,971 contracts. Open interest increased by 1,232 contracts, which relative to volume is 65% below average. The May contract accounted for loss of 1,557 of open interest. It appeared that corn might reverse the buy signal generated on May 3, and as this report is being compiled on May 9, July corn is trading 14.25 cents higher. Stand aside until after the release of the USDA report on May 10.

Wheat:

July wheat lost 3 cents on volume of 80,068 contracts. Open interest declined by a hefty 3,589 contracts, which relative to volume is approximately 75% above average, meaning that participants were aggressively liquidating. Like corn, it appeared that wheat might reverse the buy signal generated on May 2. However, on May 9, July wheat is trading 16.75 cents higher. Stand aside until after the release of the USDA report.

Live cattle: We are suspending reporting on live cattle until we see a trading opportunity. June cattle generated a short-term sell signal on May 7.

Crude oil:

June WTI crude oil gained $1.00 on heavy volume of 704,362 contracts. Total open interest declined by 12,545 contracts, which relative to volume is approximately 25% less than average. The June contract accounted for loss of 22,539 of open interest. Ever since crude oil generated a short-term buy signal on May 6, we have been cautioning clients to wait for a pullback, preferably to the $93.52 area.

Brent crude oil:

June Brent crude lost 6 cents on volume of 853,256 contracts. Open interest increased by 15,547 contracts, which relative to volume is approximately 25% less than average. Despite the move higher in Brent crude, it has been unable to generate a short-term buy signal. This is another sign that clients should be cautious about initiating long positions in WTI at current levels.

Heating oil:

June heating oil lost 1.30 cents on volume of 151,407 contracts. Open interest increased by 5,029 contracts, which relative to volume is approximately 35% above average. Ever since June heating oil generated a short-term buy signal on May 7, we have been cautioning clients to wait for a pullback and as yet have not seen one of any size. For clients who want to be long heating oil, we recommend using the May 8 low of $2.8982 as an exit point for long positions.

Gasoline:

June gasoline gained 2.04 cents on volume of 137,670 contracts. Open interest increased by a substantial 6,991 contracts, which relative to volume is approximately 100% above average, meaning that new longs were aggressively entering the market and pushing prices higher. Despite the improving chart picture for gasoline, it  will not generate a short-term buy signal on May 9. However, we expect this to occur tomorrow.

Natural gas:

June natural gas gained 5.8 cents on light volume of 245,461 contracts. Open interest declined by 6,245 contracts, which relative to volume is average. On May 3, June natural gas generated a short-term sell signal, but remains on an intermediate term buy signal. Stand aside.

Coffee: On May 8, July coffee generated a short-term buy signal.

July coffee gained 1.45 cents on volume of 26,519 contracts. Open interest increased by a substantial 1,160 contracts, which relative to volume is approximately 70% above average, meaning that new longs were aggressively entering the market and pushing coffee prices higher. As this report is being compiled, July coffee is trading higher on the day and will likely close at a new high for the move. As is usually the case after the generation of a buy signal, a pullback lasting 1-2 and possibly 3 days is likely. On May 9, coffee has made a new high for the move at $1.4875, which is the highest price since March 5 when it made a high of 1.4995. Do not chase the rally.

Australian dollar:

The Australian dollar lost 11 point on volume of 105,765 contracts. Open interest increased by 8,093 contracts, which relative to volume is approximately 210% above average, meaning that new shorts and longs were entering the market aggressively, but were not able to move prices much in either direction. As this report is being compiled, the June Australian dollar has made a new low at 1.0095, and the Japanese yen has broken through major support and is trading 163 points lower. On April 23, the June Australian dollar generated a short and intermediate term sell signal. On April 29 and 30 we recommended that clients should write out of the money calls on the Australian dollar. This trade has worked out well, and positions should be maintained.

Euro:

The June euro gained 74 points on volume of 235,828 contracts. Open interest increased by 5,228 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on May 9, the June euro is trading 1.30 cents lower and has made a low at 1.3026.

In the May 7 report, we recommended that setbacks to 1.31 should be used to initiate bullish positions and suggested that the low of 1.3071, or 1.3056 be used as an exit point for futures positions. Thus far, on May 9 the euro has made a low of 1.3026, and therefore, long positions should have been exited. The breakdown of the Japanese yen to new four-year lows is undoubtedly the catalyst for the sharp move lower in currencies across the board. On May 1, the June euro generated a short-term buy signal, and remains on a buy signal.

S&P 500 E mini:

The S&P 500 E mini gained 8.25 points on volume of 1,610,584 contracts. Open interest increased by 32,795 contracts, which relative to volume is approximately 25% less than average. From April 19, through May 8 the E mini has advanced 12 days and declined on 2. As this market continues to move higher, investors are going to become increasingly nervous about acquiring equities at stratospheric prices. We think the market is in a bubble, and strongly recommend put protection, especially if clients are long equities.