March soybeans have been rallying for the past couple of days, but will not generate a short-term buy signal unless the low of the day is above OIA’s key pivot point for February 16 of $8.79 3/8.
WTI crude oil:
March WTI crude oil advanced strongly on February 12 by $3.23 on heavy volume of 1,566,873 contracts. Volume was below that of February 11 when total volume traded was 1,786,698, a record and the March contract lost 1.24 while open interest declined by 6,674 contracts.
On February 12, total open interest increased by 5,033 contracts and is substantially below average, but it should be noted that the March contract lost 40,139 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in March and increase total open interest slightly. Friday’s action was positive but not a barn burner by any stretch considering the magnitude of the advance.
As this report is being compiled on February 16, the March contract is trading 38 cents lower and has made a daily low of 28.70, which is slightly below the morning print on Presidents’ Day, February 15 of 28.95. Clients clients should be aware that Brent crude oil bottomed on January 20 at $27.11 basis the April contract and though the WTI contract made its contract low of 26.05 on February 11, the Brent contract did not follow suit.
As a result, if Brent is able to maintain its relative strength, it likely will be the contract that generates a short term buy signal first. For this to occur, the low of the day must be above OIA’s key pivot point for the April Brent contract of $33.75. We have no recommendation.
The March euro lost 68 pips on volume of 220,486 contracts. Total open interest declined by 2,434 contracts, which relative to volume is approximately 50% below average. An open interest decline on Friday’s loss is perfectly normal action relative to the price decline.
As this report is being compiled on February 16, the euro is trading sharply lower, down 1.14 cents, or -1.01% and has made a daily low of $1.1131, which is the lowest print since 1.1096 made on February 8. On February 11, the March euro made its high for the move of 1.1385 and through today’s trading has fallen 2.54 cents as the stock market rally has gained steam.
We expect some additional pullback, but we expect higher euro prices in the weeks ahead. According to the COT report, which was released last Friday, leverage funds remain short the euro by a ratio of 2.10:1, which means there will be additional fuel for the upside once the euro regains its footing. On February 4 the March euro generated short and intermediate term buy signals. We have no recommendation at this juncture.
March yen lost 68 pips on volume of 230,834 contracts. Total open interest increased by 4,869 contracts, which relative to volume is approximately 20% below average, but an open interest increase on Fridays price decline is negative. This is especially the case because there have been substantial open interest increases as prices advanced and as prices decline, open interest should decline as well. This tells us there are substantial numbers of longs in the market who have yet to liquidate and will be forced to as equity prices continued to rally and the yen continues to decline.
As this report is being compiled on February 16, the March contract is trading 51 pips lower and has made a daily low of .8710, which is the lowest print since .8682 made on February 10. On February 11, the March contract topped at .9017 and through today’s low has fallen approximately 300 pips. On February 4, OIA announced that the March yen generated a short and intermediate term buy signals. We have no recommendation except to say that a stand aside posture makes the most sense at this juncture.
April gold lost $8.40 on volume of 202,716 contracts. Total open interest increased just 128. As this report is being compiled on February 16, the April contract is trading sharply lower, down 29.90 and has made a daily low of 1191.50, which is the lowest print since 1181.60 made on February 10.
On February 11 when the April contract made its high for the move of 1263.90, we recommended that clients long from lower levels short calls to take advantage of the spike in volatility and/or buy puts to protect from the inevitable correction which we have witnessed during the past couple of days. We recommended this course of action for silver as well.
OIA has been somewhat skeptical of the move in gold and silver and as we have pointed out in previous reports, we want to see the 50 day moving average cross above the 200 day moving average before we step onto the bullish bandwagon. Currently, the 50 day moving average for the April gold contract is 1105.20 and the 200 day moving average is 1134.20, which means that prices must trade at an elevated level to pull that 50 day moving average up above the 200 day average. In summary, gold must stabilize at a higher price level in order for the golden cross to occur.
From the February 10 report on gold:
“Consider shorting out of the money calls to capture the rich premium created by the spike in volatility and/or initiate bear put spreads, (purchasing long puts and selling further out of the money puts), or bear put ratio spreads (purchasing 1 long put and selling 2 further out of the money puts). This will enable clients to reap profits if gold prices continue to advance, but protect them against the inevitable correction, which will occur after a sufficient number of new longs have entered the market.”
S&P 500 E-mini:
The March S&P 500 E-mini advanced 33.75 points on volume of 2,033,323 contracts. Total open interest declined by 30,123 contracts, which relative to volume is approximately 40% below average, but an open interest decline on Friday’s strong advance is bearish.
Over the long holiday weekend, we wrote a piece on the Dow Jones Transportation Index indicating that it had generated a short-term buy signal on February 12, and that this was a positive sign for the broad market. Additionally, we pointed out some major divergences in the Dow Jones Industrial Average, the S&P 400 mid-cap, New York Composite Index and the VIX compared to the S&P 500, Nasdaq 100 and the Russell 2000.
Our basic posture is though the S&P 500 may re-visit the low of 1802.50 made on February 11 in the future, we think that the bearish side of the market has been played out for now. In the report we discuss how the volatility index has been making a series of lower highs even as many equity indices were making lower lows. Eventually, we think the E-mini will generate a short-term buy signal, but higher prices are needed before this occurs.