WTI crude oil:
May WTI crude oil lost 53 cents on surprisingly light volume of 730,431 contracts. Volume was the weakest since March 27 when crude oil lost 24 cents on volume of 772,117 contracts and total open interest declined by 769. On April 17, total open interest declined by massive 39,343 contracts, which relative to volume is approximately 115% above average. This indicates that massive numbers of market participants were liquidating on yesterday’s decline. The May contract, accounted for a loss of 60,706 of open interest.
As this report is being compiled on April 18, the May contract is trading lower again, down 30 cents and has made a daily low of $52.10, which is the lowest print since 51.49 made on April 7. On April 5, OIA announced that May and June WTI generated short term buy signals, however, both contracts have been unable to generate intermediate term buy signals.
Our note of April 11 sums up our thinking on crude oil and we continue to recommend that clients remain on the sidelines. Gasoline has been a major disappointment despite the onset of the summer driving season.
From the April 11 note on WTI crude:
“From April 4, through April 11, the May contract has gained $3.16 while astoundingly, cumulative total open interest in this time frame declined by 18,688 contracts. This confirms that market participants are skeptical about the current rally and continue to liquidate positions as the market advances.”
“The rally is being fueled by short covering, not net new buying and, the COT report confirms this. As we pointed out in yesterday’s note, the most recent report showed that managed money liquidated 1,322 of their long positions and also liquidated 19,069 of their short positions. New buyers are going to have to step up to move crude oil prices higher.”
“The key point: If buyers have not shown up during the past several sessions and prices are trading at 30 day highs, when exactly are they going to join the party? As this report is being compiled on April 12, the May contract is trading 20 cents lower after making a daily high of 53.76, which is above yesterday’s print of 53.45.”
Natural gas: May and June 2017 New York natural gas is getting close to generating short term sell signals.
May natural gas lost 6.4 cents on volume of 371,574 contracts. Total open interest declined by a sizable 14,973 contracts, which relative to volume is approximately 55% above average. The May contract lost 31,921 of open interest.
The COT report released last Friday revealed that managed money liquidated 3,418 of their long positions and also liquidated 3,561 of their short positions. Commercial interests liquidated 7,100 of their long positions and also liquidated 7,519 of their short positions. As of the of April 11 tabulation date for the report, managed money was long natural gas by ratio 2.45:1, up from the previous week of 2.40:1 and the ratio two weeks ago 2.15:1.
As this report is being compiled on April 18, the May contract is trading 2.4 cents lower on the day and has made a daily low of 3.114, which is the lowest print since $3.121 made on April 4. For the May contract to generate a short term sell signal, the high of the day must be below OIA’s key pivot point for April 18 of $3.136.
Exactly 2 weeks ago on April 4, we recommended taking partial profits on natural gas and moving up exit points on remaining positions. Our reasoning: late to the party speculators were rushing into natural gas at the highest prices since early February. The net long position of managed money is large and this group will add fuel to the downside move once the short term sell signal is generated. Remain on the sidelines.
From the April 4 note on natural gas:
“May New York natural gas advanced by a very strong 16.5 cents on strong volume of 538,837 contracts. However, the main event in yesterday’s trading was the spectacular increase of total open interest, up 32,545 contracts, which relative to volume is approximately 140% above average. The massive increase indicates that huge numbers of new buyers were rushing into natural gas even as prices climbed to multi-month highs.”
“As this report is being compiled on April 5, the May contract is trading close to unchanged on the day, but has made another new high for the move of $3.347, which is the highest print since February 9 (3.311).”
“Yesterday’s massive increase of open interest indicates that Johnny-come-lately’s are beginning to climb on board natural gas, which suggests the rally will stall.”
“For those of you who entered bullish positions a week or two ago, we recommend taking partial profits and moving up exit points on remaining positions.”
July corn lost 4.75 cents on volume of 290,949 contracts. Volume declined dramatically from April 13 (the last trading day of last week due to the Easter holiday), when 588,191 contracts were traded and total open interest increase by a sizable 18,705 contracts while the May and July contracts each gained 2.00 cents.
On April 17, total open interest declined by 5,843 contracts, which relative to volume is approximately 20% below average. The May contract lost 19,422 of open interest. On April 13, OIA announced that May and July 2017 corn generated short term buy signals, however both contracts remain on intermediate term sell signals.
Typically, after the generation of short term buy signals, markets have a tendency to pullback from 1-3 days and this is the opportunity to initiate bullish positions. In the case of corn, yesterday was the first day of corrective activity and as this report is being compiled on April 18, the July contract continues the correction, trading down 5.50 cents and has made a daily low of 3.67 3/4, which takes out the April 11 low of 3.69 1/2 and is the lowest since 3.66 1/4 made on April 10.
The trade in corn is similar in potential to our recommendation in the Mexican peso when it generated a short term buy signal on January 30. It is low risk, with the possibility of generating a large return during the next couple of months.
From the April 13 note on corn:
“In short, we think the worst is behind the corn market price wise and that higher prices are ahead between now and the June time frame. Last year the corn market made a low of 3.68 1/2 on April 25, 2016 and a slightly lower low of 3.67 on May 10 2016. From there, the July 2016 contract continued to rally until it made its high of 4.39 1/4 on June 8.”
“We think corn is a terrific trade on the long side and recommend the initiation of bullish positions immediately. As is typically the case after the generation of a buy signal, the market is pulling back on April 17 and currently trading 5.00 cents lower on the day and the July contract is trading below the 50 and 100 day moving averages. This is a low risk trade that could yield substantial profits. For recommendations about exit points if the trade disappoints, please call or email.”
It appears likely that the June dollar index will generate a short term sell signal, possibly tomorrow. This will reverse the April 10 short term buy signal. The June contract remains on an intermediate term sell signal. The key pivot point for a short term sell signal on April 18 is 99.847. For sell signal to occur, the high of the day must be below the pivot point.We will issue a report on today’s activity tomorrow.
British pound: On March 22, OIA announced that the June British pound generated short and intermediate term buy signals. On March 31 EUR/GBP generated a short term sell signal and an intermediate sell signal on April 3.
The June British pound advanced 47 pips on light volume of 44,090 contracts. Though volume was light, total open interest exploded higher, up 3,159, which relative to volume is approximately 185% above average, which means that new buyers were moving aggressively into the pound and sending it higher (1.2618).
The COT report released last Friday, April 14 revealed that leverage funds remain heavily short the British pound. According to the report, leverage funds liquidated 54 contracts of their long positions and added 1,726 to their short positions. As of the April 11 tabulation date for the report, leverage funds were short by ratio of 2.69:1, up from the previous week of 2.62:1 and above the ratio two weeks ago of 2.37:1.
As this report is being compiled on April 18, the June contract is rocketing higher, up 2.60 cents on extremely heavy volume and has made a new high for the move of 1.2929, which is the highest print on the daily continuation chart since 1.2967 made on October 3, 2016. The reason given for the sharp move in the pound is that Teresa May, the UK Prime Minister is calling for a special election in June.
Frankly, we think the pound has been a tinderbox waiting for a match. Short-sellers have refused to liquidate at lower prices and are now being forced to liquidate at substantially higher prices. Our notes of March 22, March 27 and April 5 reiterated our position for a higher pound and that new buyers were sending the pound higher while short-sellers were digging in. Do not short the pound and do not buy it.
From the March 22 note on the British Pound:
“As this report is being compiled on March 23, the June contract is trading 36 pips above yesterday’s close and has made another new high for the move of 1.2560, which is the highest print since 1.2604 made on February 24. We think the path of least resistance is higher for the British pound and the market looks like it’s going to shake out the substantial net short position held by leverage funds.”
From the March 27 note on the British Pound:
“In summary, speculators continue to be extremely bearish on the pound. We think that the easy short side money is off the table and that the risk is more to the upside than the downside. This does not preclude a move lower, we just think that the downside move has been played out and the market has discounted all the bad news for now. On March 22, OIA announced that the June British pound generated short and intermediate term buy signals.”
From the April 5 note on the British Pound:
“However, yesterday’s total open interest increase indicates that new buyers were pushing the June contract higher. Bullish open interest action relative to price advances and declines has been in evidence for the past couple of days.”
“For example, on March 31, the June pound advanced 54 pips and total open interest increased by 1,334. In other words, short covering is not powering the pound higher and this indicates that short-sellers are digging in and refusing to liquidate. Ultimately, this will send the pound higher in our opinion.