WTI crude oil:
May WTI crude oil lost 26 cents on volume of 967,590 contracts. Total open interest increased by 2,484 contracts, a number that is dramatically below average, but indicates that short-sellers were entering the market and driving prices lower ($52.10). The May contract lost 34,294 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in May and increase total open interest slightly.
As this report is being compiled on April 19, the June contract is trading 85 cents lower and has made a daily low of 51.85, which is the lowest print for the June contract since 51.92 made on April 7. We have been telling clients that crude oil performance has been negative since it generated a short term buy signal on April 5.
This is being reinforced in today’s trading because the EIA reported that crude oil inventories declined by 1.0 million barrels from the previous week, yet WTI is having one of its largest negative days since the 79 cent loss on March 10. In the April 12 note, we recommended the liquidation of all positions in petroleum and products and for clients to move to the sidelines.
From the April 12 note on WTI crude:
“We continue to see unimpressive open interest action relative to price advances and declines and this pattern that has been in evidence for the past several trading sessions. As this report is being compiled on April 13, the May contract is trading 16 cents lower and has not taken out yesterday’s high of 53.76, which thus far has been the high for the move.”
“The performance of gasoline has been unimpressive and we are recommending the liquidation of any bullish positions in gasoline and in the gasoline ETF UGA. The May WTI contract has been unable to generate an intermediate term buy signal, though there have been a number of attempts over the past couple of days. For an intermediate term buy signal to be generated, the low of the day must be above OIA’s key pivot point for April 13 and $53.13. Yesterday, we recommended the liquidation of the December 2018-December 2019 bull spread. Stand aside in the petroleum complex.”
The Energy Information Administration announced on April 19 that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.0 million barrels from the previous week. At 532.3 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 1.5 million barrels last week, and are near the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 2.0 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories fell 0.7 million barrels last week and are in the lower half of the average range. Total commercial petroleum inventories decreased by 1.7 million barrels last week.
Dollar index: The June dollar index will generate a short term sell signal, which will reverse the April 10 short term buy signal, if the daily high on April 19 remains below OIA’s key pivot point for April 19 of 99.815. The high thus far in trading has been 99.785
The June dollar index lost 79 points on volume of 26,690 contracts on April 18. Total open interest increased by 671 contracts, which relative to volume is average. As this report is being compiled on April 19 the dollar index is having one of its rare rally days, trading up 29.6 points on low volume. Stand aside.
The June euro advanced 88 pips on volume of 183,874 contracts. Total open interest increased by 903 contracts, which relative to volume is approximately 75% below average, but an open interest increase on yesterday strong advance indicates that short-sellers are not capitulating even though the June contract made a new high for the move of 1.0767, which also is the high on April 19 and which is the highest print since 1.0809 made on March 30.
On April 3 the June euro generated a short term sell signal and an intermediate term sell signal on April 10. For these to reverse and new short and intermediate term buy signals to occur, the key pivot point for a short term buy signal on April 19 is 1.0776 and intermediate term key pivot point for a an intermediate term buy signal is 1.0761.For buy signals to occur the daily low must be above the pivot points.
Currently the June contract is trading close to the pivot point range, but making a low above these may be difficult unless there is some very positive news coming out of the French elections this Sunday. We recommend a stand aside posture in the euro.
June British pound advanced by 2.87 cents on huge volume of 283,005 contracts. Volume was the strongest since March 9 when the March contract gained just 8 pips and the daily range remarkably was only 62 pips. However, the big news on April 18 was that open interest skyrocketed: total open interest increased by 14,256 contracts, which relative to volume is approximately 105% above average.
This means that huge numbers of new buyers were rushing into the British pound and sending it to the highest level since October 3, 2016 (1.2967). The massive open interest increase in yesterday’s trading is significant. It continues to confirm that short-sellers are refusing to liquidate. This is bad news for short-sellers because most are now in a world of pain. As the pound continues its advance, this crowd will eventually blow out.
We have written about this ever since the pound generated short and intermediate term buy signals on March 22. Do not buy the pound, nor should anyone short it.
The June Japanese yen advanced 31 pips on volume of 158,032 contracts. Total open interest increased by 4,798 contracts, which relative to volume is approximately 20% above average, which means that new buyers continue to move into the yen. This is a major change ever since leverage funds assumed a net long position in the latest COT report.
The report revealed that leverage funds were long by a ratio of 1.21:1 as of the April 11 tabulation date, which was a switch from the previous week when they were short by ratio of 1.05:1. Two weeks ago they were short by ratio of 1.28:1. As we said in previous notes, once leverage funds assumed a net long position, the move in the yen would be on borrowed time.
Although it is a distance away from generating a short term sell signal, we have no doubt this will occur in the not-too-distant future. As a consequence, clients should continue to stand aside and wait for managed money to bulk up their long positions, which will provide selling pressure on the way down.
July corn lost 5.00 cents on strong volume of 481,975 contracts. Volume increase substantially from April 17 when 290,949 contracts were traded and total open interest declined by 5,843 contracts while the July contract lost 4.75 cents. On April 18, total open interest increased by a sizable 12,174 contracts, which relative to volume is average.
We would have much preferred to have seen open interest decline in yesterday’s trading, but this depends whether the short selling was primarily speculative or commercial. The May contract lost 25,644 of open interest as it approaches first notice day in the next two weeks.
As this report is being compiled on April 19, the July contract is trading down 0.50 cents and has made a daily low of 3.67 1/4, which is exactly yesterday’s low. On April 13, OIA announced that May and July corn generated short term buy signals, but remain on intermediate term sell signals.
Since the April 13 buy signal, the July contract has pulled back on April 17 and April 18, which is typical after the generation of a short term buy signal. Basically, the correction should be over and if the market were to continue to decline, it would increase the chance that a short term sell signal would occur.
A short term sell signal would be generated if the daily high is below OIA’s he pivot point for April 19 of 3.67 3/8. We have recommended that clients initiate bullish positions in corn because we think the risk is low. Currently the market is trading below its 50, 100 and 200 day moving averages, yet the moving averages are in a bullish set-up. The planting season is ahead and weather scares occur regularly. We like this trade for the next couple of months and encourage you to review of our note of April 13.