WTI crude oil:
June WTI crude oil gained 33 cents on volume of 984,328 contracts. Total open interest declined by 2,484 contracts, a number that is dramatically below average. The June contract accounted for a loss of 13,819 of open interest and there were insufficient open interest increases in the forward months to offset the decline in June.
As this report is being compiled on April 26 after the release of the EIA storage report, crude oil is trading 26 cents above yesterday’s close and has made a daily high of 50.01, which is below yesterday’s print of 49.83 and the high made on April 24 of 50.22.
On April 24, OIA announced that June WTI generated a short term sell signal. Generally speaking after the generation of a sell signal, markets tend to rally from one 1-3 days and this is the opportunity to initiate bearish positions if you are so inclined.
We have no strong feelings on the market at this juncture. The action going forward will be sideways to lower, we do not see any major move to the downside.
Further supporting this is the oil volatility index (OVX), which is currently trading at 28.72, which is only slightly above the 21 day moving average of 28.34. The index made its three-month high of 36.24 on March 13 and a three-month low of 24.51 on March 1. In short, the volatility index is trading much closer to the lows than the highs. No recommendation
The Energy Information Administration announced on April 26 that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.6 million barrels from the previous week. At 528.7 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 3.4 million barrels last week, and are near the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 2.7 million barrels last week and are in the upper half of the average range for this time of year. Propane/propylene inventories were unchanged from last week and are in the lower half of the average range. Total commercial petroleum inventories increased by 6.6 million barrels last week.
Natural gas: On April 25, June and July New York 2017 natural gas generated short term sell signals, but remain on intermediate term buy signals.
June natural gas gained 5 ticks on average volume of 392,433 contracts. However, total open interest gained 10,140 contracts, which relative to volume is average and based upon price and open interest action there was a battle between buyers and sellers with neither side able to move the market much by the close.
The May contract accounted for a loss of 14,246, which means there were more than enough open interest increases in the forward months to offset the decline in May and increase total open interest to an average number. As this report is being compiled on April 26, the June contract is having its typical counter trend rally, trading up 9.9 cents on relatively low volume.
For those of you who are inclined to short natural gas, we recommend waiting another day before contemplating bearish positions. Although we cannot discount the possibility of further upside action, and a sell signal reversal, we think the current price of 3.262 is at a point of equilibrium. Keep in mind that only yesterday the June contract made a low of 3.125. As we pointed out in yesterday’s report, if temperatures in the Midwest South and East become unseasonably warm, natural gas could turn on a dime.
The June euro advanced 81 pips on volume of 240,876 contracts. Volume declined somewhat from April 24 when the June contract gained a spectacular 1.62 cents on volume of 259,751 contracts and total open interest declined by 1,979, which indicated that short-sellers were powering the market higher, not new buying.
On April 25, total open interest declined again, this time by 5,071, which relative to volume is approximately 20% below average, but again the total open interest decline indicates that short-sellers were powering the market higher to make a new high for the move of 1.0978, which took out the March 27 high of 1.0949.
As this report is being compiled on April 26, the June contract is trading 50 pips lower and has made a daily low of 1.0883, which is above yesterday’s print of 1.0879 and the April 24 low of 1.0848. The June euro remains massively overbought relative to its 20 day and 50 day moving averages and as a consequence think the euro has more corrective activity ahead.
On April 24, OIA announced the June euro generated short and intermediate term buy signals, however with the French election just two weeks away, if there is a surprise and Le Pen wins, the euro could reverse sharply. However, if the euro corrects substantially from here, there may be a good short term buying opportunity that would enable clients to take advantage of the window from the correction low to before the election.
Yen: The June yen will generate a short term sell signal on April 26, but remain on an intermediate term buy signal.
The June yen lost 109 pips on volume of 166,199 contracts. Surprisingly, total open interest declined only 1,754 contracts, which relative to volume is approximately 50% below average. We say surprised because according to the COT report released last Friday leverage funds were long the yen by a ratio of 1.47:1, which was up from the previous week of 1.21:1 and a complete reversal from the ratio two weeks ago when they were short by a ratio of 1.05:1.
It appears that the pattern of professional money managers holding onto untenable positions continues and as we have said before in previous notes, this will provide fuel for the downside move. Now that the yen is on a short term sell signal, we recommend waiting for a counter trend rally and this will be the opportune time to initiate bearish positions
Peso: The Mexican peso is getting close to generating a short term sell signal and this will occur (likely tomorrow) if the daily high is below OIA’s key pivot point for April 26 of .05249 and the daily high on April 26 thus far has been .05257.
EUR/JPY: EUR/JPY generated and intermediate term buy signal after the short term buy signal of April 24.
Silver: July 2017 NY silver will generate an intermediate term sell signal on April 26 after generating a short term sell signal on April 24.
July corn advanced 6.25 cents on very heavy volume of 670,172 contracts. Volume traded on April 25 was the highest of 2017 and the strongest since June 21, 2016 when 702,297 contracts were traded. As impressive as volume was, total open interest was a major disappointment, down 26,521, which relative to volume is approximately 35% above average, meaning that liquidation was extremely heavy as the July contract made its high of 3.74 3/4, the highest print since 3.74 1/2 made on April 18. The May contract lost 38,300 of open interest, which means that there was very little new buying in the back months to offset the loss in the May contract.
As this report is being compiled on April 26, the July contract has reversed course and currently is trading down 4.75 cents on heavy volume after making a daily high of 3.74 1/2, which is below yesterday’s high. Additionally, the year to date moving average for the July contract is 3.75 3/4 and thus far during the past several days the July contract has not even been able to touch the year to date moving average, which is based upon an average of 78 days.
For a new short term buy signal to occur, the daily low must be above OIA’s key pivot point for April 26 of 3.72 1/2. Until a new short term buy signal is generated, we recommend that clients take a stand aside posture. The real test should come this week: whether the low of 3.60 3/4 made on April 21 will hold.