WTI crude oil:
June WTI crude oil advanced 6 cents on volume of 1,067,070 contracts. Total open interest increased by a mere 2,511 contracts a number that is dramatically below average. For the past several days beginning on April 21, total open interest increases and declines have been minor. We are unable to explain the lack of aggressive commitments being made to long or short positions, but can only surmise that would be market participants do not have strong convictions about the direction of the market. The June contract lost 5,140 of open interest.
As this report is being compiled on April 27, the June contract is trading sharply lower, down $1.21 or -2.44% and has made a daily low of $48.20, which is the lowest print since 48.35 made on March 28. The low for the past three months has been 47.58 made on March 22.
On April 24 OIA announced that June WTI generated a short term sell signal along with June heating oil and June gasoline. Surprisingly, the crude oil market has not gotten much of a bounce since generating a short term sell signal, which is a testament to the aforementioned lack of conviction by would be market participants. Stand aside.
June NY natural gas advanced 10.6 cents on volume of 432,203 contracts. Total open interest exploded higher, up 23,525 contracts, which relative to volume is approximately 120% above average. This indicates that new buyers were flooding into natural gas and driving prices higher (3.277). The May 2017 contract lost 5,787 of open interest.
As this report is being compiled after the release of the EIA storage report on natural gas, the June contract is trading 3.4 cents lower or -1.04% and has made a daily high of 3.266, below yesterday’s high. As we said in yesterday’s report, the area around 3.26 appears to be fair value and unless there is a spate of hot dry weather in the midwest south and east, we see lower prices ahead.
The EIA report released today ( see below) revealed that working gas in storage was 358 Bcf below last year at this time. This is approximately a 14% decline from last year last year at this time. However, the June 2016 contract for the week of April 25 traded in the range from $2.042 to a high of 2.304 and closed at 2.178. In summary, though storage is 14% below last year, prices are over 50% higher in 2017 compared to the same time in 2016.
The Energy Information Administration announced on April 27 that working gas in storage was 2,189 Bcf as of Friday, April 21, 2017, according to EIA estimates. This represents a net increase of 74 Bcf from the previous week. Stocks were 358 Bcf less than last year at this time and 299 Bcf above the five-year average of 1,890 Bcf. At 2,189 Bcf, total working gas is within the five-year historical range.
Silver: On April 26, July 2017 New York silver generated an intermediate term sell signal after generating a short term sell signal on April 24.
Gold: June New York gold is getting close to generating a short term sell signal and this will occur if the daily high is below OIA’s key pivot point for April 27 of 1267.50.
Yen: On April 26, the June Japanese yen generated a short term sell signal and remains on an intermediate term buy signal.
The June Japanese yen lost 24 pips on volume of 219,107 contracts. Total open interest declined by 2,876 contracts, which relative to volume is approximately 40% below average. Yesterday the June contract made a low of .8963, which is the lowest print since .8938 made on March 31. As this report is being compiled on April 27, the yen is trading only slightly higher, up 8 pips on the day on very low volume.
With managed money substantially long the yen, which according to last week’s COT report by ratio of 1.47:1, we think there is a terrific opportunity on the short side. However, we recommend in waiting for a rally, possibly up to the .9094 area. We see lower prices ahead.
From the April 18 note on the June yen:
“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.
Peso: The June Mexican peso will generate a short term sell signal on April 27, and remains on an intermediate term buy signal.
The June Mexican peso lost 89 pips on heavy volume of 76,780 contracts. Volume was the strongest since when 79,301 contracts were traded on March 15 and the June contract closed at .05121. On April 26, remarkably, total open interest declined only 192 contracts, a number that is dramatically below average.
It appears that speculators are doing what they tend to do when faced with declining prices: hold on for dear life. That prices declined as precipitously as they did to lows last seen on March 22 (.05130) without a substantial amount of liquidation indicates there is much more selling by bulls ahead.
The COT report released last Friday revealed that leverage funds added 9,948 to their long positions and liquidated 14,039 of their short positions. As of the April 18 tabulation date, which coincided with the high for the move of .05366, leverage funds were long the peso by a ratio of 2.29:1, up substantially from the previous week of 1.51:1 and nearly double the ratio two weeks ago of 1.33:1.
At the bottom of the market in early January 2017, leverage funds were short the peso by a ratio of 4.00:1. The catalyst for yesterday’s move was Trump’s stupid idea of eliminating or trying to renegotiate Nafta, which apparently has been walked back on April 27. As a result, the peso is trading 40 pips higher on the day. Wait for another day or two of rally action before initiating bearish positions.
July corn lost 5.00 cents on heavy volume of 593,730 contracts. However, volume fell substantially below that of April 25 when the July contract gained 6 1/4 cents on volume of 670,172 contracts and total open interest declined by a substantial 26,521 contracts, which is bearish open interest action.
On April 26, total open interest declined again, this time by a massive 36,794 contracts, which relative to volume is approximately 140% above average, however a total open interest decline accompanying declining prices is neutral to positive open interest action. The May contract accounted for a loss of 45,740 contracts, which means there was little in the way of new short selling in the back months.
As this report is being compiled on April 27, the July contract is trading 3.75 cents higher or +1.02% higher on the day and has made a daily high of 3.71 1/4, which is below yesterday’s print of 3.74 1/2. We see higher prices ahead, however until a new short term buy signal is generated, we recommend that clients take a stand aside posture.. A new short term buy signal will occur when the daily low is above OIA’s key pivot point for April 27 of 3.73 1/4.
We think it is highly likely the low of 3.60 3/4 made on April 21 will be a major low going forward. It should be reiterated that this print was only a fraction below the previous low made on March 27 of 3.61 3/4.