WTI crude oil:
April WTI crude oil gained 55 cents on volume of 1,299,036 contracts. Total open interest increased by 19,710 contracts, which relative to volume is approximately 40% below average. The March contract accounted for a loss of 25,756 of open interest, which means that there were sufficient open interest increases in the forward months to offset the decline in March and increase total open interest.
While the open interest action relative to price advances and declines has been positive, the fact remains that crude oil has been trading in a sideways pattern for the last three weeks. Also, as mentioned in yesterday’s report the crude oil volatility index is down at 52 week lows, and this indicates that movements up or down will be tame.
As this report is being compiled on February 22, the April contract is trading 83 cents lower and has made a daily low of 53.35, which is the lowest print since 53.29 made on February 17. For the rally to resume, the low of the day must be above OIA’s pivot point for February 22 of $54.31. A short term sell signal will be generated if the daily high is below OIA’s key pivot point for February 22 of 53.22. Stand aside.
March natural gas lost 27.00 cents on very heavy volume of 818,960 contracts. Volume was the strongest since June 9, 2016 when 802,192 contracts were traded and the July 2016 contract closed at $2.617. On February 21, total open interest increased by 22,145 contracts, which relative to volume is average.The March contract accounted for a loss of 30,098 contracts, 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 by an average amount. It is concerning that new short-sellers were willing to enter the market at multi-month lows.
On major declines going back to February 10, total open interest has increased on each occasion. This confirms the fact that speculators are not liquidating en masse, which one would expect considering that prices on February 22 have taken out the November 9, 2016 low of 2.546 with another new low of 2.522 for the March contract.
The problem going forward is that any rally is going to be met with heavy selling by speculators who are showing sizable losses and want to trim these. This will keep a lid on rallies until this group of speculator has been blown out of the market. On January 4, OIA announced that March natural gas generated short and intermediate term sell signals and we have been recommending a stand aside posture ever since.
The March dollar index advanced 40.4 points on volume of 29,373 contracts. Total open interest increased by 1,116, which relative to volume is approximately 25% above average meaning that new buyers were flooding into the dollar index in substantial numbers and driving prices higher (101.610).
As this report is being compiled on February 22, the dollar index is trading 12 points higher. On February 15, the March and June dollar index generated short term buy signals, but have been unable to generate intermediate term buy signals. In our previous reports, we have recommended long positions in the dollar index ETF UUP, with a sell stop slightly below the low for the move of $25.65. Continue to hold this position.
The March Mexican peso advanced by a very strong 110 pips on heavy volume of 63,603 contracts. Volume was the strongest since January 26 when 82,676 contracts were traded and the March contract closed at .04681. On February 21, total open interest declined by 792 contracts, which relative to volume is approximately 45% below average, and the total open interest decline on yesterday strong advance confirms that short-sellers were powering the market higher, not new buying.
The COT report released on Friday revealed that leverage funds added 435 contracts to their long positions and liquidated 6,250 of their short positions. As a result, on February 14 leverage funds were short the Mexican peso by a ratio of 2.87:1, down from the previous week of 3.17:1 and substantially below the ratio two weeks ago of 4.15:1.
As this report is being compiled on February 22, the March contract is trading 9 pips higher on the day after making another new high for the move of .05027, which is the highest print since .05435 made during the evening session of November 8 when the results of the presidential election were being released. Although we would like to see new buying powering the market higher, speculators are showing losses and we think this will continue to move the peso higher. In the January 30 research note, we recommended the initiation of bullish positions and clients should continue to hold them. On January 30, OIA announced the Mexican Peso generated a short term buy signal and an intermediate term buy signal on February 9.
From the February 6 research note on the Mexican Peso:
“On January 30, OIA announced that the March contract generated a short term buy signal and it remains on an intermediate term sell signal, although we think there is a high likelihood an intermediate term buy signal will be generated in the near future. For those who took our advice and initiated bullish positions in options, continue to hold these.”
April lean hogs will generate a short term sell signal if the daily high is below OIA’s key pivot point for February 22 of 69.507. Currently, the April contract is trading 2.275 cents lower on the day and has made a new low for the move of 67.875, the lowest print since 67.825 made on January 30. At this juncture we have no recommendation.