WTI crude oil:
April WTI crude oil lost 74 cents on light volume of 951,729 contracts. Total open interest declined by 9,538 contracts, which relative to volume is approximately 50% below average. The March contract accounted for a loss of 1,306 of open interest. As this report is being compiled after the release of the EIA storage report, the April contract is trading 75 cents above yesterday’s close, but has made a daily low of $53.87, which is below OIA’s pivot point for the resumption of the uptrend.
For the April contract to test the year to date high of 56.92 made on January 3, the low of the day must be above the pivot point of 54.34. The year to date the daily moving average is 53.86 and currently the market is trading approximately 43 cents above the YTD average. We continue to recommend a stand aside posture.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.6 million barrels from the previous week. At 518.7 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.6 million barrels last week, but are at upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 4.9 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 3.3 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories decreased by 11.0 million barrels last week.
The March dollar index lost 16.1 points on volume of 39,842 contracts. Total open interest increased just 73 contracts. As this report is being compiled on February 23, the dollar index is trading 14 points below yesterday’s close. It appears that the dollar index has stalled its move higher for now and has been unable to generate an intermediate term buy signal.
For this to occur, the low of the day must be above OIA’s key pivot point for February 23 of 101.699. Until this occurs, we think the dollar index will trade in a consolidation pattern. Much of the movement in the index will depend upon the action in the euro and the 10 year treasury note. Continue to hold the dollar index ETF UUP and maintain the sell stop slightly below the low for the move of 25.65.
The March Mexican peso advanced 27 pips on strong volume of 57,921 contracts. Volume was below that of February 21 when the March contract gained 110 pips on volume of 63,603 contracts and total open interest declined by 792. On February 22, total open interest increased massively, this time by 3,026 contracts, which relative to volume is approximately 110% above average meaning aggressive new buyers were entering the market and driving prices to a new high for the move of .05028.
As this report is being compiled on February 23, the March contract is rocketing higher, up 51 pips or +1.02% and has made another new high for the move of .05076. This is the highest print since the evening of the election on November 8 when the March contract made a high of .05435. On January 30, OIA recommended the initiation of bullish positions in the peso and this trade continues to work well. Hold on, we think higher prices are ahead.
Lean hogs: April lean hogs will generate a short term sell signal on February 23, but remains on an intermediate term buy signal.
April lean hogs lost 2.60 cents on volume of 50,037 contracts. Total open interest declined by 1,925 contracts, which relative to volume is approximately 25% above average. The COT report released last Friday revealed that managed money added 1,061 to their long positions and also added 777 to their short positions. Commercial interests added 834 to their long positions and also added 4,026 to their short positions. As a result, managed money was long hogs as of February 14 by a ratio of 5.92:1, down from the previous week of 6.24:1 and the ratio two weeks ago of 6.95:1.
As this report is being compiled on February 23, the April contract is trading lower, down 1.20 cents and has made a daily low of 66.025, which is the lowest print since 66.250 made on December 30, 2016. Now that the April contract is on a short term sell signal, we recommend waiting for a counter trend rally that could take the April contract up to its 50 day moving average of 68.727 or conceivably the 20 day moving average of 69.787. This would be the opportune time to initiate bearish positions. Until then, stand aside.