WTI crude oil:
April WTI crude oil lost 46 cents on very light volume of 718,226 contracts. Volume was the lowest since February 6 when crude lost 82 cents on volume of 760,275 contracts and total open interest increased by 4,043. On February 24, total open interest increased by just 1,800 contracts, a number that is dramatically below average.
The COT report released on Friday showed that managed money continues to move strongly into crude oil and added 16,252 contracts to their long positions while liquidating 5,544 of their short positions. Commercial interests liquidated 60,609 of their long positions and also liquidated 38,128 of their short positions. As a result, managed money was long crude oil as of February 21 by a ratio of 10.31:1, up sharply from the previous week of 8.82:1 and a huge increase from the ratio two weeks ago of 6.20:1.
For the rally to continue, the low of the day must be above OIA’s pivot point for February 27 of $53.97 and the low thus far in trading has been 53.94. At this juncture, we think the market can go either way, but with the huge net long position of managed money the market is vulnerable to a significant shakeout if the EIA stats begin turning bearish. We recommend a stand aside posture.
April gold advanced $6.90 on volume of 233,960 contracts. Total open interest increased just 325 contracts. The COT report released on Friday revealed that managed money added 6,900 contracts to their long positions and liquidated 7,517 of their short positions. Commercial interests liquidated 435 of their long positions and added 2,904 to their short positions. This left managed money long as of February 21 by a ratio of 2.21:1, up from the previous week of 1.88:1 and the ratio two weeks ago of 1.97:1.
This ratio is relatively low and perhaps reflects a high degree of skepticism on the part of would be market participants. We are in the wait-and-see mode without a strong conviction even though gold is on short and intermediate term buy signals. However, the moving averages remain in a bearish set up with the 50 day moving average of 1198.10 below the 100 day moving average of 1219.70. As this report is being compiled on February 27, the April contract is trading 2.90 above Friday’s close and has made a new high for the move of 1264.90, which is the highest print for the April contract since 1269.00 made on November 11, 2016. Stand aside.
Mexican peso: OIA recommends taking profits on the bullish Mexican peso position originally recommended on January 30.
The March Mexican peso lost 69 pips on volume of 41,660 contracts. Total open interest increased by a massive 3,124 contracts, which relative to volume is approximately 185% above average meaning aggressive new short-sellers were entering the market in substantial numbers and driving prices lower (.05011).
The COT report revealed that leverage funds added 4,939 contracts to their long positions and liquidated 3,148 of their short positions. As a result, leverage funds are short the Mexican peso by a ratio of 2.31:1, down from the previous week of 2.87:1 and the ratio two weeks ago of 3.17:1.
In summary, the short contingent has been substantially reduced and in the past four weeks has been nearly cut in half. This means there will be less firepower on the upside due to the substantial reduction of speculative short positions. As this report is being compiled on February 27, the March contract is trading 3 pips higher on the day. Remain on the sidelines.
10 Year Treasury Note: On February 24, the March and June 10 year treasury note generated intermediate term buy signals after generating short term buy signals on January 5.
The March 10 year note advanced 18 points on heavy volume of 3,995,318 contracts. Total open interest declined by 122,904 contracts, which relative to volume is approximately 15% above average. The March contract goes off the board shortly.
As this report is being compiled on February 27, the June contract is having its typical pullback after the generation of a buy signal and is trading 13.5 points lower on the day. It appears that the path of least resistance is higher, which is going to cause problems for the very large speculative short position.
According to the COT report released on Friday, leverage funds added 6,714 to their long positions and liquidated 3,905 of their short positions. As a result, on February 21, leverage funds were short the 10 year note by ratio of 1.43:1, down slightly from the previous week of 1.46:1 but up from the ratio two weeks ago of 1.31:1. We have no recommendation.