WTI crude oil:
March WTI crude oil lost 82 cents on volume of 760,275 contracts. Volume was the lowest since December 30, 2016 when 496,057 contracts were traded and the March contract closed at 54.66. On February 6, total open interest increased by 4,043 contracts, which relative to volume is approximately 75% below average, but a total open interest increase on yesterday’s decline is negative. The March contract accounted for a loss of 7,810 of open interest.
As this report is being compiled on February 7, the March contract is trading sharply lower, down $1.11 or -2.09% and has made a daily low of 51.87, which is the lowest print since 51.81 made on January 19. Yesterday’s action indicated that market participants were complacent and the low-volume accompanying a relatively small increase of open interest reveals that spec participants are reluctant to liquidate long positions.
As we pointed out in yesterday’s report, the lopsided long position of managed money is going to add a considerable amount of selling pressure as prices move lower. It appears likely that the March contract is headed for a short term sell signal and this will occur if the daily high is below OIA’s key pivot point for February 7 of $52.24. We continue to recommend a stand aside posture.
Gold: On February 6, April New York gold generated an intermediate term buy signal after generating a short term buy signal on January 5.
April gold advanced $11.30 on light volume of 205,035 contracts. Total open interest increased by a massive 9,534 contracts, which relative to volume is approximately 75% above average meaning that new buyers were streaming into gold and pushing prices to a new high for the move of $1237.50, which also is the high on February 7. This takes out the previous high print of 1236.80 made on November 17.
As this report is being compiled on February 7, the April contract is trading higher, up $4.40 and the big surprise is that the dollar is trading higher, up 33 points and yet gold prices are steady. This is very positive and may indicate that the rally which began in earnest on the heels of the decline in the dollar may possibly be for real.
However, we want to see more action before making this determination. April gold is substantially overbought relative to its 20 day and 50 day moving averages of 1208.70 and 1181.80 respectively. This means it is vulnerable to a correction, which is likely to occur once the dollar’s upward momentum gains steam. If not involved in gold from lower levels, stand aside.
March silver advanced 21.4 cents on volume of 50,590 contracts. Total open interest increased by 2,869 contracts, which relative to volume is approximately 120% above average meaning that new buyers were entering the silver market in substantial numbers and driving prices to a new high for the move of $17.760, which is the highest print since $18.950 made on November 11.
As this report is being compiled on February 7, the March contract is trading higher again, up 5.2 cents and has taken out yesterday’s high with another new print of 17.795. On January 10, March silver generated a short term buy signal and an intermediate term buy signal on February 1. The market is substantially overbought relative to its 20 day moving average of $17.178 and the 50 day moving average of 16.776, therefore we recommend a stand aside posture for new bullish positions.
The March Mexican peso lost 47 pips on volume of 32,209 contracts. Total open interest declined by 1,043 contracts, which relative to volume is approximately 15% above average. This is perfectly healthy open interest action relative to the price decline. As this report is being compiled on February 7, the March contract is trading 3 pips above yesterday’s close and has made a daily high of .04845, which is considerably below yesterday’s print of .04900.
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.