WTI crude oil:
May WTI crude oil lost $1.11 on volume of 769,310 contracts. Volume increased substantially from the 2016 record low volume of 439,029 contracts traded on March 28 when the May contract lost 7 cents and total open interest increased by 3,391 contracts. On March 29, total open interest increased by a substantial 21,215 contracts, which relative to volume is approximately average. The May contract gained 4,196 of open interest.
As this report is being compiled after the release of the EIA report the May contract is trading 24 cents above yesterday’s close and has made a daily high of $39.85, which takes out yesterday’s print of 39.48, but is below the March 28 high of 40.14.The market is getting close to generating a short-term sell signal and this would occur if the daily high is below OIA’s key pivot point for March 30 of 37.32.For the rally to resume, the low of the day must be above OIA’s pivot point for March 30 of $38.92. We have no recommendation
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.3 million barrels from the previous week. At 534.8 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 2.5 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.1 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.6 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 1.5 million barrels last week.
May natural gas advanced 4.5 cents on volume of 325,508 contracts. Total open interest increased by 2,662 contracts, which relative to volume is approximately 55% below average, however, the May contract lost 5,624 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in May and increase total open interest.
Yesterday, was the second day in a row in which natural gas prices advanced and total open interest increased. On March 28, the May contract gained 5.4 cents on volume of 281,100 and total open interest increased by 597 contracts while the April contract lost 16,339.
On March 16, OIA announced that May natural gas generated a short-term buy signal and has been unable to generate an intermediate term buy signal, but ever since the buy signal, natural gas had its usual pullback and in trading on March 30 has made a daily high of $2.015, which is the highest print since 2.025 made on February 12, 2016.
We are becoming a bit friendly to natural gas, and though it certainly is not a bull market, natural gas is entering its period of seasonal strength. As an added bonus, managed money is massively short by nearly a 2 to 1 ratio. On Thursday, the natural gas storage report will be released and as is usually the case will have a substantial impact on trading for the remainder the week. At this juncture we have no specific recommendation, but think that natural gas should be traded from the bullish side.
June gold advanced $17.40 on heavy volume of 400,313 contracts. Total open interest declined by 2,175 contracts, which relative to volume is approximately 75% below average, and a total open interest decline on yesterday’s strong advance is negative. The April contract, which expires shortly lost 57,994 of open interest and there were insufficient open interest increases in the forward months to offset the decline in April.
Yesterday’s price and open interest action confirmed the short term sell signal, which was announced to clients on March 24. We are not bearish on gold, and it is undergoing a garden-variety correction and at this time a sideline stance is warranted, especially because there are large numbers of speculative longs in the market.
The June dollar index lost 79.4 points on heavy volume of 30,680 contracts. Total open interest increased by a sizable 1,959 contracts, which relative to volume is approximately 145% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices to a low of 95.080. As this report is being compiled on March 30, the dollar index is trading lower again, down 21.6 points and has made a daily low of 94.560, which is the lowest print since 94.415 made on October 16, 2015. We have no recommendation.
The June euro advanced 94 pips on substantial volume of 231,638 contracts. Total open interest increased by a sizable 5,809 contracts, which relative to volume is average. As this report is being compiled on March 30, the June contract is trading 24 pips above yesterday’s close and has made a new high for the move of 1.1391, which is the highest print since 1.1371 made on March 17 and the previous high print of 1.1385 made on February 11, 2016. The euro is trading at a level that may likely cause it to correct, but as we have pointed out in previous reports, the euro should be traded from the long side only.
The June British pound advanced 1.26 cents on volume of 94,329 contracts. Volume increased substantially from March 28 when the June pound gained 1.00 cent on volume of 49,636 contracts and total open interest declined by 413. On March 29, total open interest declined again, this time by 1,028 contracts, which relative to volume is approximately 50% below average, but the total open interest decline confirms that short sellers were powering the market higher, not new buying.
March 29 was the second day in a row in which prices advanced strongly and total open interest declined. Speculators are heavily short the pound, and while we think it is headed lower, in the short-term, the market may continue to blowout short-sellers before resuming the down trend. We have no recommendation.
The June Canadian dollar advanced 69 pips on volume of 69,051 contracts. Total open interest increased by 829 contracts, which relative to volume is approximately 45% below average, but a total open interest increase indicates that new buyers were powering the market higher.
Yesterday, the June Canadian dollar made a high of 76.64 and this has been taken out with another high of 77.46, which is the highest print since 77.38 made on March 18. The remarkable aspect of trading in the Canadian dollar for the past two days has been the weakness of crude oil and strength in the Loonie. Yesterday, crude oil traded sharply lower and yet the Canadian dollar had a strong rally and the rally has continued on March 30 even though crude oil is trading somewhat lower on the day.
This independent strength of the Canadian dollar versus crude and its two day negative correlation is atypical. The latest COT report revealed that leverage funds remain short the Canadian dollar by a ratio of 2.12:1, which is down from the previous week of 3.06:1 and is a substantial reduction from the ratio two weeks ago of 3.96:1. At one point, the short ratio was over 7 to 1, but it is remarkable that leverage funds continue to hang on to short positions even though they have incurred massive losses. The Canadian dollar remains on short and intermediate term buy signals. We have no recommendation.
The June Australian dollar advanced 95 pips on substantial volume of 100,143 contracts. Total open interest increased by 2,339 contracts, which relative to volume is approximately 5% below average, but the open interest increase indicates a strong appetite for the Australian dollar.
As this report is being compiled on March 30, the June contract is trading nearly unchanged, but has made another new high for the move of 76.83, which takes out the previous print of 76.51 made on March 18 and is the highest price since the week of June 29, 2015 when the Aussie made a high of 77.08. The Australian dollar remains on short and intermediate term buy signals and should be traded from the long side only. We have no recommendation.
10 Year Treasury Note: The June 10 year Treasury Note will generate short and intermediate term buy signals on March 30.
The June 10 year treasury note gained 19 points on volume of 1,048,041 contracts. Total open interest increased by a substantial 36,476, which relative to volume is approximately 25% above average. As this report is being compiled on March 30 the June contract is trading nearly unchanged on the day. Now that the 10 year note is on short and intermediate term buy signals, we expect a pullback that lasts from 1-3 days and this will be the opportunity to initiate bullish positions.
S&P 500 E-mini:
The June S&P 500 E-mini advanced 19.50 points on volume of 1,551,885 contracts. Total open interest increased by 31,333 contracts, which relative to volume is approximately 20% below average.Today, the S&P 500 cash index made a high of 2072, which is 4.00 points above the target price for the cash index that we wrote about in the research note of March 13: “Pace Of SPX Rally Slows-Crude Remains Firm-USD/JPY Strengthens.”
Beginning next week, the earnings season commences and if there are a series of disappointing reports from major companies, the rally may be stopped in its tracks. The S&P 500 E-mini and the S&P 500 cash index remain on short and intermediate term buy signals. We have no recommendation.