June gold lost $8.90 on volume of 238,962 contracts. Total open interest declined by 10,077 contracts, which relative to volume is approximately 60% above average meaning liquidation with substantial on yesterday’s decline. Accounting for this was the loss of open interest in the April contract of 22,721 contracts.
As this report is being compiled on March 31, the June contract is trading $8.30 higher and has made a daily high of 1242.30, which is below yesterday’s print of 1246.80 and the March 29 high of 1245.20. On March 24, OIA announced that June gold generated a short-term sell signal, and it remains on an intermediate term buy signal. We have recommended that clients take a stand aside posture until the substantial long position of speculators is pared back.
WTI crude oil:
May WTI crude oil gained 4 cents on volume of 873,254 contracts. Total open interest increased by 13,495 contracts, which relative to volume is approximately 40% below average, but this is the second day in a row in which total open interest has increased by a substantial amount even though today’s increase was below average. It appears there was a battle between longs and shorts and longs were able to edge the market slightly higher.
As this report is being compiled on March 31, the May contract is trading 23 cents above yesterday’s close and has made a daily high of 39.04, which is below yesterday’s print of 39.85 and the March 29 print of 39.48. Additionally, the May contract has made a daily low of 37.57, which is the lowest print since 37.71 made on March 15.
It appears that the momentum on the upside is losing steam, and that new short-sellers are emboldened. This increases the likelihood that a short-term sell signal will be generated possibly next week. For this to occur, the high of the day must be below OIA’s key pivot point for March 31 of 37.51. We have no recommendation.
May natural gas advanced 1.5 cents on volume of 259,694 contracts. Total open interest increased by a substantial 8,420 contracts, which relative to volume is approximately 20% above average. The April contract accounted for loss of 311 of open interest. March 30 was the third day in a row in which prices advanced along with open interest.
This tells us that short sellers are not covering positions, and since May natural gas is on a short-term buy signal, this increases the possibility of a continued rally. Mind you, we are not suggesting that natural gas has entered into a new bull market, rather it is a seasonal move characterized by stronger natural gas prices in the April- May- June time frame. Clients may want to consider options strategies such as buying out of the money calls or shorting out of the money puts. The short puts should be in the nearby months to take advantage of time decay.
The Energy Information Administration announced that working gas in storage was 2,468 Bcf as of Friday, March 25, 2016, according to EIA estimates. This represents a net decline of 25 Bcf from the previous week. Stocks were 1,002 Bcf higher than last year at this time and 843 Bcf above the five-year average of 1,625 Bcf. At 2,468 Bcf, total working gas is above the five-year historical range.
The June dollar index lost 32.7 points on volume of 27,328 contracts. Volume declined from March 29 when the June contract lost 79.4 points and total open interest increased by a massive 1,959 contracts. On March 30, total open interest increased again, this time by a massive 2,107 contracts, which relative to volume is approximately 210% above average meaning aggressive short-sellers continue to enter positions in the dollar index and drive prices to a low of 94.560.
As this report is being compiled on March 31, the June contract is trading 26.9 points lower and has made a new low of 94.295, which is the lowest print since 93.830 made on October 15. The dollar index is in a bear market, and should be traded from the short side until further notice.
The June euro advanced 38 pips on volume of 214,373 contracts. Total open interest increased by a substantial 5,807 contracts, which relative to volume is average. This is the second day in a row in which the euro has advanced along with open interest. As this report is being compiled on March 31, the June contract is trading 50 pips higher and has made a new high for the move of 1.1438, which is the highest print since 1.1405 made on October 16, 2015. The euro is in a bull market and should be traded from the long side only until further notice.
The June British pound advanced 9 pips on volume of 89,280 contracts. Total open interest declined from by 1,091 contracts, which relative to volume is approximately 55% above average, and yesterday’s open interest decline on the price advance is the third such occurrence in a row. Short-sellers continue power the pound higher and it is without question the most shorted currency in the developed market.
Essentially, we see the movement in the pound as being a battle with short sellers and because the pound has been heavily shorted, the path of least resistance is higher for now. We strongly advise against new bearish positions and the pound remains on a short-term buy signal while it is on an intermediate term sell signal. For an intermediate term buy signal to be generated, the low of the day must be above OIA’s key pivot point for March 31 of 1.4421.
We think the March 18 high of 1.4519 will be tested and conceivably the February 4 print of 1.4674 is not out of the question. The idea behind such an aggressive call is that short sellers need to be blown out of the market before it resumes its downtrend. Also, keep in mind the vote on Brexit is over 2 1/2 months away, which means there is more than enough time for the market to continue to rally before resuming the downtrend. From a seasonal point of view, April is a strong month for performance. Continue to stand aside.
The June Canadian dollar advanced 58 pips on volume of 72,601 contracts. Total open interest exploded higher, up by 3,473 contracts, which relative to volume is approximately 75% above average meaning aggressive new buyers were entering the market and driving prices to a new high for the move of 77.46.
As this report is being compiled on March 31, the Canadian dollar is trading 19 pips lower after making a new high for the move of 77.98, which is the highest print since 77.91 made on October 15, 2015. Since making its contract low of 68.09 on January 20, the Canadian dollar has rallied an amazing 10 cents and as we pointed out in yesterday’s report, leverage funds remain short the Canadian dollar by over a 2 to 1 ratio. At some point the Canadian dollar is going to be a terrific opportunity on the bearish side, but for now stand aside.
The June Australian dollar advanced 35 pips on volume of 96,038 contracts. Total open interest increased by 2,710, which relative to volume is average. As this report is being compiled on March 31, the June contract is trading 10 pips lower after making a new high for the move of 76.98, which is the highest print since 77.08 made the week of June 29, 2015. The Australian dollar should be traded from the long side only until further notice.
10 Year Treasury Note: On March 30, the June 10 year Treasury Note generated short and intermediate term buy signals.
The June 10 year note advanced 5 ticks on volume of 1,123,697 contracts. Total open interest increased just 642 contracts. As this report is being compiled on March 31, the June contract is trading 6 points higher and has made a new high for the move of 130-0 85, which is the highest print since 130-270 made on March 1. Wait for a pullback, which could last from 1-3 days before considering bullish positions.
S&P 500 E-mini:
The June S&P 500 E-mini gained 7.75 points on volume of 1,629,402 contracts. Total open interest increased by 18,845, which relative to volume is approximately 45% below average, but a total open interest increase on yesterday’s advance is positive. Yesterday, the June contract made a new high for the move of 2064.50, which is the highest print since 2075.00 made on December 30, 2015.
Essentially, the E-mini is trading where it was at the beginning of the year. The rally of the past several days appears labored, and it looks like the market is running out of steam. In our research note of March 13, we projected a high in the S&P 500 cash index of 2068 and yesterday it made a high of 2072.21.
As this report is being compiled on March 31, the June contract is trading 2.25 points lower after making a daily high of 2059.75. We still think the bear market is intact, but have no specific recommendation at this time.