WTI crude oil:
March WTI crude oil advanced $1.03 on volume of 1,061,667 contracts. Total open interest increased by 16,140 contracts, which relative to volume is approximately 40% below average, but a total open interest increase on yesterday’s advance is positive. The March contract accounted for a loss of 6,391 of open interest and there were sufficient open interest increases in the forward months to offset the decline in March and increase total open interest.
While yesterday it appeared that the March contract would make a daily low above our pivot point on January 27, this is not to be. As this report is being compiled on January 27, the March contract is trading 92 cents lower after making a daily low of 52.58, which is slightly above the January 25 print of 52.56.
Our pivot points are indispensable for keeping clients out of markets that are not making significant moves and until the March contract makes the daily low above OIA’s pivot point for January 27 of $53.69, the market will trend sideways to lower. A short term sell signal will occur if the daily high is below OIA’s key pivot point for January 27 of 52.33. Stand aside.
The March dollar index gained 35.6 points on volume of 35,734 contracts. Total open interest increased by 739 contracts, which relative to volume is approximately 20% below average, but a total open interest increase on yesterday’s advance is positive. As this report is being compiled on January 27, the March contract is trading 20.6 points above yesterday’s close. We think it is likely the dollar index has bottomed and will be trending higher from here.
Despite this, the dollar index remains on a short term sell signal, and an intermediate term buy signal. We have no recommendation except to suggest that clients initiate long positions in the dollar index ETF UUP and place a sell stop slightly below the recent low of 25.81, which also was the low made December 5. We are suggesting this position in the ETF because trying to catch the bottom of a move in futures is a very hazardous aspiration.
10 Year Treasury Note: On January 26, the March 10 year treasury note generated a short term sell signal and remains on an intermediate term sell signal.
The March 10 year treasury note gained 5 points on volume of 1,403,107 contracts. Total open interest increased by 21,355 contracts, which relative to volume is approximately 40% below average, but yesterday’s advance indicates that new buyers were pushing the March contract slightly higher.
As discussed in yesterday’s research note, we said we would call a short term sell signal in the March note if it was unable to take out yesterday’s high of 124-005, which was exactly on OIA’s he pivot point for the generation of a sell signal. Our reasoning from making the call was the note was trading in a narrow range and if it was unable to make a daily high above the pivot point, it was revealing internal weakness.
This is a judgment call on our part, but we think it will prove to be the right course. As this report is being compiled on January 27, the March contract is trading 4.5 points above yesterday’s close and has made a daily high of 124-055. For the short term sell signal to reverse and a new short term buy signal generated, the low of the day must be above OIA’s key pivot point for January 27 of 124-220.
One way to play higher interest rates in the equity market is to use the ETF, TBF, which is the Pro Shares short 20 year bond. With respect to futures, we have no recommendation.