WTI crude oil: On June 16, July and August WTI crude oil generated short term sell signals, but remain on intermediate term buy signals.
July WTI crude oil lost $1.80 on volume of 1,166,459 contracts. Volume increased from June 15 when the July contract lost 48 cents on volume of 1,078,405 contracts and total open interest declined by 3,530. On June 16, total open interest declined by 18,457 contracts, which relative to volume is approximately 40% below average. The July contract accounted for a loss of 47,809 as it nears expiration.
As this report is being compiled on June 17, the August contract is trading $1.42 above yesterday’s close and has made a daily high of 48.33 and low of 46.40, which is slightly below yesterday’s print of 46.44. Typically, after the generation of a short-term sell signals, markets have a tendency to under go a counter trend rally which lasts from 1-3 days and this is the most opportune time to initiate bearish positions.
Today is the first day of the rally and it is possible it will carry through to the overnight session on Sunday. We expect the rally to be stymied at $49.00 and the 20 day moving average of 49.48. The vote on June 23 is a potential bearish development for crude and after the rally dissipates, we expect prices to head lower.
Brent crude oil: On June 16, August and September Brent crude oil generated short-term sell signals, but remain on intermediate term buy signals.
August Brent crude oil lost $1.78 on volume of 798,262 contracts. Total open interest increased by a sizable 25,932, which relative to volume is approximately 10% above average meaning aggressive new short-sellers were entering the market in substantial numbers and driving prices to a new low for the move of 46.96, which is the lowest print since $46.80 made on May 12. Note the difference in the open interest action between Brent and WTI. Like WTI, Brent is having its counter trend rally on June 17 and we expect this to continue into Sunday session before heading lower.
Heating oil: On June 16, July and August heating oil generated short-term sell signals, but remain on intermediate term buy signals.
July heating oil lost 5.49 cents on volume of 144,060 contracts. Total open interest increased by 817 contracts, which relative to volume is approximately 75% below average, however an open interest increase on yesterday’s sharp decline is bearish. The July contract accounted for a loss of 4,424 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in July and increase total open interest slightly.
As this report is being compiled on June 17, the August contract is having its usual counter trend rally, up 4.62 cents. According to the COT report released last Friday, managed money was long heating oil by ratio of 1.66:1, which is down from the 2016 high ratio of 1.78:1 made the previous week. Last week’s heating oil ratio was above that of gasoline of 1.50:1, a very unusual occurrence, especially during the peak summer driving season. We have no recommendation.
Gasoline: On June 16 July and August gasoline generated intermediate term sell signals after generating short term sell signals on June 13. We have no recommendation.
August gold advanced $10.10 on very heavy volume of 390,981 contracts. Volume was the strongest since May 24 when 466,683 contracts were traded and gold lost $22.30 while open interest declined by 8,603 contracts. On June 16, total open interest increased massively, this time by 19,757 contracts, which relative to volume is approximately 100% above average meaning aggressive new buyers were entering the market in very heavy numbers and driving prices to a new contract high of $1318.90.The market ran up sharply in the early going and then was hit by waves of selling that took the August contract down to the low for the day of 1280.50.
From June 8 through June 16 total open interest has increased every day for a total of 78,403 contracts while August gold has advanced by $51.40. To put the collective open interest increase in perspective consider that for each dollar increase in the price of gold from June 3 through June 16, it has taken an open interest increase of 1,537 contracts. While open interest increases during the past several days on price advances is bullish, OIA thinks it has been substantially overdone relative to the price advance. We believe that hedgers are active and taking the other side of the trade.
Our experience informs us when there are massive open interest increases over numerous days, on price advances, the market will reverse and shakeout weak longs. This afternoon, when the COT report is released, we will have a better idea of the extent to which managed money has increased their net long position.
We continue to recommend a stand aside posture. If there is a vote to remain in the European Union by citizens of the United Kingdom, we think gold will decline precipitously and think it is likely to occur even if the vote is to exit the union. In summary, it is highly probable that commodities and equities will decline if there is a vote to exit while longer dated government fixed income instruments will experience yield declines.
July silver gained 10.4 cents on heavy volume of 102,018 contracts. Volume was the strongest since June 8 when the July contract gained 59.1 cents on volume of 90,537 contracts and total open interest increased only 597. On June 16, total open interest increased just 172 contracts, a major disappointment. The July contract lost 456 of open interest, which means there were enough open interest increases to offset the decline in July, but barely enough to increase total open interest slightly. Yesterday’s performance was a surprise considering that open interest action recently has been very positive.
Yesterday, July silver made a high of $17.880, which is the highest print since 17.760 made on May 3.Throughout yesterday’s trading, gold was the out performer and this continues to be the case on June 17: August gold currently is trading -0.28% while the July silver -1.03%. We think this under performance is temporary and after there has been a washout in gold and the precious metals begin to enter a more favorable seasonal time frame, silver will reassert its leadership. We continue to recommend a stand aside posture.
The September euro lost 27 pips on heavy volume of 253,119 contracts. Total open interest increased by 1653 contracts, which relative to volume is approximately 65% below average, but an open interest increase on yesterday’s decline is negative. The September contract made a low of 1.1169, which is the lowest print since 1.1139 made on June 3.
As this report is being compiled on June 17, the September contract is trading 42 pips above yesterday’s close and has made a daily high of 1.1333, which is 1 pip above yesterday’s print. The September contract remains on short and intermediate term buy signals. According to last week’s COT report, leverage funds are short the euro by a ratio of 2.58:1, up from the previous week of 2.31:1 and the ratio two weeks ago of 2.11:1.We recommend strongly that clients avoid trading the euro for the next week. The upcoming vote on June 23 makes currencies too volatile to trade. It is preferable to be on the sidelines rather than participate and risk losing money.
The September yen advanced by a massive 154 pips on volume of 260,884 contracts. Total open interest increased only 1,076 contracts, which relative to volume is approximately 85% below average. As this report is being compiled on June 17, the September contract is trading 6 pips above yesterday’s close and has not taken out yesterday’s contract high of .9690. Similar to the euro, we recommend strongly that clients not trade the yen for at least the next week.
The September British pound advanced 31 pips on strong volume of 162,237 contracts. Total open interest increased by 1,394 contracts, which relative to volume is approximately 55% below average, but an open interest increase on yesterday’s modest advance is positive. Yesterday, the September contract made a new low for the move of 1.4021, which is the lowest print since 1.4008 made on April 6.
As this report is being compiled on June 17 the September pound is rocketing higher, up 1.38 cents and has made a daily high of 1.4357, which is the highest print since 1.4340 made on June 13. On June 13, OIA announced that the September pound generated short and intermediate term sell signals. The COT report released last week showed that leverage funds are short the pound by a ratio of 1.13:1, which is up from the previous week of 1.006:1 and the ratio two weeks ago of 1.09:1. Like the two aforementioned currencies, we recommend that clients stand aside in the pound for at least the next week.
S&P 500 E-mini:
In yesterday’s research note, we stated that the September contract would generate a short-term sell signal if the daily high was below OIA’s key pivot point for June 16 of 2065.84 and after writing this note, the high exceeded this by a substantial margin (2086.25). The September E-mini will not generate a short-term sell signal on June 17. It remains on an intermediate term buy signal.