WTI crude oil:
The Energy Information Administration announced on June 28 that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.1 million barrels from the previous week. At 509.2 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories decreased by 0.9 million barrels last week, but are above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.2 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories increased by 3.9 million barrels last week but are in the lower half of the average range. Total commercial petroleum inventories increased by 0.8 million barrels last week
Natural gas: August and September 2017 New York gas will generate short term buy signals on June 28, but remains on intermediate term sell signals.
August natural gas advanced 1.5 cents on light volume of 327,469 contracts. Total open interest declined by 8,869 contracts, which relative to volume is average. The July contract, which enters first notice a shortly lost 14,297 of open interest. As this report is being compiled on June 28, the August contract is trading 3.5 cents, or +1.14% above yesterday’s close.
The COT report and tabulated on June 20 revealed that managed money liquidated 25,541 of their long positions and added 1,116 to their short positions. Commercial interests liquidated 28,384 of their long positions and also liquidated 39,630 of their short positions. As of the tabulation date, managed money was long natural gas by a ratio of 1.27:1, down from the previous week of 1.41:1 and the ratio two weeks ago of 1.51:1.
From a seasonal point of view, natural gas tends to bottom in the July time frame. However, the pattern of consumption of natural gas has changed and seasonal charts are based upon the past several years or multi-decades The moving average setup is favorable on the continuation charts with the 20 day standing at 2.990, 50 day of 3.128 100 day of 3.066 and the 200 day standing at 3.119.
In summary, August natural gas is trading in its short and longer term value zone. Therefore, we view the bullish side of natural gas to be a relatively low risk trade at this point. Also, much of the speculative selling pressure is out of the way, and if summer weather becomes unseasonably warm, nat gas would likely move sharply higher.
Dollar index: The September dollar index will generate a short sell signal on June 28. The September contract remains on an intermediate term sell signal.
Euro: The September contract will generate a short term buy signal on June 28. This reverses the June 20 short term sell signal. It remains on an intermediate term buy signal.
The September euro skyrocketed by 166 pips on heavy volume of 301,059 contracts on June 27. Though volume was heavy, the total open interest increase was nothing short of spectacular, up 19,270 contracts, which relative to volume is approximately 150% above average. This means that new buyers were flooding into the euro in huge numbers and driving it to a new high for the move of 1.1401. The catalyst for the move was comments made by Mr. Draghi whose remarks were taken to mean that reflation is in and deflation is out.
The COT report released on Friday revealed that leverage funds liquidated 2,241 of their long positions and added 22,735 to their short positions. As of the June 20 tabulation date, leverage funds were short the euro by a ratio of 1.25:1, up from the previous week of 1.19:1 and the ratio two weeks ago of 1.19:1. We expect this ratio to turn and leverage funds will once again become net long.
As this report is being compiled on the 28th, the September contract is trading 30 pips above yesterday’s close and has made another new high for the move 1.1441, the highest print since 1.1457 made the week of June 20, 2016 exactly one year ago.
Although we have been bullish on the euro for quite some time, the market is substantially overbought and we see no reason to be involved on the long side until such time as the euro undergoes a major correction.
British pound: The September British pound will generate short and intermediate term buy signals on June 28. This reverses the short term sell signal of May 30 and the intermediate term sell signal of June 21.
The September British pound advanced 86 pips on volume of 104,384 contracts. Total open interest declined by 1,861 contracts, which relative to volume is approximately 25% below average. The total open interest decline in yesterday’s trading on a strong advance indicate that short-sellers were powering the market higher, not new buying. Higher prices continue on June 28 and the September contract is skyrocketing higher again, up 1.20 cents or +0.93% and has made a new high for the move 1.3005, the highest print since 1.3017 made on June 8.Today’s action fills the gap made between June 8 and June 9 of 1.2868-1.2948.
The COT report of June 20 revealed that leveraged funds added 11,454 to their long positions and also added 6,204 to their short positions. As of the June 20 tabulation date, leverage funds were short the pound by ratio of 1.32:1, down from the previous week of 1.57:1, but up from the ratio two weeks ago of 1.23:1. In the past we have advised clients to take a stand aside posture in the pound and see no reason to change this view.
10 Year U.S. Treasury Note: The September 10 year US treasury note will generate a short term sell signal on June 28. This reverses the short term buy signal made on March 22 by the June 2017 treasury note contract. The September contract remains on an intermediate term buy signal.
The September 10 year treasury note lost 16 points on volume of 1,626,392 contracts. Total open interest declined by 36,432 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on June 28, the September contract is trading 2 points lower on the day and has made a new low for the move of 125-280, which is the lowest price on the continuation chart since 125-244 made on May 24 by the June 2017 contract.
There has been a bit of controversy about relatively low interest rates on the 10 year note note and elevated level of equity prices, which indicate that one of these instruments are wrong about the economy. This may be resolved with the new sell signal.
For those of you who want to initiate bearish positions in the September note, wait for a rally. Usually, after the generation of a short term sell signal, the market has tendency for a counter trend rally which may last 1-3 days. A move to 126-234–126-235 is a reasonable level at which to initiate bearish positions.
Nasdaq 100: The Nasdaq 100 cash index and September futures remain on short term sell signals on June 28. Both instruments remain on intermediate term buy signals.