WTI crude oil:
August WTI crude oil advanced $1.52 on volume of 892,993 contracts. Total open interest increased by 15,528 contracts, which relative the volume is approximately 25% below average. The August contract gained 4,691 of open interest. As this report is being compiled on June 29, the August contract is rocketing higher, up $1.42 on a draw in crude oil stocks according to the EIA report released on June 29. On June 16, OIA announced that August WTI crude oil generated a short-term sell signal and it remains on intermediate-term buy signal. Continue to hold the short call position recommended in our report of June 20 and exit when and if the short term sell signal reverses.This will occur if the daily low is above OIA’s key pivot point for June 29 of $49.98.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.1 million barrels from the previous week. At 526.6 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 1.4 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.8 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.5 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories decreased by 1.0 million barrels last week.
August natural gas advanced 14.9 cents on heavy volume of 457,612 contracts. Total open interest exploded higher, up 23,283 contracts, which relative the volume is approximately 110% above average. The July contract lost 4,759 of open interest. As this report is being compiled on June 29 the August contract is trading 3.3 cents lower after making a new high for the move of $2.974, which takes out the previous high for the move made yesterday of 2.896.Yesterday’s massive open interest increase on heavy volume may signal a top or temporary top in the market. From a seasonal point of view, natural gas tends to top out in the late June early July time frame. Stand aside.
From the June 27 research note on natural gas:
“The rise of natural gas prices after making their contract low at $1.99 on February 29, 2016 is one of the great untold stories in the financial press. As clients know, OIA announced on June 1 that August natural gas generated a short-term buy signal and prior to this had been on intermediate-term buy signal. Since the June 1 close of $2.453, the August contract has risen nearly 45 cents through today’s trading.”
“The moving average setup is bullish and during the past day, the 50 day moving average for the August contract of 2.456 has crossed above the 200 day moving average of 2.452. It has been a couple of years since the natural gas market has experienced a bullish 50 x 200 day moving average cross up. In our view natural gas should be traded from the long side only. The year-to-date moving average for the August contract is 2.345 and currently the August contract is trading approximately 50 cents above the year-to-date moving average.”
“Although, from the seasonal point of view natural gas should be topping, we think there could be some real fireworks this winter especially if temperatures remain on the frigid side. At this juncture we recommend a stand aside posture.”
The September euro advanced 71 pips on light volume of 151,031 contracts. Total open interest increased by a sizable 6,166 contracts, which relative to volume is approximately 55% above average. As this report is being compiled on June 29, the September contract is trading 50 pips higher and has made a daily high of 1.1162, which takes out yesterday’s print of 1.1144.On June 27 the September euro generated short and intermediate term sell signals. Conceivably, the euro may rally for another day before it resumes its downtrend.
September British pound advanced 1.64 cents on light volume of 144,902 contracts. Volume was the weakest since June 22 when the September contract gained 24 pips on volume of 144,498 and total open interest increased by 1,249. On June 28, total open interest declined by 550 contracts, which relative to volume is approximately 85% below average, but a total open interest decline confirms that short-sellers were powering the market higher.
As this report is being compiled on June 29, the September contract is trading 1.05 cents lower on the day and has made a daily high of 1.3540, which takes out the June 27 print of 1.3502. Although, the trend is clearly lower, the problem is the pound could be subjected to vicious short covering rallies based upon statements coming out of the EU or United Kingdom. For this reason, we recommend a stand aside posture because the pound is just too volatile to trade safely.
S&P 500 E-mini:
The September S&P 500 E-mini advanced by a very strong 43.75 points on volume of 2,288,494 contracts. Volume fell substantially below that of June 27 when the September contract lost 33.50 points on volume of 3,026,066 contracts and total open interest increased by 35,213. On June 28, total open interest declined by 32,421 contracts, which relative to volume is approximately 40% below average. On June 27, the September contract generated short and intermediate term sell signals, and as we pointed out in the June 27 report, markets have a tendency to experience counter trend rallies after the generation of sell signals that last from 1-3 days.
Today is the second day of the rally and we think it is likely the rally will fizzle out. On June 8 the September contract made a high for the move of 2119.75 and this was the exact high on June 24 during the evening session before market participants realized that the United Kingdom was going to exit the European Union. We do not think it is likely this high will be taken out in the immediate term.
First, the September contract would have to generate a short-term buy signal and for this to occur the low of the day would have to be above OIA’s key pivot point for June 29 of 2089.79. The current high on June 29 is 2060.00 and low 2022.75. Second, from a seasonal point of view, July-August-and September are under performing months going back several decades. Third, the uncertainty regarding the exit from the European Union and the ramifications for other EU members will keep the market off balance. This uncertainty does not bode well for advancing equity prices. We continue to recommend a stand aside posture and will be looking for opportunities on the bearish side once we have an indication the current rally is about to end.