Corn: On March 10, May corn generated an intermediate term sell signal after the short term sell signal of March 9.
WTI crude oil:
April WTI lost 79 cents on volume of 1,453,193 contracts. Total open interest increased by only 5,050 contracts, which relative to volume is approximately 90% below average. The April contract lost 42,797 of open interest, which means there were enough open interest increases in the forward months to offset the decline in April and barely increase total open interest.
In previous reports, we commented on the unimpressive increase of open interest, which indicates a reluctance on the part of short-sellers to become aggressive at three month lows. For the past three trading sessions beginning on March 8, the April contract has lost $4.65, but total open interest during the three day time frame has increased by only 33,221 contracts. This would be a respectable showing on any one day but for a total of three days, it confirms that speculators who are long are refusing to liquidate and that short-sellers are reluctant to press the market.
The COT report released on Friday revealed that managed money liquidated 10,822 of their long positions and added only 602 contracts to their short positions. Commercial interests added 11,179 to their long positions and also added 1,498 to their short positions. As of the COT tabulation date, March 7, managed money was still heavily long, this time by ratio of 6.84:1 down somewhat from the previous week of 7.09:1 and a substantial decrease from the ratio two weeks ago of 10.31:1, which was the highest ratio thus far in 2017. The COT report confirms our thesis about speculators refusing to liquidate longs and this overhang is going to be problematic for the market.
As this report is being compiled on March 13, the April contract is trading nearly unchanged, but has made another new low for the move of 47.90, which is the lowest print since 47.85 for the April contract made on November 30, 2016. With managed money continuing to hold a massive long position and undoubtedly many of these being underwater, any rally will be met by speculators trying to reduce their losses. This will keep a lid on advances, but the burdensome long position held by speculators will continue to pressure the market.
As we pointed out before, the term structure of the crude oil market beginning in October 2017 appears to be flattening, which means there could be a terrific opportunity on the long side down the road.
As clients know, we kept you on the sidelines when prices were trading at the upper end of their recent range because April crude oil was unable to make a low above our pivot point. A low above the pivot point would have meant that crude oil prices would have resumed their advance. On March 8, OIA announced that April and May WTI generated short and intermediate term sell signals. Continue to stand aside.
Natural gas: On March 10, April and May New York natural gas generated short term buy signals and remain on intermediate term sell signals.
April natural gas gained 3.4 cents on volume of 453,954 contracts. Total open interest declined by 3,684 contracts, which relative to volume is approximately 60% below average. The April contract accounted for a loss of 22,292 contracts.
The COT report released on Friday revealed that managed money added 10,900 contracts to their long positions and also added 1,017 to their short positions. Commercial interests liquidated 7,861 of their long positions and also liquidated 21,006 of their short positions. As of the COT tabulation date of March 7, managed money was long natural gas by ratio of 1.46:1, up slightly from the previous week of 1.41:1 and the ratio two weeks ago of 1.41:1.
Natural gas has been advancing in the face of a blizzard in the Northeast, and now that it is on a short term buy signal, we recommend waiting for a pullback before initiating new bullish positions in futures. For those of you who trade equities, the natural gas ETF UNG can be employed and it tracks natural gas prices fairly closely.
Although we would like to have seen the net long position decline somewhat more, it is at the low-end of the spectrum going back a couple of months. Due to the volatility of natural gas, we recommend using options. The bid/ask spreads are tight and the market has excellent liquidity.
The March dollar index lost 60.6 points on volume of 73,808 contracts. Total open interest increased by a massive 5,979 contracts, which relative to volume is approximately 230% above average. This means that new short-sellers were entering the market in substantial numbers and driving prices lower (101.180).
The COT report released on Friday revealed that leverage funds added 629 contracts to their long positions and also added 1,861 to their short positions. As of the March 7 tabulation date, managed money was long the dollar index by ratio of 4.09:1, down from the previous week of 5.31:1 and the ratio two weeks ago a 5.43:1.
The June contract is getting close to generating short and intermediate term sell signals. A short term sell signal will occur if the daily high is below OIA’s key pivot point for March 13 of 100.949. An intermediate term sell signal will occur if the daily high is below OIA’s key pivot point for March 13 of 101.001.
With the heavy long position held by leverage funds, this group will pressure the dollar index as they liquidate. Additionally, it appears likely the June euro will generate a short term buy signal on March 13. This will further depress the dollar index as the euro advances.
On February 8, we recommended the initiation of long positions in the dollar index ETF UUP. We recommend that this modestly profitable position the liquidated immediately because sell signals in the dollar index appear likely.
Euro: The June euro will generate a short term buy signal on March 13 provided the daily low remains above OIA’s key pivot point for March 13 of 1.0683.
The June euro gained 99 pips on heavy volume of 514,367 contracts. Amazingly, total open interest skyrocketed by 32,560 contracts, which relative to volume is approximately 150% above average. This means that new buyers were flooding into the euro in large numbers and sending it to a new high for the move of 1.0748.
The COT report revealed that leverage funds liquidated 6,993 of their long positions and added 1,741 to their short positions. As of the March 7 tabulation date, leverage funds were short the euro by a ratio of 3.49:1, up from the previous week of 2.94:1 and exactly the same ratio two weeks ago of 3.49:1.
With the heavy short position held by leverage funds and the massive open interest increase in Friday’s trading, short-sellers covering will provide support to prices as they continue to advance.
There is substantial support for the euro around the 1.0500 level during 2017. For example, the low on January 11 was 1.0480, and the low on February 22 was 1.0501 and on March 2 the low was 1.0498. The most recent low occurred on March 3 at 1.0505. This support combined with the short term buy signal that we anticipate in today’s trading indicates that the euro may have seen the lows for now and that higher prices that are ahead. There is still a couple of hours left in trading and currently the June contract is trading 35 pips lower at 1.0706, approximately 23 pips above the key pivot point for the generation of a buy signal. Stand aside.