WTI crude oil:
May WTI crude oil lost 67 cents on volume of 1,164,429 contracts. Total open interest increased by 34,134 contracts, which relative to volume is approximately 10% above average. This means that new short-sellers were entering the market and driving prices lower (47.99). The April contract accounted for a loss of 17,895 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in April and increase total open interest substantially. Yesterday’s total open interest increase was the largest seen since March 14 when crude oil lost 68 on volume of 1,785,814 contracts and total open interest increased by 45,135.
The COT report released last Friday revealed a major shift in sentiment among managed money traders. For example, managed money liquidated 34,579 of their long positions and added 67,779 to their short positions. while commercial interests added 59,920 to their long positions and also added 11,217 to their short positions. As of the COT tabulation date, March 14, managed money was long WTI crude oil by a ratio of 2.98:1, down sharply from the previous week of 6.84:1 and the ratio two weeks ago of 7.09:1.
As this report is being compiled on March 22, the May contract is trading 41 cents lower and has made a daily low of $47.01, which is slightly below the March 14 print of 47.09. While we think the trend is lower, we do not see a major bear market, which is contrary to most analysts.
We prefer a sideline stance and think there will be opportunities on the long side and potential lucrative bull spreads in the back months. On March 8, OIA announced that May WTI crude oil generated short and intermediate term sell signals.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.0 million barrels from the previous week. At 533.1 million barrels, U.S. crude oil inventories are at the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.8 million barrels last week, but are near the upper half of the average range. Finished gasoline inventories remained unchanged while blending components inventories decreased last week. Distillate fuel inventories decreased by 1.9 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories fell 0.1 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories increased by 1.3 million barrels last week.
British pound: The June British pound will generate short and intermediate term buy signals on March 22.
The June pound gained 1.26 cents on heavy volume of 136,940 contracts. Total open interest increased only 558 contracts, which relative to volume is approximately 80% below average, but a total open interest increased does indicate that new buyers were entering the market in small numbers and driving prices to a new high for the move of 1.2524.
As this report is being compiled on March 22, the June contract is trading 7 pips higher on the day and has made another new high of 1.2536, which is the highest print since 1.2604 made on February 24. It appears that the pound has discounted the perceived negative impacts of Brexit at least for now. We think trying to play the short side of this market is an exercise in futility and expect more short-sellers to be blown out in the weeks to come. We have no recommendation.
Gold: April and June 2017 New York gold will generate short term buy signals on March 22. Both contracts remain on intermediate term buy signals.
April gold gained $12.50 on heavy volume of 341,086 contracts. Total open interest increased by 16,494 contracts, which relative to volume is approximately 75% above average. This means that new buyers were flooding into the market in large numbers and driving prices to a new high for the move of $1247.70. As this report is being compiled on March 22, the April contract is trading 3.30 higher on the day and has made another new high of 1250.60, which is the highest print since $1250.80 made on March 2.
The moving average setup has improved somewhat with the 50 day standing at 1222.10 and the 100 day at 1212.00. However, the 50 day moving average remains below the 200 day moving average of 1268.60, a definite negative.
The COT report released on Friday revealed that managed money liquidated 29,098 of their long positions and added 14,775 to their short positions. While commercial interests added 773 to their longs and liquidated 8,700 of their short positions. As of the March 14 tabulation date, managed money is long gold by ratio of 1.62:1, down sharply from the previous week of 2.50:1 and nearly half the ratio two weeks ago of 3.19:1. This is a positive set up and indicates that a substantial amount of liquidation is out-of-the-way.
Gold has two terrific factors in its favor: Today, the 10 year US treasury note generated short and intermediate term buy signals, which indicates that yields are headed lower and second, the dollar index is on short and intermediate term sell signals. As long as these two instruments remain in their current state, gold prices should head higher from here. No recommendation.
10 Year U.S. Treasury Note: The June 10 year US treasury note will generate short and intermediate term buy signals on March 22.
The June 10 year note advanced 9 points on strong volume of 1,795,446 contracts. Total open interest declined by 12,353 contracts, which relative to volume is approximately 60% below average, but a total open interest decline on yesterday’s advance indicates that short-sellers were powering the market higher. This is no surprise, especially if one takes a look at the recent COT report. It shows that leverage funds are short the 10 year note by a ratio of 1.78:1, though this is down from the previous week of 1.86:1 and about the same as the ratio two weeks ago of 1.79:1.
As this report is being compiled on March 22, the June contract is trading 9 points higher and has made a new high for the move of 124-230, which is the highest print since 124-260 made on February 28. The sharp move higher has surprised many market participants due to the bullish interest rate environment and the commitment by the Federal Reserve to raise interest rates at a measured pace. We have no strong feelings about the market at this juncture and therefore have no recommendation.
S&P 500 E-mini: The June S&P 500 E-mini will generate a short term sell signal on March 22, but it remains on an intermediate term buy signal.
The June S&P 500 E-mini lost 28.00 points on substantial volume of 2,571,402 contracts. Total open interest increased by 22,430 contracts, which relative to volume is approximately 50% below average.
The COT report revealed that leverage funds were short the large S&P 500 futures contract by ratio of 3.26:1, up substantially from the previous week of 2.34:1 and the ratio two weeks ago of 2.00:1. It appears the impetus for the sharp decline in yesterday’s trading, the largest decline since October was the collapse of stocks in the financial sector. We view this as a garden-variety shakeout and think there will be terrific opportunities to get back in to the financial stocks and ETF’s once the correction has run its course. Lower interest rates are negative for banks.
Our downside target for the June contract is OIA’s pivot point for March 22 of 2295.63, approximately 46 points away. If the June contract makes a daily high below this pivot point (which changes somewhat from day to day), an intermediate term sell signal will be generated. We recommend a stand aside posture for now and will apprise you of any new developments.