WTI crude oil:
May WTI crude oil lost 7 cents on volume of 855,782 contracts. Total open interest increased by 1,489 contracts, a number which is substantially below average. The April contract lost 23 of open interest. As this report is being compiled on March 23, the May contract is trading sharply lower on a bearish EIA report, down $1.30 or -3.14%.
The May contract has made a daily low of $40.02, which is the lowest print since 40.00 made on March 17. The move from the high of 42.49 made on March 18 through today’s low is certainly within the realm of the normal correction. However, we would not want to see the daily high in the May contract below 40.00 and this could be the first sign of trouble. If WTI is able to recover from today’s losses in today’s trading, it would signal that the March 18 high will be tested. We have no recommendation.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 9.4 million barrels from the previous week. At 532.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 4.6 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 0.9 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 0.3 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 6.9 million barrels last week.
May soybeans advanced 8.25 cents on strong volume of 293,314 contracts. Total open interest exploded higher, up 20,577 contracts, which relative to volume is approximately 185% above average meaning aggressive new buyers were entering the market in large numbers and driving prices to a new high for the move of $9.14, which is the highest print since 9.19 3/4 made on October 14, 2015. On March 7, OIA announced that May soybeans generated a short-term buy signal and an intermediate term buy signal on March 11. As this report is being compiled on the May soybean contract is trading down 6.25 cents. We have no recommendation.
The June euro lost 33 pips on light volume of 157,643 contracts. Total open interest declined by 1,713 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on March 23, the June contract is trading 47 pips lower and has made a daily low of 1.1185, which is the lowest print since 1.1088 made on March 16. Looking at the chart, we are concerned about the double top in the June contract with the first high of 1.1385 made on February 11 and a secondary print of 1.1371 made on March 17.
However, the euro is in a bullish short-term moving average setup with the 20 day moving average standing at 1.1109, 50 day 1.1079 and the 100 day moving average is trading at 1.0983. In summary, we are unable to get overly bearish on the euro despite the double top. It is likely the currency will bounce back and forth between a trading range of 1.1100 on the low side and 1.1300 on the high. We recommend that clients avoid the short side of the euro due to the bullish short-term moving average set up and that the euro is on short and intermediate buy signals.
The June British pound lost 1.89 cents on strong volume of 110,858 contracts. Total open interest declined by 1,466 contracts, which relative to volume is approximately 40% below average, but yesterday was the second day of liquidation as prices moved lower. On March 21, the June contract lost 8 pips on volume of 60,419 contracts and total open interest declined by 5,098.
Surprisingly, total open interest did not increase in yesterday’s major slide in prices and this indicates that the computer black box crowd has not been told by the computer the pound is in a downtrend. This could change with today’s lower prices. It appears new longs who entered the market on the rally have been liquidating on the way down. Yesterday, we recommended bearish positions, but today we saw stats that showed there is a massive amount of put buying and protection for a further downside move has reached multi-year highs.
Today, the British pound Volatility Index made a high of 11.36 and this is the highest print since the spike high of 14.87 made on March 10. This is not to say that the volatility index will not continue to move higher if the pound continues to sink, but it appears the pound has become a somewhat crowded trade in the last two days, and this makes us uncomfortable.
Yesterday, we recommended that clients use options rather than futures for risk mitigation purposes. Positions put on yesterday morning are profitable today, and though we believe that the pound is headed lower, there may be may be a short, sharp counter trend rally before it resumes the downtrend.
Currently, the June pound is trading at 1.4117 and a move through 1.4137 may be the first indication that a counter trend rally is underway and a further penetration through 1.4156 would likely confirm it. Do not enter new bearish positions at current levels. For those of you concerned about a rally, shorting out of the money puts would offset some of the loss in long puts. Alternatively, consider taking partial profits.