WTI crude oil:
May WTI crude oil lost $1.66 on light volume of 856,553 contracts. Volume was fractionally above March 22 when the May contract lost 7 cents on volume of 855,782 and total open interest increased by 1,489. On March 23, total open interest increased by 6,433 contracts, which relative to volume is approximately 55% below average. The April contract accounted for a loss of 940.
As this report is being compiled on March 24, the May contract is trading 53 cents lower and has made a daily low of 38.33, which is the lowest print since 36.61 made on March 16. The May contract is trading approximately $3.30 from the high for the move of 42.49 made on March 18, and is not close to reversing the short or intermediate term buy signal. We are not convinced that the bull move is over, especially since we have begun to see firmness in gasoline. We have no recommendation.
Gold: June gold will generate a short-term sell signal on March 24, but remains on an intermediate term buy signal.
June gold lost $24.60 on very heavy volume of 357,011 contracts.Volume was the strongest since March 4 when 392,581 contracts were traded as gold advanced $12.50 while total open interest increased by 8,727 and the June contract closed at 1271.70.
On March 23, total open interest declined by a substantial 13,363 contracts, which relative to volume is approximately 25% above average meaning that liquidation with substantial on the decline. The April contract accounted for a loss of 31,372 of open interest and there were open interest increases in the forward months to pare down total open interest.
We think the downside move has further to go, especially since gold generated a short term sell signal today. In yesterday’s trading, gold deviated from its characteristic strength during equity declines as the June E-mini lost 13.75 points and the pattern continues on March 24. As this report is being compiled on March 24, the June contract is trading $2.50 lower and has made a low of 1212.60, which is the lowest print since 1212.80 made February 26. The June contract is likely to trade down to its 50 day moving average of 1195.30.
The gold market is loaded with speculative longs and this will continue to pressure the market in the short term. According to the latest COT report released last Friday, managed money was long gold by over a 5 to 1 ratio and managed money was long by a ratio of 5.41:1, which was up from 4.87:1 the previous weekend 4.54:1 the ratio recorded two weeks ago.
In summary, managed money has never been this long gold in over one year. The chances are fairly good the worst is behind and that gold will trade higher in the months ahead. However, the lopsided long position of speculators has to be reduced before gold can regain solid footing. In past reports, we said the March through June time frame is not particularly strong for the precious metals. We have no recommendation.
From the March 18 note on gold:
“In summary, there are large numbers of speculative longs who can add selling pressure to gold if the market continues to drift lower. From a seasonal point of view, the March through June period indicates a weak performance for both gold and silver.”
June dollar index advanced 42 points on light volume of 14,582 contracts. Total open interest declined by 356 contracts, which relative to volume is average. As this report is being compiled on March 24 the June contract is trading nearly unchanged on the day. The dollar index continues to display all the signs of a bear market, and we do not understand why the financial press continues to flog the same story about the bullish dollar index.
Not only is the cash dollar index 20 day moving average below the 50 day moving average and the 50 day moving average below the 100 day moving average, but the 50 day moving average is coming close to crossing beneath the 200 day moving average. The 50 day stands at 97.309-200 day 97.070 and the current price for the cash dollar index is 96.128, which is substantially below the year to date moving average of 97.549.
As we pointed out in our research note of early March, the dollar index is trading below a giant double top, with the first high made in March 2015 and the secondary high made during the last week of November 2015. We have no recommendation except to stand aside.
The June British pound lost 89 pips on volume of 81,672 contracts. Volume fell from March 22 when the June contract lost 1.89 cents on volume of 110,858 contracts and total open interest declined by 1,466. In yesterday’s trading, total open interest increased by a massive 4,040 contracts, which relative to volume is approximately 100% above average meaning aggressive new short-sellers were entering the market in substantial numbers and driving prices to a new low for the move of 1.4085.
Apparently the computer programs kicked in yesterday and told speculators it was time to short the pound. Right on cue on March 24, the pound is rallying, up 60 pips after making a new low for the move in the early morning session of 1.4059. This is 1 pip above the March 16 low of 1.4058.
In yesterday’s report, which we have reprinted in part, we told clients of our concern about the spike in volatility and recommended taking partial profits or shorting out of the money puts. Additionally, we said a move through 1.4137 would be the first indication that a counter trend rally is occurring and that penetration of 1.4156 would confirm it.
Earlier today, we told clients to take profits on bearish positions recommended the day before and to move to the sidelines. Remarkably, the June pound remains on a short-term buy signal, but an intermediate term sell signal. There will be ample opportunity to re-institute bearish positions and the next down side move will take out today’s low and test the multi-year February 29 low of 1.3835.
From the March 22 note on the pound:
“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.”