WTI crude oil:
May WTI crude oil advanced 2 cents on light volume of 719,800 contracts. Total open interest declined only 1,452, a number that is dramatically below average. The May contract lost 13,430 of open interest, which means there were open interest increases in the forward months to offset most of the decline in May.
The COT report released on Friday revealed that managed money liquidated 22,511 of their long positions and also liquidated 1,090 of their short positions. Commercial interests added 14,245 to their long positions and also added 3,904 to their short positions. As of the March 21 tabulation date, managed money was long WTI crude oil by ratio of 2.83:1, down from the previous week of 2.98:1 and a huge reduction from the ratio two weeks ago of 6.84:1.
On March 8, OIA announced that May crude oil generated short and intermediate term sell signals. Though the market has been drifting lower ever since the sell signals, it has been an orderly decline, even though many market analysts are extremely bearish on crude, we are not among them. The key area to watch for on the May contract is the November 14 low of 45.77 and the November 14 low of 42.20 on the daily continuation chart, which was made by the December 2016 contract.
In previous reports, we mentioned the possibility of a bull spread in the back months of December 2018 versus December 2019. Last week, this spread narrowed 14 cents and December 2019 closed the week at a 7 cent premium to December 2018. As this report is being compiled on March 27, the spread has narrowed another 16 cents, which is a greater loss then was seen during the entirety of last week. We will keep an eye on this spread to determine where it finds support. As this report is being compiled on March 27, the front month contract, May is trading 33 lower on low volume. We recommend a stand aside posture.
Silver: May New York silver will generate a short term buy signal on March 27 and remains on an intermediate term buy signal.
May New York silver advanced 15.5 cents on volume of 44,813 contracts. Total open interest increased by 682 contracts, which relative to volume is approximately 40% below average, but an open interest increase in the Friday’s trading is positive and confirms that buyers are moving into the silver market.
The COT report revealed that managed money liquidated 1,668 of their long positions and added 1,063 to their short positions. Commercial interests added 131 to their long positions and also added 217 to their short positions. As of the March 21 tabulation date, managed money was long silver by a ratio of 5.58:1, down from the previous week of 6.17:1 and the ratio two weeks ago of 8.52:1. This compares to the ratio in gold where managed money is long by ratio of 1.76:1 in the latest report, which is up from the previous week of 1.62:1, but down from the ratio two weeks ago of 2.50:1. In summary, managed money is far more bullish on silver than gold.
As we have pointed out consistently, the rally in the precious metals is due to the very sharp decline in the dollar and the substantial rally in the 10 year US treasury note. The June treasury note contract generated short and intermediate term buy signals on March 22 and the dollar index generated short and intermediate term sell signals on March 16. We have no recommendation.