WTI crude oil:
May WTI crude oil advanced 84 cents on volume of 1,098,052 contracts. Volume was the strongest since March 22 when the May contract lost 20 cents on volume of 1,310,071 contracts and total open interest increased by 5,842. On March 30, total open interest increased by 10,773 contracts, which relative to volume is approximately 50% below average, but an open interest increase in yesterday’s trading indicates that new buyers were flooding into the market and driving the May contract to a new high of 50.47.
As this report is being compiled on March 31, the May contract is trading 10 cents above yesterday’s close and has made a slightly higher high of 50.56, which is the highest print since 50.64 made on March 10. As we pointed out in yesterday’s report, we think that WTI is headed for a short term buy signal and this will occur if the daily low is above OIA’s he pivot point for March 31 of 50.34. The low thus far in trading on the 31st has been 49.90.
The moving average setup is favorable with the 20 day moving average standing at 49.48, 50 day 52.31, 100 day 52.62 and the 200 day moving average at 51.33. May and subsequent contracts will encounter substantial resistance at the 50 and 100 day moving averages, but we think this will be overcome and that higher prices are ahead. With gasoline now on a short term buy signal and heating oil headed for a short term buy signal, WTI will find support from product firmness
This afternoon, the COT report will be released and we will have a much better idea of the extent to which managed money has adjusted their net long position. In the most recent report they were long by a ratio of 2.83:1.
The December 2018-December 2019 WTI spread continued to widen yesterday and closed at 27 cents premium to December 2018, up 3 cents from the previous session. We like the bull spread in this futures pair.
Gasoline: On March 30, May and June 2017 New York gasoline generated short term buy signals, but remain on intermediate term sell signals.
May New York gasoline advanced 1.03 cents on volume of 179,131 contracts. Total open interest increased just 461, a definite disappointment. The April contract lost 5,237 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in April and increase total open interest slightly. On March 29 the May contract gained 3.70 cents and total open interest declined by 4,811. In summary, the past two days have been nothing to write home about, but we think this is about to change.
The spread action in gasoline has been bullish and the May 2017-September 2017 spread was widening even as prices were declining. The spread made its low at 1.40 cents premium to May 2017 on March 2 and has been advancing ever since and made a high at 5.50 cents premium to May in yesterday’s trading. As we pointed out in yesterday’s report, the summer driving season is beginning and we are confident this will result in firmer gasoline prices going forward. In yesterday’s report we recommended using options for gasoline futures due to their volatility and the gasoline ETF UGA.
As this report is being compiled on March 31, the May gasoline contract has made a new high for the move of 1.6990, which is the highest print since 1.7285 made on March 8.
May New York heating oil advanced 1.45 cents on volume of 143,343 contracts. Total open interest increased by a massive 6,898 contracts, which relative to volume is approximately 75% above average indicating that new buyers were piling into the heating oil market and driving prices to a high of 1.5660. The April contract lost 8,120 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in April and increase total open interest substantially.
The COT report released last Friday showed that managed money was slightly more bullish on heating oil than gasoline. The latest reading showed managed money was long by ratio of 1.87:1 versus gasoline wherein they were long by a ratio of 1.55:1. However, performance wise gasoline is ahead of heating oil. For example, for the past 7 days through yesterday’s trading May heating oil gained 4.40% versus May gasoline advancing 5.49%. During the past 30 days, May heating oil lost 5.21% versus May gasoline losing 3.03%.
As this report is being compiled on March 31, May heating oil is trading 1.16 cents above yesterday’s close and has made a daily high of 1.5734, which is the highest print since 1.5799 made on March 9. The May NY contract will generate a short term buy signal if the daily low is above OIA’s key pivot point for March 31 of 1.5543. The low thus far in trading on March 31 has been 1.5476. We expect a short term buy signal to occur in Monday’s trading. No recommendation.
EUR/GBP will generate a short term sell signal on March 31 and will generate an intermediate term sell signal if the daily high is below OIA’s key pivot point for March 31 of .85650. We think the intermediate term sell signal will be generated sometime next week. We have no recommendation.
S&P 500 E-mini:
The June S&P 500 E-mini gained 7.50 points on volume of 1,165,548 contracts. Total open interest declined by 18,630 contracts, which relative to volume is approximately 40% below average, but yesterday’s total open interest decline confirms that short-sellers were powering the market higher, not new buyers.
The same scenario was repeated on March 29 when the June contract gained 5.50 points on volume of 1,155,831 and total open interest declined by 19,394, again confirming that short-sellers were powering the market higher. On March 28 the June contract advanced 13.00 points on volume of 1,626,880 contracts and total open interest declined again, this time by 7,160
Yesterday the June contract made a high of 2366.75 and this is the exact high on March 31 as of this writing. On March 22 OIA announced that the June S&P 500 E-mini generated a short term sell signal, but remains on an intermediate term buy signal. For a new short term buy signal to occur, the daily low must be above OIA’s key pivot point for March 31 of 2369.10.
Interestingly, the E-mini has been unable to make a high to the pivot point, let alone make a daily low above it. In our view, the market looks tired and although we do not have a specific positions to recommend, put protection is cheap and index puts should be a part of portfolios laden with long positions.