Copper: May New York copper will generate an intermediate term sell signal on March 9 after generating a short term sell signal on March 7.
WTI crude oil: On March 8, April and May WTI crude oil generated short and intermediate term sell signals.
April WTI crude oil lost $2.86 on extraordinarily heavy volume, which may be an exchange record-setting 1,757,221 contracts. Despite the enormous volume, total open interest increased only 19,543 contracts, which relative to volume is approximately 50% below average. However, as an offsetting factor, the April contract lost 34,931 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.
As this report is being compiled on March 9, the April contract is trading sharply lower again, down $1.42 or -2.84% and has made a daily low of 40.67, which is the lowest print on the continuation chart since 48.98 made by the January 2017 contract on December 1, 2016. Tomorrow, the new COT report will be released and this will give us a glimpse regarding the state of managed money positions as of March 7. We suspect it will show an elevated net long position.
As the research below confirms, we have been recommending a stand aside posture in WTI, but think longer-term this market has some substantial upside potential. We call your attention to the term structure of the market beginning around October 2017 through 2018-19 and the contango has flatten and it appears the beginning of inversion (backwardation) may be indicating that tighter supplies of crude are in the future.
For now continue to stand aside. We want to see managed money get blown out of their net long position and then once a buy signal occurs get clients in the market at the most opportune time.
From the March 3 research note on WTI:
“Although crude oil has not been able to make a daily low above our pivot point, which would signify that the rally has resumed, by the same token, it has been unable to generate a short term sell signal. The 20 day moving average of 53.64 is below the 50 day of 53.99, but the 50 day moving average is trading above the 100 and 200 day moving averages, meaning that it is in a bullish set up longer-term. For the April contract generate short term sell signal the high of the day must be below OIA’s key pivot point for March 6 of $53.22 and the high thus far on Monday has been 53.56. Stand aside.”
From the March 2 research note on WTI:
“For a short term sell signal to be generated, the high of the day must the below OIA’s key pivot point for March 3 of 53.28 and the high has been 53.33, therefore a short term sell signal will not be generated on March 3. We continue to recommend a stand aside posture because we see no compelling reason to be involved in crude oil.”
From the February 27 research note on WTI:
“Because the April contract has been unable to make a daily low above our pivot point and has not generated a short term sell signal, we have recommended a stand aside posture. For the rally to continue, the low of the day must be above OIA’s pivot point for February 28 of $54.34. A short term sell signal will be generated if the daily high is below OIA’s key pivot point for that February 28 of 53.30.”
“The low thus far in trading has been 53.18 in the high 54.23. Tomorrow, the EIA will release it storage report and this may give us a sell signal. As we pointed out in yesterday’s report, managed money is long by a stratospheric 10.31:1 and if a sell signal is generated, wholesale liquidation could hit the market. Continue to stand aside.”
April natural gas advanced 7.7 cents on volume of 492,500 contracts. Total open interest increased by 1,690 contracts, which relative to volume is approximately 80% below average. The April contract accounted for a loss of 13,529 of open interest, which means there was barely enough open interest increases to offset the decline in April and increase total open interest slightly.
As this report is being compiled on March 9 the April contract is trading 4.4 cents above yesterday’s close and has made a high of 2.983, which is above yesterday’s high of 2.949. The April contract will generate a short term buy signal if the daily low is above OIA’s he pivot point for March 9 of 2.952. Stand aside.
The March dollar index advanced 27.1 points on heavy volume of 82,424 contracts. Total open interest exploded higher, up 11,185 contracts, which relative to volume is approximately 450% above average meaning aggressive new buyers were piling into the dollar index and driving it to a new high for the move of 102.185.
As this report is being compiled on March 9, the March contract is trading close to unchanged on the day. On February 15, OIA announced that the March and June dollar index generated short term buy signals and intermediate term buy signals on March 2. On February 8, we recommended the initiation of long positions in the dollar index ETF UUP. Continue to hold this position.
From the February 8 research note:
“We still like the dollar index ETF UUP on the long side and long positions can be entered today at current levels with a sell stop slightly below the February 2 low for the move of $25.65.”
10 Year Treasury Note:
The June 10 year treasury note lost 10 points on strong volume of 1,749,869 contracts. Total open interest increased by 17,597 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on March 9, the June contract is trading sharply lower again, down 12 points and has made a new contract low for the move of 122-235, which is the lowest print on the continuation chart since 122-290 made on December 20, 2016.
The yield on March 9 has spiked to 2.607, which is the highest yield on the 10 year note since 2.621 made on December 15, 2016. In summary, the yield on the 10 year note appears to be breaking out into major new highs and this should begin to take its toll on the equity markets. Additionally, it will provide underlying support to the dollar index and is negative for precious metals.
On March 1, OIA announced that the June 10 year note generated a short term sell signal and and an intermediate term sell signal on March 2. We have no recommendation.