WTI crude oil:
April WTI crude oil lost $1.00 on record-setting volume of 2,040,308 contracts. Volume was substantially above the previous day when the April contract lost $2.86 on volume of 1,757,221 and total open interest increased by 19,543. On March 9, total open interest increased by only 8,628 contracts, a number that is approximately 80% below average. The April contract lost 33,905 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 below average.
During the past two days, the April contract has fallen $3.86 and total open interest has increased by a measly 28,171 contracts. To put this number in perspective consider that a total open interest increase of 28,000 on March 8 or 9 would still be below average. As this report is being compiled on March 10, the April contract is making new lows for the move.
The total open interest increases of the past two days clearly indicate that many spec longs are not liquidating and as the market continues to fall, these players will be forced to liquidate at substantially lower prices. On March 8, OIA announced that April and May WTI generated short and intermediate term sell signals. Stand aside.
Natural gas: April New York natural gas will generate a short term buy signal on March 10 provided the daily low remains above OIA’s key pivot point for March 10 of $2.944.
April natural gas advanced 7.3 cents on volume of 448,974 contracts. Total open interest declined by 6,591 contracts, which relative to volume is approximately 40% below average and the decline indicates that short-sellers were powering the market higher not new buying. On March 8, the April contract gained 7.7 cents on volume of 492,500 and total open interest increased by a very minor 1,690, which is approximately 85% below average. In summary, the action the past two days has been thoroughly unimpressive.
However, the good news is that natural gas is entering its period of seasonal strength. For example, the average return for the month of March during the past twenty years has been +3.4%, April +3.1% and May +3.5%. Additionally, managed money has been reducing their net long exposure and the ratio of longs to shorts stands at 1.41:1, which was the same as the previous week, but down from the ratio two weeks ago of 1.61%.
To put this number in perspective consider that per the COT tabulation date of January 18, 2017, managed money was long natural gas by ratio of 2.69:1. In summary, the net long position has been nearly cut in half. Today, the COT report will be released and this will inform us of the net long position of managed money as of March 7. If we see a further reduction in the net long position, this would be very positive news for anyone contemplating new bullish positions.
On the negative side, the 50 day moving average of $3.129 is below the 100 day moving average of 3.153 for the April contract. The year to date moving average for April is 3.098 and currently the April contract is trading approximately 10 cents below it. In summary, natural gas will have to trade at an elevated level for an extended period of time for the 50 day moving average to move above the 100 day moving average. This would put nat gas in solid bullish footing from a moving average stand point. After the generation of the short term buy signal, natural gas should experience a pullback that lasts from 1-3 days, but we think corrections will be shallow.
Corn: On March 9, May corn generated a short term sell signal and and intermediate term sell signal on March 10.
Copper: On March 9, May New York copper generated an intermediate term sell signal after generating a short term sell signal on March 7.
May copper lost 2.05 cents on volume of 97,400 contracts. Total open interest declined by 2,679 contracts, which relative to volume is average. As this report is being compiled on March 10, the May contract is having one of its few rally days, up 1.40 cents on low volume. We have no recommendation except to say that due to the illiquidity of options and the volatility futures, clients can use the ETF JJC as a proxy because it tracks the futures market rather well.
10 Year U.S. Treasury Note:
The June 10 year treasury note lost 10 points on volume of 1,228,144 contracts. Total open interest declined by 7,995 contracts, which relative to volume is approximately 70% below average. Yesterday, the June contract made a low of 122-225 and has made another new low for the move of 122-205, which is the lowest print since 122-145 made on December 15, 2016.
Next week, the Federal Reserve has a two day meeting and it is expected they will raise interest rates by one quarter of a point. The market is now at a critical juncture and the question remains whether the 2.6% yield on the 10 year is a ceiling, or a floor from which it will advance into the 2.80% area. On March 1, OIA announced that the June contract generated a short term sell signal and an intermediate term sell signal on March 2. We have no recommendation.