WTI crude oil:
June WTI crude oil advanced $1.45 on healthy volume of 1,469,733 contracts. Volume was the strongest since May 5 when the June contract gained 70 cents on volume of 1,748,544 contracts and total open interest declined by 911. On May 10, total open interest increased by 10,817 contracts, which relative to volume is approximately 60% below average, however, a total open interest increase on yesterday’s robust advance is positive.
Making it more impressive was the fact that the June contract lost 57,666 of open interest, which means that there were enough open interest increases in the forward months to offset the decline in June and increase total open interest. Yesterday’s performance was impressive.
As this report is being compiled on May 11, the June contract is trading higher again, up 59 cents and has made a daily high of $48.22, which is the highest print since 48.23 made on May 3. As we pointed out in yesterday’s note on crude oil, the impact of yesterday’s rally was to blowout short-sellers and undoubtedly this occurred, especially in the June contract, but overall yesterday’s rally was driven by an increase of total open interest, which means that new buyers were in control.
Also, we stated yesterday was the advance on May 10 would be the extent of the counter trend rally from the low of 43.76 made on May 5. However, it has continued on May 11 and today’s high is 44 cents above yesterday’s print of 47.78. Currently, the June contract is over a dollar away from its 20 day moving average of $49.06 and over $2.00 away from the 50 day moving average of 50.14.
For those who want to initiate bearish positions, we think the risk at this juncture is relatively low. This is not to say the market cannot test of the 20 day moving average, only that it appears unlikely in the very short term. On April 24, OIA announced that June WTI crude oil generated a short term sell signal and at the time had been on an intermediate term sell signal. For specific tactics on bearish crude oil trades, please call or email.
From the May 9 note crude oil:
“We think the practical effect of the rally is to blowout some recent short-sellers and tomorrow’s open interest stats will tell the tale.”
“Although, we cannot discount a move somewhat higher from here, especially if WTI is headed for a short term buy signal, this should be the extent of the rally.”
Natural gas: June and July 2017 New York natural gas will generate short term buy signals on May 11. This reverses the April 25 short term sell signals. Both contracts remain on intermediate term buy signals.
June natural gas advanced 6.5 cents on heavy volume of 610,420 contracts. Volume was the strongest since April 11 when 622,907 contracts were traded and total open interest increased by 15,688 contracts while the June contract lost 8.8 cents.
On May 10, total open interest increased by substantial amount, up 14,442 contracts, which relative to volume is approximately 10% below average, however, a total open interest increase indicates that new buyers were dominating the action and driving prices to a daily high of $3.349. The June contract accounted for a loss of 9,573 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in June and increase total open interest by a healthy amount.
As this report is being compiled on May 11, the June contract is trading 8.7 cents or +2.64% above yesterday’s close and has made a daily high of $3.388, which is the highest print since 3.413 made on April 7, 2017. The next two points of resistance for the June contract is the April 5 high of 3.422 followed by the January 30 high of 3.431.
As we pointed out in the May 8 note on natural gas, nat gas tends to top in the May time frame and then declines during the months of June, July and August. We have no recommendation for natural gas except that no one should try to short this market. Additionally, the natural gas rally is NOT being driven by above normal temperatures in the Midwest, South and East. Higher temperatures increase consumption due to higher use of air-conditioning.
From the May 8 note on natural gas:
“Natural gas is getting near the tail end of its strong seasonal period. March, April and May are terrific months for natural gas performance, but June, July and August tend to be months of sub par months performance. On April 25, OIA announced that June and July 2017 New York natural gas generated short term sell signals and as of this writing have not generated intermediate term sell signals.”
The Energy Information Administration announced that working gas in storage was 2,301 Bcf as of Friday, May 5, 2017, according to EIA estimates. This represents a net increase of 45 Bcf from the previous week. Stocks were 372 Bcf less than last year at this time and 275 Bcf above the five-year average of 2,026 Bcf. At 2,301 Bcf, total working gas is within the five-year historical range.
US dollar index: The June dollar index will generate a short term buy signal on May 11. It remains on an intermediate term sell signal.
July soybeans lost 3.75 cents on volume of 214,804 contracts. Total open interest increased by 2,232 contracts, which relative to volume is approximately 50% below average. The May 2017 contract lost 94 of open interest and goes off the board shortly while July 2017 lost 2332, which means there were sufficient open interest increases in the forward months to offset the decline in these two delivery months and increase total open interest. Yesterday’s action was negative. The July contract made a high of 9.89 after the release of the WASDE report and then proceeded to sell off and make a low of 9.66 3/4.
As this report is being compiled on May 11, the July contract continues its lower trajectory trading 5.25 cents lower on the day and has made a new low for the move of 9.63, which takes out the previous low of 9.63 1/2 made on May 9. It appears that July soybeans are headed to a reversal of the short term buy signal generated on May 2. This will occur if the daily high is below OIA’s key pivot point for May 11 of 9.61 3/4. The rally will resume if the daily low is above OIA’s key pivot point for May 11 of 9.71 3/4. Stand aside.
From the May 5 note on soybeans:
“We recommend the liquidation of bullish positions in soybeans for a number of reasons: First, the July contract recently made three new highs for the move. On May 2, the July contract made a high of 9.78 1/2 and was unable to hold the high and closed lower. On May 4, the July contract made a high of 9.80 and again was unable to hold the high and closed lower. And finally on Friday, May 5, July made a high of 9.83 and for a third time could not hold the high and closed lower.”
“If this were not bad enough, soybean meal has been unable to generate a short term buy signal. The corn market is in the doldrums and has been unable to generate a short term buy signal. In summary, though we think higher prices are down the road, this may not occur until there is a major weather event or a surprise in a crop report that acts as a catalyst and begins to panic short-sellers.On May 2, July soybeans generated a short term buy signal, but remains on an intermediate term sell signal. Stand aside.”