10 Year U.S. Treasury Note: The June and September 2017 US 10 Year Treasury note will generate short term buy signals on May 18. These reverse the May 4 short term sell signals.
The June 10 year U.S. Treasury note gained 28 points on heavy volume of 2,523,327 contracts. Volume was the strongest since February 24, 2017 when the March 2017 contract gained 18 points on volume of 3,995,318 contracts. In other words, yesterday’s advance was of a considerably greater magnitude than February 24, yet volume was dramatically below the 24th.
Yesterday, total open interest increased by 27,543 contracts, which relative to volume is approximately 50% below average, a disappointment considering the magnitude of yesterday’s move.The weak open interest action reveals a lack of strong commitments on the part of market participants. The catalyst for the move was the sharp decline in US equity markets, which increased demand for the safety of treasuries. Yesterday the June note made a high of 126-145 and this has been taken out on May 18 with another new print of 126-230, the highest since 126-244 made on November 17, 2016 by the December 2016 contract.
With the equity market in a corrective mode and turmoil in the White House, the 10 year treasury should maintain a bullish tilt. Although, we do not recommend bullish positions at current levels, we strongly advise to avoid shorting the market. A pull back from here is likely, which should last from 1-3 days. Much of this will depend upon U.S. equity market performance.
The June euro advanced into new high territory on May 17 and gained 53 pips on heavy volume of 247,714 contracts. Volume exceeded that of May 17 when the June euro advanced 117 pips on 232,950 contracts and total open interest exploded higher by 12,575. On May 17, total open interest increased only 1,473 contracts, which relative to volume is approximately 70% below average, but this is understandable considering the June contract rocketed to a high of $1 1180, which is the highest print since 1.1408 made on November 19, 2016.As we said in previous notes, the euro is headed higher, but remains massively overbought. Stand aside.
Yen: The June yen will generate a short term buy signal on May 18 provided the daily low remains above OIA’s key pivot point for May 18 of .8982. The low thus far in trading has been .8984, 2 pips above our pivot point.
The June yen advanced by a very strong 152 pips on volume of 259,178 contracts. Volume was the strongest since April 11 when 246,180 contracts were traded and the June contract closed at .9140.
On May 17, total open interest declined by 778 contracts, which relative to volume is approximately 85% below average. Yesterday’s strong advance was driven by short-sellers covering their positions as the June contract advanced to a high of .9036. Yesterday’s print has been taken out on May 18 with another new high of .9082, the highest print since .9144 made on April 25, 2017.
Leverage funds switched to a net short position in the latest COT report at the bottom of the move and the latest readings showed they were short by a ratio of 1.12:1, which was a reversal from the previous week when funds were long by 1.51:1. Two weeks ago they were long by ratio of 2.01:1. Similar to the 10 year note, the yen will likely remain strong as long as US equity markets stay weak. Stand aside.
Mexican peso: On May 17, the June and September 2017 Mexican peso generated short term buy signals. These reversed the April 27 short term sell signals. Both contracts remain on intermediate term buy signals The peso has had a volatile day on May 18 and we will report on this tomorrow.
Gold: June gold did not generate a short term buy signal on May 17 and will not on May 18. For short term buy signal to occur, the low of the day must be above OIA’s key pivot point for May 18 of 1255.70.
Silver: July silver did not generate a short term buy signal on May 17 and will not on May 18. For a short term buy signal to occur, the low of the day must be above OIA’s key pivot point for May 18 of $17.103.
Soybeans: July soybeans are trading sharply lower on May 18 and will likely generate a short term sell signal in tomorrow’s trading. This would reverse the May 2 short term buy signal. The July contract remains on an intermediate term sell signal.
S&P 500 E-mini: The June S&P 500 E-mini will generate a short term sell signal on May 18 provided the daily high remains below OIA’s key pivot point for May 18 of 2373.55. The high thus far in trading has been 2367.50.
The June S&P 500 E-mini lost 39.50 points on heavy volume of 2,825,799 contracts. Though volume was heavy, the total open interest increase was light having gained just 25,100 contracts, which relative to volume is approximately 55% below average. This tells us that there was a reluctance on the part of would be short sellers to pile in on the downdraft. As this report is being compiled on May 18, the June contract is trading 5.75 points higher, however the real reason for this is that the NASDAQ 100 E-mini is trading 46.00 points higher or +0.82% versus the E-mini trading +0.28%.
We think the bloom is off the rose with regard to the so-called Trump agenda and many of the initiatives he championed that was supposed to be a game changer for the economy will prove to be illusory. It appears unlikely that tax reform will take place in 2017, let alone an infrastructure program.
These two programs were the hallmark of trump’s agenda and with investigations by the new special prosecutor, Robert Mueller along with investigations being conducted by the Senate Intelligence Committee, the House Intelligence Committee and the Government Oversight Committee, the president and his White House will be under a barrage of criticism that will weaken his presidency. A damaged president is not conducive for major legislative accomplishments.
Additionally, all the polls show that trump’s support is slipping, which will also change the calculus because Republicans in the House and Senate will become more concerned about their jobs than doing anything that may alienate supporters.
The real key is whether the NASDAQ 100 E-mini can generate a short term sell signal. For this to occur, the high of the day must be below OIA’s key pivot point of 5580.55. The high thus far in trading is 5642.75 considerably above the pivot. The NASDAQ 100 has been the star performer of the major U.S. indices and therefore a sell signal on the NASDAQ 100 would portend greater weakness in all U.S. indices. Until sell signals are generated, we advise against initiating bearish positions.