WTI crude oil: July and August WTI crude oil will generate short term buy signals on May 19. Both contracts remain on intermediate term sell signals.
July WTI crude oil advanced 25 cents in yesterday’s trading on volume of 1,143,078 contracts. Total open interest declined by 12,487 contracts, which relative to volume is approximately 45% below average. The June contract accounted for a loss of 39,814.
As this report is being compiled on May 19, the July contract is rocketing higher, up $1.04 +2.09% and has made a daily high of $50.80, which is the highest print since 50.56 made on April 24. Although open interest action has been uneven, for the most part it has been generally positive, and the price action has been outstanding. The most revealing day occurred on May 17 when the S&P 500 E-mini fell by 39.50 points, yet WTI crude advanced 41 cents.
From the seasonal standpoint, June is a strong month for crude oil performance while July is somewhat less impressive. May is positive but just barely. Now that the July contract is on a short term buy signal, look for a pullback that last from 1-3 days and this would be the opportunity to initiate bullish positions. Keep in mind the OPEC meeting is May 25 and the market is rallying in advance of this.
One important point to keep in mind is that the moving averages are in a bearish setup. For example, 50 day moving average stands at $50,03, 100 day moving average, 52.53 and the 200 day moving average is 51.93. Ideally, the 50 day moving average should be above both the 100 and 200 day moving for a longer term bullish trend. In summary, for the 50 day to move above the other two moving averages, prices will have to remain elevated for an extended period of time. Having said this, a rally to the 100 and 200 day moving averages is likely after the pullback has occurred. Stand aside and wait for the pullback.
From the May 16 note on WTI crude oil:
“Yesterday, it appeared as if the June contract would generate a short term buy signal, but late in the session the American Petroleum Institute storage numbers were released, which sent the June contract to a low of 48.17. Today’s low has been 48.03. We think a short term buy signal is likely in the period immediately ahead.”
From the May 15 note on WTI crude oil:
“If June WTI generates a short term buy signal today, we expect a pullback, perhaps a sharp one before the market resumes its upward trend. Conceivably, the buy signal could reverse, but we think this is unlikely because the OPEC meeting is still almost 2 weeks away (May 25) and the psychology of the impact will be supportive.”
10 Year U.S. Treasury Note: On May 18, the June and September 2017 10 year US treasury note generated short term buy signals. Both contracts remain on intermediate term buy signals.
The June 10 year note lost 4.5 points on strong volume of 2,438,146 contracts. Total open interest increased by 17,060 contracts, which relative to volume is approximately 60% below average. Yesterday, the June contract made a high of 126-230 which was the highest print since 126-244 made on November 17, 2016.
Interestingly, on May 19 as this report is being written, the June contract is trading only 4.5 points lower on the day or -0.11%, which is a bit surprising because the June E-mini is trading 21.00 points above yesterday’s close or +0.89%. In other words, though the decline on May 17 sent the June contract sharply higher, now that the E-mini is rallying, it is not having a major negative effect on the market at this point in the session. We have no specific recommendation except that the 10 year note should be traded from the long side until it generates a short term sell signal.
Canadian dollar: The June and September Canadian dollar will generate short term buy signals on May 19. Both contracts remain on intermediate term sell signals.
Yesterday, the June Mexican peso lost 30 pips on huge volume of 177, 543 contracts. To put this volume in context, we examined the daily chart for the peso going back one year and found only one day that exceeded yesterday’s volume. This occurred on the election evening for the US presidency on November 9, 2016 when the June contract fell from a high of .05486 to a low of .04792 and volume traded was 224,048 contracts.
Yesterday, the June contract fell to a low of .05180, which was the lowest print since .05179 made on May 10. Here’s the interesting point: large volume traded was NOT on the decline, rather it was on the recovery to the high of .05305. In summary, volume increased on the rally and was tepid on the decline, although it should be noted this occurred in the wee hours of the morning. The reason for the decline was likely the collapse of the Brazilian Real due to political problems of the current president.
On May 17, the June and September peso contracts generated short term buy signals, which reversed the April 27 short term sell signals. Both contracts remain on intermediate term buy signals. As this report is being compiled on May 19, the June contract is trading 35 pips higher or +0.68% and has made a high of .05333 which is the highest print since .05346 made on May 17. The contract high of .05366 was made on April 18, 2017. Do not short the peso.
Soybeans: July 2017 Chicago soybeans will generate a short term sell signal on May 19. This reverses the May 2 short term buy signal. The July contract remains on an intermediate term sell signal.
Yesterday, July soybeans lost 31.00 cents on heavy volume of 399,334 contracts. Total open interest increased on the decline by 9,919, which relative to volume is average. The July contract gained 4,734 of open interest. The reason for yesterday’s precipitous decline was due to the collapse of the Brazilian Real which had the effect of making Brazilian soybeans considerably cheaper than US soybeans. As this report is being compiled on May 19, the July contract is trading 7.50 cents above yesterday’s close and has not taken out yesterday’s low of 9.42 3/4, which is near the contract low of 9.41 1/4 made on April 11, 2017. Stand aside.
S&P 400, New York Composite Index, Russell 2000, Dow Jones Industrial Average:
On May 18, the S&P 400, New York Composite Index, Russell 2000 and the Dow Jones Industrial Average generated short term sell signals. The four named averages all remain on intermediate term buy signals.
The S&P 500 and NASDAQ 100 remain on short and intermediate term buy signals.