WTI crude oil:
July WTI crude oil advanced 46 cents on light volume of 974,812 contracts. Volume was the weakest since May 1 when WTI crude oil lost 49 cents on volume of 678,024 contracts and total open interest increased by 9,582.
On May 22, total open interest increased by 6,400 contracts, which relative to volume is approximately 65% below average. The June contract accounted for a loss of 21,343 of open interest. Yesterday’s action was another disappointing session even though the July contract made a high of 51.43, the highest print since 51.74 made on April 20.On May 19, crude oil advanced $1.01 on volume of 1,166,511 contracts and total open interest declined by 22,256.
In summary, from May 17 through May 22, crude oil has advanced each day for total gain of $2.13 while total open interest in this time frame declined by a total of 120,845 contracts. This is very negative open interest action on a healthy gain during four sessions.
The crude oil market is in desperate need of a correction, and the upcoming OPEC meeting on May 25 may be the catalyst. Crude oil has continued to rally since the May 19 short term buy signal. As this report is being compiled on May 23, the July contract is trading 4 cents above yesterday’s close and has made a high of 51.45, 3 cents below yesterday’s print. Although we think the path of least resistance is higher, the market needs to undergo some corrective action before new buyers have confidence that prices have seen their lows, at least temporarily.
June natural gas advanced 7.4 cents on lackluster volume of 405,797 contracts. Total open interest declined by 11,332 contracts, which relative to volume is average. The June contract accounted for a loss of 30,479 of open interest and there were not enough open interest increases in the forward months to offset the decline in June. Yesterday’s abysmal volume and open interest action on the price advance follows the equally abysmal action on May 19. On that date, natural gas advanced 7.4 cents on volume of 422,413 contracts and total open interest declined by 6,900 while the June contract lost 29,355.
The COT report released last Friday revealed that managed money added 24,557 contracts to their long positions and liquidated 3,503 of their short positions. Commercial interests liquidated 3,433 of their long positions and added 2,302 to their short positions. As of the May 16 tabulation date, managed money was long natural gas by a stratospheric 3.75:1, up sharply from the previous week of 3.34:1 and a huge increase from the ratio two weeks ago of 3.08:1.
The net long position of managed money in natural gas is the largest of 2017, which makes it vulnerable to a substantial decline as the seasonally weak time frame approaches of June, July and August.
As this report is being compiled on May 23, the July New York natural gas contract is trading sharply lower, down 10.00 cents or -3.01% and has made a daily low of 3.316, which is the lowest print since 3.281 made on May 19. For the past couple of weeks, our thinking has been that the bull run in natural gas has been on borrowed time, but as yet a short term sell signal has not been generated. However, we think natural gas will likely begin the downward slide we have been anticipating.
We have kept clients out of the market because sell signals (short and intermediate) have not been generated. For a short term sell signal to be generated in the July contract, the high of the day must be below OIA’s key pivot point for May 23 of $3.305. Once this occurs, the market should experience a counter trend rally lasting a day or two before resuming its lower trajectory. With the heavy long position held by managed money, we think that the bearish side of natural gas is a relatively low risk trade if it rallies after the short term sell signal. Until then, stand aside.
Copper: On May 22, July 2017 New York copper generated a short term buy signal and remains on an intermediate term sell signal.
July New York copper gained 1.40 cents on volume of 73,804 contracts. Total open interest increased by 1,596 contracts, which relative to volume is approximately 20% below average. However the open interest increase in yesterday’s trading confirms that new buyers were pushing prices higher. This follows the bullish action on May 19 when the July contract gained 5.00 cents and total open interest increased by 4,233.
As this report is being compiled on May 23, the July contract is trading nearly unchanged on the day and has not taken out yesterday’s high of $2.6045. Per our recommendation in the May 19 note, due to the volatility of copper and the nonexistent liquidity in options on futures, we recommend using the copper ETF, ticker symbol JCC.
Yen: On May 22, the June and September 2017 Japanese yen generated short term buy signals, but remain on intermediate term sell signals.
The June Japanese yen advanced 15 pips on light volume of 118,959 contracts. Total open interest declined by 2,410, which relative to volume is approximately 20% below average.
The COT report released last Friday revealed that leverage funds liquidated 99 contracts of their long positions and added a massive 22,148 to their short positions. As of the May 16 tabulation date, leverage funds were short the yen by a ratio of 1.71:1, up sharply from the previous week of 1.12:1 and a reversal from the ratio two weeks ago when leverage funds were long by a ratio of 1.51:1.
It appears that leverage funds got massively short at the bottom of the move, which occurred on May 10 when the June contract made a low of .87550. The moving averages for the June contract are in a bearish set up with the 20 day moving average at .89105, 50 day at .89931, 100 day .89055 and the 200 day moving average standing at .92272.
We have no strong feeling on the yen at this juncture except to say this is likely a rally in a bear market and have no idea how far this will carry. The next obstacle for the June contract is to generate an intermediate term buy signal and this will occur when the low of the day is above OIA’s key pivot point for May 23 of .89924. We recommend a stand aside posture.
EUR/GBP: On May 22, EUR/GBP generated an intermediate term buy signal after generating a short term buy signal on May 16.
AUD/CAD: On May 22, AUD/CAD generated short and intermediate term sell signals.
Silver: July 2017 New York silver will generate a short term buy signal on May 23. It remains on an intermediate term sell signal.
July 2017 New York silver advanced 39.5 cents on volume of 83,866 contracts. Total open interest declined by 1,678 contracts, which relative to volume is approximately 20% below average.
The COT report released last Friday revealed that managed money added 904 contracts to their long positions and also added a massive 16,158 to their short positions. Commercial interests added 1,537 to their long positions and liquidated 2,828 of their short positions. As of the May 16 tabulation date, managed money was long New York silver by a ratio of 1.35:1, down from the previous week of 1.95:1 and less than half the ratio two weeks ago of 3.28:1. Three weeks ago, managed money was long silver by ratio of 5.16:1.
In summary, managed money substantially reduced their net long position to the lowest level in a couple of months as New York silver made its multi-month low of $16.060 on May 9 and now it appears as if the market has begun to turn around. Before becoming bullish on silver, we want to see gold generate a short term buy signal.