WTI crude oil:
On May 4, June WTI crude oil lost $2.30 on heavy volume of 1,642,502 contracts. Surprisingly, total open interest increased only 6,683 contracts, a number that is approximately 80% below average. The June contract gained 6,145 of open interest. Remarkably, for the past 4 sessions beginning on May 1, total open interest has increased every day and the cumulative total for the four day time frame stands at 50,906 contracts. In this period, the June contract lost $3.81.
We are not seeing total open interest declines, which would indicate that sellers of previously held long positions were driving prices lower. This means there are large numbers of longs remaining in crude oil who are undoubtedly showing losses, some with substantial losses. This means that rallies will be met by longs looking to trim losses, which will tend to keep a lid on a sustainable rally, at least in the short term.
Overnight, the June contract sold off sharply and made a low of $43.76, which is the lowest print on the weekly continuation chart since November 14, 2016 when the January 2017 contract made a low of 42.20. Today, the COT report will be released and the tabulation date will be based upon activity through May 2. This will give us an idea of the extent of managed money liquidation. Do not enter new long positions, nor should one enter new bearish positions at current levels.
10 Year US Treasury Note: On May 4, the June U.S. 10 year Treasury Note generated a short term sell signal and it remains on an intermediate term buy signal.
Yesterday, the June 10 year note lost 12 points on volume of 1,251,213 contracts. Total open interest increased by massive 64,745 contracts, which relative to volume is approximately 105% above average. This means that aggressive new short-sellers were heavily entering the note market and driving it to a new low for the move of 125-020. This was the lowest print since 124-280 made on April 11.
Now that the ten year note is on a short term sell signal, the market should experience a counter trend rally that lasts from 1-3 days and this would be the opportune time to initiate bearish positions. We think the Federal Reserve is likely to raise interest rates at least once this year, and this should support lower note prices. Also, the dubious plans of the current U.S. administration to provide tax cuts and infrastructure spending massively increases the debt of the United States and will have a an important psychological effect on interest rates.
Gold: On May 4, June and August 2017 New York gold generated intermediate term sell signals after generating short term sell signals on May 2.
June gold lost a substantial $19.90 on heavy volume of 362,412 contracts. Volume exceeded that of May 1 when the June contract lost $12.80 on volume of 209,241 contracts and total open interest declined by 5,451. On May 4, total open interest declined only 741 contracts, a number that is dramatically below average. This indicates that large numbers of longs are not liquidating even though prices declined to 1225.70, the lowest print since $1221.30 made on March 16.
The situation in gold is similar to that of crude oil: large numbers of speculative longs who are refusing to liquidate and will be forced to do so if prices continue to move lower. We have no recommendation.
Yen: On May 4, the June Japanese yen generated an intermediate term sell signal after generating a short term sell signal on April 26.
The June Japanese yen gained 14 pips on volume of 146,296 contracts. Total open interest increased by massive 5,496 contracts, which relative to volume is approximately 30% above average. As this report is being compiled on May 5, the June contract is trading 21 pips lower, but has not taken out yesterday’s low of .8859, which is the lowest print since .8846 made on March 17.
The COT report will be out this afternoon and it will be interesting to see whether leverage funds have trimmed their long positions. As of the last report tabulated on April 25, leverage funds were long the yen by a ratio of 2.01:1.We have no recommendation.
The June euro advanced 72 pips on volume of 220,508 contracts. Total open interest increased by a substantial 6,141 contracts, which relative to volume is average. Yesterday, the June contract made a new high for the move of 1.1001, and has taken out by a fraction in today’s trading. The robust action in the euro indicates that market participants are confident that Le Pen will be the loser in the upcoming runoff in the French election on Sunday.
The market has been acting in a very firm manner and setbacks have been few and far between. Conceivably, the euro may experience “buy on the rumor- sell on the news” action after the results of the election are known.
As much as we like the long side of the euro, the market currently is trading substantially above 20 day moving average of 1.0814 and the 50 day moving average of 1.0758. Additionally, both of these moving averages are below the 200 day moving average of 1.0942. This is a technical negative, and we think the euro needs to do some backing and filling for an extended period before it can move substantially higher from here.
Also, on the chart there is an 81 pip gap between the April 21 high of 1.0767 and the April 24 low of 1.0848. Filling this gap would provide an excellent opportunity to get long the euro. On April 24 the June euro generated short and intermediate term buy signals.
July corn lost 8.25 cents on volume of 339,585 contracts. Volume was the strongest since May 2 when July corn lost 5.25 cents on volume of 349,484 contracts and total open interest increased by 3,264. On May 4, total open interest increased by massive 18,408 contracts, which relative to volume is approximately 120% above average which means that huge numbers of short-sellers were entering the corn market and driving prices lower (3.66). The May contract accounted for a loss of 1,128 of open interest.
For the past several days, total open interest has been acting in a consistently negative fashion relative to price advances and declines. Open interest declines when prices advance and increase when prices decline. The July contract has been unable to generate a short term buy signal, though we think this will change at some point in the near future. As a consequence, there is no reason to be involved in the corn market at this time.
July Chicago wheat lost 16.25 cents on volume of 169,284 contracts. Total open interest in declined only 3,916, which relative to volume is approximately 10% below average. The May contract accounted for a loss of 253 of open interest. Considering yesterday’s steep decline, the fact that total open interest declined slightly below average is positive. The reason: managed money is massively short wheat, but new short sellers were not the driver of yesterday’s declines.
Longs were holding firm on their positions for the most part and not liquidating en masse. As this report is being compiled on May 5, the July contract is trading 4.25 cents above yesterday’s close and has made a low of 4.36, which was the low print in yesterday’s trading. On May 1 July Chicago wheat generated a short term buy signal and has been unable to generate an intermediate term buy signal. However, July Kansas City wheat remains on short and intermediate term buy signals.We have no recommendation.