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Soybeans:

March soybeans advanced 6.25 cents on volume of 316,658 contracts. Total open interest increased by 11,386 contracts, which relative to volume is approximately 25% above average meaning that aggressive new buyers were entering the market in substantial numbers and driving prices to a new high for the move of 8. 82 3/4. This is the highest print since 8.84 1/4 made on February 4. The March contract lost 13,023 of open interest, which means that there were more than enough open interest increases in the forward months to offset the decline in March and increase total open interest substantially.  This is bullish.

As this report is being compiled on February 17, the March contract has made another new high for the move of 8.85 1/4. The May contract will generate a short-term buy signal if the daily low is above OIA’s key pivot point for February 17 of 8. 81 5/8. We have no recommendation

WTI crude oil: Due to the Presidents’ Day holiday, the EIA storage report will be released tomorrow.

March WTI crude oil lost 40 cents on volume of 1,579,521 contracts. Volume exceeded the action on February 12 when the March contract gained $3.23 on volume of 1,566,873 contracts and total open interest increased by 5,033. On February 16, total open interest declined by 40,848 contracts, which relative to volume is average. The March contract accounted for a loss of 40,105 of open interest. Yesterday, the March contract made a high of 31.53 in the early going and then proceeded to sell off for the rest of the session.

As this report is being compiled on February 17 the March contract is trading $1.87 higher and has not taken out yesterday’s high. The April contract is trading 2.12 higher and has made a daily high of 33.29. The April WTI contract is getting close to generating a short-term buy signal, and this will occur if the daily low is above OIA’s key pivot point for February 17 of 33.59. The April Brent contract will generate a short-term buy signal if the daily low is above OIA’s key pivot point for February 17 of $34.39. We have no recommendation.

Euro:

The March euro lost 1.13 cents on volume of 254,828 contracts. Total open interest declined by 2,506 contracts, which relative to volume is approximately 50% below average. This is the second day in a row in which prices and open interest declined, which is consistently bullish open interest action.

As this report is being compiled on February 17, the March contract is trading nearly unchanged on the day and has made a new low for the move of 1.1113, which is slightly below yesterday’s print of 1.1131 and the lowest price since 1.1096 made February 8 Considering the strong move in equity markets on February 12, 16 and 17 the euro is holding up extremely well. We are bullish the euro, and expect it to head higher in the weeks ahead. On February 4, the March euro generated short and intermediate term buy signals. At this juncture we have no recommendation.

Yen:

The March yen lost 48 pips on volume of 244,681 contracts. Total open interest increased by 5,259 contracts, which relative to volume is approximately 50% below average, but an open interest increase on yesterday’s price decline is negative.

This is the second open interest increase on a price decline that we have seen since February 12, when the March contract lost 68 pips on volume of 230,834 and total open interest increased by 4,869. As we pointed out in yesterday’s report, this indicates that newly minted longs who were buying on the way up are refusing to liquidate as prices go down. They represent potential selling pressure if the yen continues its decline. On February 4, OIA announced that the March yen generated short and intermediate term buy signals. We continue to recommend a stand aside posture.

Gold:

April gold lost $31.20 on heavy volume of 361,724 contracts. Volume was the strongest since February 11 when the April contract gained $53.20 on volume of 392,267 contracts and total open interest increased by 13,180. On February 16, total open interest increased by 4,247 contracts, which relative to volume is approximately 45% below average, but an open interest increase on yesterday’s decline indicates that short sellers were entering the market and driving prices lower (1191.50). This is the lowest print since 1181.60 made on February 10.

As this report is being compiled on February 17 the April contract is trading 2.90 lower on the day and has not taken out yesterday’s low. April gold remains on short and intermediate term by signals. We have no recommendation for new positions. Those that are long from lower levels and have some protection against those longs can maintain positions, but stops should be in place (real or mental) on bullish positions.

Canadian dollar:

The March Canadian dollar lost 17 pips on volume of 85,334 contracts. Total open interest declined by 1,909 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on February 17, the March contract is trading 87 pips higher and has made a daily high of 73.16, which is the highest print since 73.31 made on February 4.

We have been cautioning clients not to short the Canadian dollar and on February 1, the March Canadian dollar generated a short-term buy signal and as of today remains on an intermediate term sell signal. However, it looks increasingly feasible that an intermediate term buy signal could occur. If the March contract is able to make a daily low above OIA’s key pivot point for February 17 of 72.95, an intermediate term buy signal would be generated. We have no recommendation.

From the February 14 Weekend Wrap on the Canadian dollar:

“The sizable move from the contract low of 68.09 made on January 20 through the most recent high of 73.31 made on February 4 has not shaken the shorts out of the Canadian dollar market. As a result, we continue to recommend a stand aside posture. The Canadian dollar has been acting in a very firm manner and although we think the loonie is ultimately headed lower, we need to see a substantial number of short-sellers blown out before it is safe to approach the market from the bearish side.”

S&P 500 E-mini: A short term buy signal in the March S&P 500 E-mini will occur if the daily low is above OIA’s key pivot point for February 17 of 1900.25.

The March S&P 500 E-mini advanced 30.75 points on volume of 2,042,771 contracts. Total open interest increased by 26,909, which relative to volume is approximately 45% below average, but yesterday’s open interest increase on the strong advance is positive.

On February 12, the March 20 contract gained 33.75 points on volume of 2,033,323 contracts and in this case total open interest declined by 30,123. Yesterday’s price and open action was the most positive since February 9 when the March contract lost 3.75 points on volume of 2,803,408 contracts and total open interest declined by 6,345. 

Based upon huge open interest increases when prices were declining, we know there is a large speculative short position in the E-mini. We expect this class of speculator to get blown out as prices rocket higher and this will add fuel to the upside move.

In our Presidents’ Day report, we wrote about the various divergences that we spotted in the major indices and gave our rationale for thinking prices had reached a low point at least in the short term. One major point was that volatility had been declining ever since it spiked last August 24. In summary, the volatility index has been experiencing a series of lower highs for the past several months indicating that fear was decreasing.

As this report is being compiled on February 17, the cash VIX index is trading 1.40 points lower or -5.81% as equity prices rally strongly. Although we think a short-term buy signal is likely in the E-mini, we do not think it represents a turn in the bear market. 

From The President’s Day report:

“The cash volatility index  VIX has been showing a pattern of lower highs even as many indices have been trading to lower levels. For example, on August 24, the cash VIX Index spiked to the high of 38.06, then made a lower high of 33.82 on September 1. On January 20, when major lows were made in most indices, the reading for the VIX was 32.09, lower than the August 24 and September 1 prints.”

“As the S&P 500, Russell 2000 and NASDAQ 100 made new lows on February 11, the VIX reached 30.90, approximately 4% below the January 20 high print of 32.09 and 19% below the August 24 high.”

“In short, the fear gauge is beginning to show that fear is decreasing. In our view, this is additional confirmation the worst is over for now and that higher prices for the major indices lay just ahead.”