Bloomberg access:{OIAR<GO>}

Corn: May corn will generate a short-term buy signal, if the daily low is above OIA’s key pivot point for February 18 of 3. 71 3/8. If the May contract is unable to generate a short-term buy signal, it will trade sideways to lower.

Soybeans: May soybeans will generate a short-term buy signal if the daily low is above OIA’s key pivot point for February 18 of 8. 81 3/4. If the May contract is unable to generate a short-term buy signal, it will trade sideways to lower.

WTI crude oil: April WTI will generate a short-term buy signal if the daily low is above OIA’s key pivot point for February 18 of 33.64.

March WTI crude oil advanced by a strong $2.01 on lighter than usual volume of 1,487,268 contracts. Volume was the weakest since February 8 when WTI lost $1.20 on volume of 1,321,735 contracts and total open interest declined by 35,729. On February 17, total open interest declined by a massive 57,512 contracts, which relative to volume is approximately 30% above average meaning liquidation was extremely heavy on yesterday’s large advance. The March contract accounted for loss of 77,659, which means there was very little in the way of open interest increases in the forward months.In summary, market participants were liquidating on the rally.

As this report is being compiled on February 18, the April contract is trading 20 cents above yesterday’s close and has made a daily high of 34.21 which is slightly above the February 5 high of 34.18. The market was trading at the upper end of its trading range on February 18 when the EIA released its report and that is when the April contract made a its current low of 32.72. Although it will not occur today, we think there is a reasonably good chance that April WTI will generate a short-term buy signal during the next day or two.

Brent crude oil: The April Brent crude contract will generate a short-term buy signal on February 18 provided the daily low remains above OIA’s key pivot point for February 18 of 33.91. The May 2016 contract will generate a short-term buy signal provided the daily low remains above OIA’s key pivot point for February 18 of $34.66.

April Brent crude oil advanced $2.32 on strong volume of 932,190 contracts. Total open interest increased by 27,571 contracts, which relative to volume is approximately 5% above average. The April contract lost 22,611 of open interest, which means there was more than enough open interest increases in the forward months to offset the decline in April and increase total open interest slightly above average. Yesterday’s performance for the Brent crude contract was outstanding and the opposite of what occurred in WTI. Brent crude bottomed on January 20 whereas the WTI contract made its low on February 11 at 26.05. The low on February 11 for the Brent contract was 29.92.

Once the Brent contract generates a short-term buy signal, the market should experience a pullback of 1-3 days and this is the opportunity to initiate a light bullish position is you are so inclined. One strategy would be to employ an out-of-the-money bull put spread, or a bull put ratio spread. This takes advantage of volatility reduction if crude continues its advance, or the market trades sideways, but offers a measure of downside protection if the market reverses course. For subscribers to OIA Direct, call with any question. Do not short Brent or WTI.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.1 million barrels from the previous week. At 504.1 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 3.0 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 1.4 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 4.3 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 3.4 million barrels last week.

Euro:

The March euro lost 5 pips on light volume of 174,267 contracts. Total open interest declined by 3,694 contracts, which relative to volume is approximately 50% below average and the open interest decline on February 17 is the fifth one in a row and most of these occurred when prices declined, which is healthy for the market. The March contract accounted for loss of 3,885 of open interest.

As this report is being compiled on February 18, the March contract is trading lower again, down by 25 pips and has made a new low for the move of 1.1076, which takes out the February 8 low of 1.1096. Most of the decline in the euro has been when equity prices rallied, and on February 18, equity prices are correcting the massive three day advance while the euro is NOT responding on the upside. We continue to think the euro rallies in the weeks ahead and will test its high for the move of 1.1385 on February 11. The March contract is quite a distance from generating a short-term sell signal and this will occur if the daily high is below OIA’s key pivot point for February 18 of 1.0934. We have no recommendation.

Yen:

The March yen advanced 7 pips on light volume of 159,278 contracts. Total open interest increased by 2,569 contracts, which relative to volume is approximately 35% below average, but February 17 was the third day in a row in which total open interest increased bringing the three day cumulative total to 12,697 contracts.

It appears that new short-sellers have been entering the market, which we definitely think is a mistake because the March yen remains solidly on short and intermediate term buy signals. Yesterday, the March contract made a low of .8738, and this has not been taken out on February 18 even though the March S&P 500 E-mini at one point over night was trading more than 10 points above yesterday’s close. Yesterday’s low was above the print of February 16 (.8710). In other words, as the equity market rallied during the last two days, the March yen was making higher lows. Our recommendation is to stand aside in the yen.

Australian dollar:

The March Australian dollar advanced 68 pips on volume of 87,581 contracts. Total open interest increased by 1,337 contracts, which relative to volume is approximately 35% below average, but an open interest increase on yesterday’s advance is positive. The March contract gained 1285 of open interest.

On February 4, the March Australian dollar generated a short-term buy signal, and is not far away from generating an intermediate term buy signal. This will occur if the daily low is above OIA’s key pivot point for February 18 of 71.57. Leverage funds are short by ratio of 1.79:1 according to the most recent COT report and will provide additional fuel for a move higher if an intermediate term buy signal is generated. We have no recommendation.

S&P 500 E-mini: The March S&P 500 E-mini will generate a short-term buy signal on February 18 provided the daily low remains above OIA’s key pivot point for February 18 of 1902.00.

The March S&P 500 E-mini advanced 34.00 points on surprisingly light volume of 1,862,683 contracts. Volume was below that of February 16 when the March contract gained 30.75 points on volume of 2,042,771 contracts and total open interest increased by 26,909. Additionally, volume was below that of February 12 when the March contract advanced by 33.75 points on volume of 2,033,323 contracts and total open interest declined by 30,123. The high in yesterday’s trading was 1928.00 and this was been taken out slightly in the evening session (1933.50) of February 18.

On February 17, total open interest declined by 18,703 contracts, which relative to volume is approximately 50% below average, but a total open interest decline on yesterday’s strong advance is negative. We know there are large numbers of short-sellers in the market who were piling in on the short side when the E-mini was cratering. However, we still think there are large numbers of short-sellers who have not yet thrown in the towel. This class of speculator will provide additional fuel for the upside as prices continue their advance.

If a buy signal is generated on February 18, typically in OIA’s protocols, markets tend to have a pullback lasting 1-3 days and this is the opportunity to initiate bullish positions. We think it is likely that the March contract will move to its 50 day moving average of 1949.48 and possibly as high as the 100 day moving average of 1988.96.

As it stands today, the March contract is trading approximately 6.28% above the 52 week low of 1802.50 and 9.26% below the 52 week high of 2111.25. A midpoint between the high and the low takes the March S&P 500 E-mini to 1956.88. Wait for the pullback before initiating light bullish positions.