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WTI crude oil:

April WTI crude oil advanced 92 cents on volume of 1,063,707 contracts. Volume increased from February 24 when the April contract gained $1.14 on volume of 1,028,647 contracts and total open interest increased by 9,215. On February 25, total open interest increased again, this time by 9,078 contracts, which relative to volume is approximately 50% below average, but a total open interest increase on yesterday’s price advance is positive. The March and April contracts lost a total of 3,970 of open interest and there were sufficient open interest increases in the forward months to offset the decline in the two delivery months and increase total open interest. The action for the past two days has been positive

As this report is being compiled on February 26, the April contract is trading 63 cents above yesterday’s close and is made a daily high of $34.69, which is the highest print since 34.82 made on January 28. Although, WTI will not generate a short-term buy signal on February 26, it may occur early next week.

For the April contract to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for February 26 of 33.50. It is important that the April contract close at the upper and of its daily trading range in order for a buy signal to occur. The inability for crude to hold at the high end of the trading range is a indication of weakness. 

The downtrend will resume if the high of the day is below OIA’s pivot point for February 26 of 31.20. It appears to be a certainty that May Brent crude oil will generate a short-term buy signal on February 26 and that April gasoline is getting close to a short-term buy signal. As we pointed out in previous reports, the petroleum complex is entering its period of seasonal strength, especially gasoline. At this juncture, we have no recommendation for WTI.

Brent crude oil: May Brent crude oil will generate a short-term buy signal on February 26 if the daily low remains above OIA’s key pivot point for February 26 of $34.78.

May Brent crude oil advanced 63 cents on volume of 977,118 contracts. Total open interest declined by 14,585 contracts, which relative to volume is approximately 40% below average, however a total open interest decline on yesterday’s advance is negative. The April contract accounted for loss of 36,950 of open interest, which means there were insufficient open interest increases in the forward months to offset all of the loss in the April contract.

As this report is being compiled on February 26, the May Brent contract is trading 33 cents above yesterday’s close, but made a new high for the move of 37.26, which is the highest print since 37.52 made on January 28. After the generation of short term sell signals, markets have a tendency to pullback from 1-3 days and this is the opportunity to enter bullish positions. If bullish positions are entered after the pullback, they should be very conservative. Do not enter bullish positions in Brent until WTI is a short term buy signal.

Gasoline: April gasoline will generate a short-term buy signal if the daily low is above OIA’s key pivot point for February 26 of 1.2920.

April gasoline advanced 3.64 cents on volume of 197,924 contracts. Total open interest declined by 949 contracts, which relative to volume is approximately 75% below average, but an open interest decline on yesterday’s advance is negative. The March contract accounted for loss of 4749 of open interest.

As this report is being compiled on February 26, the April contract is trading nearly unchanged, and has made a daily low of 1.2940, which is above OIA’s key pivot point for February 26. Gasoline is entering its period of seasonal strength and due to recent low prices, gasoline consumption should pickup substantially as the spring and summer driving season swings into full gear. For clients who prefer a lower volatility vehicle, consider the ETF, UGA as a conservative and safer alternative to trading futures once gasoline has generated a short term buy signal.

Euro:

The March euro advanced 26 pips on volume of 172,945 contracts. Total open interest increased by 1,475 contracts, which relative to volume is approximately 55% below average. As this report is being compiled on February 26, the March contract is trading sharply lower, down 1.17 cents or -1.06%.

The March contract will generate a short-term sell signal if the daily high is below OIA’s key pivot point for February 26 of 1.0993. It appears likely the short term sell signal will be generated as early as Monday. Additionally, the dollar index 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 of 97.980. We have no recommendation.

British pound:

The March British pound advanced 6 pips on light volume of 89,719 contracts. Total open interest increased by 2,821 contracts, which relative to volume is approximately 10% above average. As this report is being compiled on February 26, the March contract is trading sharply lower, down 1.01 cents and has made a new contract low of 1. 3854, which takes out the previous low of 1.3878 made on February 24.

The March contract is headed for a test of the multi-year low of 1.3492 made during March 2009. Although we think the pound is likely headed lower, we strongly discourage clients from entering new bearish positions. If sentiment about the United Kingdom leaving the European economic union changes, the pound will rally sharply.

Canadian dollar: The March and June Canadian dollar will generate an intermediate term buy signal on February 26 after generating a short-term buy signal on February 1.

The March Canadian dollar advanced by a strong of 97 pips on volume of 72,836 contracts. Total open interest increased by 2,487 contracts, which relative to volume is approximately 20% above average meaning aggressive new buyers were entering the market and driving prices to a new high for the move of 73.99. As this report is being compiled on February 26, the March contract is made another new high of 74.05, which is the highest print since 74.04 made on December 8, 2015.

From the contract low of 68.09 made on January 20, through today’s high, the March contract has rallied nearly 6 cents, which is financially devastating to those who are short from substantially lower levels. Remarkably, the rally in the Canadian dollar has not shaken loose the majority short-sellers, but if crude oil continues on its path upward, we think the Canadian will continue to rally. At some point, the loonie will be a terrific candidate for bearish positions, but certainly not at this juncture.

According to the latest COT report, which was released last Friday, leverage funds are short the Canadian dollar by a ratio of 7.44:1, which is an extremely high and is down only slightly from the high of 2016 of 7.99:1 made the previous week. We have been warning clients to remain on the sidelines for two reasons: First, crude oil was more likely to rally than not and that the massive short position held by professional money managers is likely to drive the Canadian dollar higher. We have no recommendation other than to continue standing aside.

Yen:

The March yen lost 91 pips on volume of 159,001 contracts. Total open interest declined by 770 contracts, which relative to volume is approximately 75% below average. As this report is being compiled on February 26, the March contract is trading sharply lower again, down 80 pips and has made a daily low of .8775, which is the lowest print since .8751 made on February 18. We’ve been warning clients to stand aside even though the trend higher remains intact and the yen is on short and intermediate term buy signals. The Japanese Central Bank is determined to drive the yen lower and therefore being involved in the market makes no sense.

S&P 500 E-mini:

The S&P 500 E-mini advanced 20.25 points on volume of 1,860,500 contracts. Volume declined substantially from February 24 when the March contract gained 14.25 points on volume of 2,326,578 contracts and total open interest increased by 19,750. On February 25, total open interest increased by 30,589 contracts, which relative to volume is approximately 35% below average, but this is the third day in which prices have advanced and total open interest has increased.

This leads us to believe that higher prices are ahead, but it is important to keep in mind that based on today’s high of 1968.75, the March contract is trading at the midpoint between the all-time high of 2134.00 and the recent contract low of 1802. In our view, this means that prices may grind higher, but it will be a labored affair. Market participants who are looking to trim their losses will be eager sellers as prices rally, which will keep a lid on the advance.

On February 26, it appears likely that the March contract will make a daily low above our pivot point of 1934.45, which means it is likely the rally will continue. As we pointed out in the February 21 report on equity indices, the E-mini could rally to the 100 day moving average, which for February 26 is 1991.07.

For an intermediate term buy signal to occur, the low of the day must be above OIA’s key pivot point for February 26 of 1998.35. The pivot point for the intermediate term buy signal may act as a strong resistance, and at that juncture could be the opportune time to initiate some bearish options strategies. OIA-Direct subscribers should call with any question.