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WTI crude oil: We expect that May and June WTI crude oil will generate short term buy signals in tomorrow’s trading.

May WTI crude oil lost 36 cents in yesterday’s trading on light volume of 847,453 contracts. Total open interest declined by 16,234 contracts, which relative to volume is approximately 20% below average. A total open interest decline on yesterday’s loss is perfectly normal action.

As this report is being compiled on April 4, the May contract is rocketing higher, up 86 cents or +1.73% and has made a new high for the move of 51.15, which easily takes out the previous high for the move of 50.85 made on March 31 and is the highest since 51.40 made on March 9. This was one day after OIA announced that WTI crude oil generated short and intermediate term sell signals.

Unfortunately, the May contract will not generate a short term buy signal on April 4 due to the daily low of 49.88 being below our pivot point for April 4 of $50.08. The low must be above the pivot for a buy signal.

From the March 29 note on WTI crude:

“The May WTI contract is getting close to generating a short term buy signal and this will occur when the daily low is above OIA’s key pivot point for March 30 $50.25. May gasoline will generate a short term buy signal on March 30 and May heating oil is likely to generate a short term buy signal in tomorrow’s trading.”

“The December 2018-December 2019 WTI spread began to show positive carry in yesterday’s trading and it closed at 24 cents premium to December 2018. The spread continues to widen in trading on March 30. We like the bull spread in this futures pair.”

From the March 24 note on WTI crude:

“On March 8, OIA announced that May crude oil generated short and intermediate term sell signals. Though the market has been drifting lower ever since the sell signals, it has been an orderly decline, even though many market analysts are extremely bearish on crude, we are not among them.”

Heating oil: On April 3, May and June 2017 New York heating oil generated short term buy signals, but remain on intermediate term sell signals.

May New York heating oil lost 1.12 cents on volume of 131,905 contracts. Total open interest increased by 5,472 contracts, which relative to volume is approximately 65% above average and indicates that short-sellers were in control during yesterday’s trading. However, on April 4, it’s quite a different story with heating oil rocketing higher, trading up 3.33 cents or +2.13% and has made a new high for the move of 1.5985, which is the highest print since 1.6247 made on March 8. No recommendation.

Dollar index: The June 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 for April 4 of 100.662. The low thus far in trading on April for his been 100.300. The buy signal is likely this week.

Euro: On April 3, the June euro generated a short term sell signal, but remains on an intermediate term buy signal.

The June euro lost 17 pips on volume of 147,744 contracts. Total open interest declined by 457 contracts, which relative to volume is approximately 80% below average. As this report is being compiled on April 4, the June contract is trading 18 pips lower and has made a daily low of 1.0673, which is the lowest print since 1.0654 made on  March 15. We recommend waiting for a counter trend rally before initiating new bearish positions.  This typically occurs after the generation of sell signals.

From the March 27 note on the Euro:

“The French elections are on April 23 and we think it is highly likely that the euro will begin to stall at current levels and likely head lower in advance of the election. On March 13, OIA announced that the June euro generated a short term buy signal and an intermediate term buy signal on March 16.”

Yen:

The June Japanese yen advanced 26 pips on light volume of 134,388 contracts. Total open interest increased by 624 contracts, which relative to volume is approximately 75% below average, but this is one of the rare days when open interest increased on a price advance.

The COT report, which was released last Friday revealed that leverage funds added 8,165 contracts to their long positions and liquidated 13,809 of their short positions. As of the COT tabulation date of March 28, leverage funds were short the yen by a ratio of 1.28:1, though this was down sharply from the previous week of 2.07:1 and the ratio two weeks ago of 1.92:1.

The newest COT report reflected a net short position that is the lowest we have seen in several months. As the research notes below confirm, we have been warning clients away from the short side of the yen and ever since it generated a short term buy signal on March 20, the yen has been moving steadily higher.

From the March 20 note on the Yen:

“In previous reports, we told clients to avoid the short side of the yen and expect that distressed short-sellers will continue to power the market higher.”

From the March 16 note on the Yen:

“The June yen will generate a short term buy signal provided the daily low is above OIA’s key pivot point for March 17 of .8873. The low on Friday is .8846 On March 3, the June yen generated a short term sell signal and was never able to generate an intermediate term sell signal. Therefore, once the short term buy signal occurs, which we think will occur on Monday, the yen will the on short and intermediate term buy signals. Do not short this market.”

Australian dollar: The June Australian dollar is getting close to generating a short term sell signal and this will occur if the daily high is below OIA’s key pivot point for April 4 of 75.84. The high thus far in trading has been 76.04.

EUR/GBP: On April 3, EUR/GBP generated an intermediate term sell signal after generating a short term sell signal on March 31.

Live cattle: June cattle is getting close to generating a short term sell signal and this will occur if the daily high is below OIA’s key pivot point for April 4 of $109.089 per cwt.

10 Year U.S. Treasury Note:

The June US treasury note advanced by a very strong 15 points on healthy volume of 1,560,326 contracts.. The reason we are writing about yesterday’s activity is because total open interest increased only 231 contracts. This is a potential warning sign the market may be topping.

Yesterday, the June contract made a high of 125-075 and this has been taken out with another new high of 125-115, which is the highest print since 125-115 made by the March 2017 contract on February 28. Yesterday’s strong move accompanied by abysmal total open interest increase may be the first indication that buying has stalled at the upper end of its 45 day trading range.

The COT report released last Friday revealed that leverage funds added 48,864 contracts to their long positions and liquidated 16,459 of their short positions. As of the March 28 tabulation date, leverage funds were short the 10 year US treasury note by ratio of 1.36:1, down from the previous week of 1.55:1 and the ratio two weeks ago of 1.78:1.

In summary, leverage funds have been liquidating short positions and increasing their long positions as the 10 year note has been advancing. Keep in mind the report was tabulated on March 28 and therefore the net short position has likely been visit reduced further since then.

On March 22, OIA announced that the June 10 Year U.S. Treasury note generated a short term buy signal and at the time was already been on an intermediate term buy signal. Do not enter new long positions at current levels. We recommend that clients take profits on long positions, and do not short this market.