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Sugar: On April 5, May and July New York sugar generated short-term sell signals, but remain on intermediate term buy signals.

Coffee: On April 5, May and July New York coffee generated short-term sell signals, but remain on intermediate term buy signals.

Cocoa: On April 5, May and July New York cocoa generated intermediate term sell signals after generating short-term sell signals on March 24.

WTI crude oil:

May WTI crude oil advanced 19 cents on volume of 820,360 contracts. Total open interest increased by 4,468 contracts, which relative to volume is approximately 75% below average. The May contract accounted for a loss of 7,826 of open interest. As this report is being compiled on April 6, the May contract is rallying sharply, up $1.71, or +4.74% and has made a daily high of $37.81, which takes out yesterday’s print of 36.58, but is below the April 4 high of 38.67.

On April 4, OIA announced that the May and June WTI contracts generated short-term sell signals and as is usually the case after this, a countertrend rally ensues. Today, is the second day of the rally if the very minor bounce on April 5 is counted. It is likely there will be some follow-through on today’s rally in tomorrow’s trading, and this will be the ideal time to initiate bearish positions. The cause of today’s rally is a substantial draw in inventories according to the EIA report released a couple of hours ago.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.9 million barrels from the previous week. At 529.9 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 1.4 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 1.8 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.0 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 1.1 million barrels last week.

Gasoline: On April 5, May and June gasoline generated short-term sell signals but remain on intermediate term buy signals.

May gasoline advanced 8 ticks on volume of 146,287 contracts. Total open interest increased by 1,497 contracts, which relative to volume is approximately 50% below average. The May contract accounted for loss of 3,609 of open interest. As this report is being compiled after the release of the EIA report, gasoline is trading 2.35 cents above yesterday’s close and has made a daily high of 1.4089, which takes out yesterday’s print of 1.3900, but is below the April 4 high of 1.4185.

As we pointed out in prior reports and in the weekend report released on April 3, gasoline has been the under performer when compared to heating oil and crude oil. For example on April 6, May gasoline is trading 1.76% higher while heating oil is +5.79% and crude oil is almost 5.00% above yesterday’s close. The reason this is important is that gasoline has not been supporting a higher crude oil price even though from a seasonal point of view gasoline should be the out performer.

Natural gas:

May natural gas lost 4.4 cents on volume of 291,367 contracts. Total open interest declined by 2,724 contracts, which relative to volume is approximately 50% below average. The May contract lost 10,308 of open interest. As this report is being compiled on April 6, the May contract is trading 4.4 cents lower and has made a daily low of 1.898, which is the lowest print since 1.914 made on March 29.

In the March 30 note on natural gas, we recommended the initiation of two kinds of options strategies (long out of the money calls and short out of the money puts) and if initiated, the trades are at break even or have a small loss. Tomorrow, the EIA storage report for natural gas will be released at 10:30 a.m. EDT, and if the option positions are unprofitable prior to the release of the report, we recommend that it be liquidated prior to the report to avoid any additional loss. 

The reality is the fundamentals for natural gas are not good and as we pointed out in previous reports, the trade has been based on the seasonal tendency for natural gas prices to remain firm and trade higher in the period immediately ahead. The market can turn, and will generate a short-term sell signal if the daily high is below OIA’s key pivot point for April 6 of 1.890.

Gold:

June gold advanced $10.30 on volume of 166,263 contracts. Total open interest increased by 3,252 contracts, which relative to volume is approximately 20% below average, but an open interest increase on yesterday’s price advance is positive. As this report is being compiled on April 6, the June contract is trading $5.70 lower after making a daily high of 1233.80, which is below yesterday’s print of 1238.80. Gold is experiencing a series of your irregular lower highs and somewhat lower lows.

On March 24, OIA announced that June gold generated a short-term sell signal and thru today is trading unchanged from the March 24 close. As we have said before, we are bullish gold, but think the lopsided long position of managed money is a potential hazard if gold begins to decline in earnest.

We are unable to recommend bullish positions in gold until and unless June gold generates a short-term buy signal. For this to occur,, the low of the day must be above OIA’s key pivot point for April 6 of 1252.10. Additionally, silver generated a short-term sell signal on April 4 and the precious metals are going through a period of consolidation. Stand aside.

Yen:

The June yen advanced 62 pips on volume of 180,418 contracts. Total open interest exploded higher, up 9,036 contracts, which relative to volume is approximately 100% above average meaning that huge numbers of new buyers were entering the market and driving prices to a new contract high of ,9113.

As this report is being compiled on April 6, the yen is trading sharply higher again, up 65 pips and has made another new contract high of .9145, which is the highest print since the week of October 27, 2014 when the December 2014 contract made a high of .9297. Looking at the weekly chart, there is no resistance until .9510, the high made the week of October 13, 2014.

We caution all clients to avoid trading the futures and instead utilize options. The Japanese Central Bank will undoubtedly intervene to drive the yen lower against major currencies. The strong yen has dramatically weakened the Japanese stock market. The Nikkei 225 futures contract generated a short term sell signal on April 5 and the weak Japanese stock market is of grave concern to the central bank officials and the  Japanese public in general. Do not enter new bullish positions at current levels.

Nikkei 225: On April 5, the June Nikkei 225 contract generated a short-term sell signal and remains on an intermediate term sell signal.

British pound: On April 6, the June British pound will generate a short-term sell signal and it remains on an intermediate term sell signal. The short-term sell signal reverses the March 14 short-term buy signal.

The June British pound lost 1.25 cents on volume of 82,686 contracts. Total open interest increased substantially, this time by 3,543 contracts, which relative to volume is approximately 65% above average meaning aggressive new short-sellers were entering the market in substantial numbers and driving prices to a new low for the move of 1.4122.

As this report is being compiled on April 6, the June contract is trading 26 pips lower and has made a daily high of 1.4174, which is substantially below yesterday’s print of 1.4281 and has made a daily low of 1.4008, which is the lowest print since 1.4033 made on March 3. Wait for a counter trend rally, which usually occurs after the generation of a sell signal before initiating bearish positions. The British pound volatility index is trading 5% higher on April 6 and therefore options are a bit pricey.