Kansas City wheat: On April 7, May and July Kansas City wheat generated short and intermediate term sell signals.
Chicago wheat: On April 8, May and July Chicago wheat will generate short and intermediate term sell signals.
WTI crude oil:
May WTI crude oil lost 49 cents on volume of 1,165,988 contracts. Total open interest declined by 24 877 contracts, which relative to volume is approximately 15% below average.The May contract lost 86,831 of open interest and there were enough open interest increases in the forward months to offset a good portion of the open interest decline in the May contract. As this report is being compiled on April 8, the May contract is trading sharply higher, up $2.34 or +6.25%.
On April 4, OIA announced that May and June WTI generated short-term sell signals and that they remained on intermediate term buy signals. Since then the May contract has rallied on two previous days (April 5 and 6) and April 8 is the third day of the counter trend rally. There does not appear to be any special news that accounts for today’s strong move. Conceivably, the market knows something that news is not revealing
The May and June contracts are at a pivotal point and the May contract will reverse the short-term sell signal of April 4 if the daily low is above OIA’s key pivot point for April 8 of $39.44. Looking at the volume stats for yesterday, the May contract traded 590,386 while the June contract traded 239,154. On April 8 thus far, volume for the May contract is 497,482 and for June 183,404, but the market doesn’t close for several more hours. The May contract has made a daily high of 39.84, which is 1 cent below the March 30 high of 39.85 and 30 cents below the March 28 high of 40.14.
If bearish positions have been initiated on the rally as recommended in yesterday’s research, we suggest these be liquidated by the end of the session unless crude is trading below yesterday’s close. The uncharacteristic strength of today’s move in conjunction with the weekend may signal a release of some kind of bullish news.
From the April 4 note on WTI crude:
“As is usually the case after the generation of a sell signal, the market should have a counter trend rally lasting 1-3 days and this will be the opportunity to initiate bearish positions.”
In a natural gas advanced 10.7 cents on heavy volume of 468,921 contracts. Total open interest declined by 2,415 contracts, which relative to volume is approximately 75% below average, and a total open interest decline on yesterday’s fairly strong advance is negative. The May contract accounted for a loss of 31,424 of open interest. As this report is being compiled on April 8, the May contract is trading 2.3 cents lower and has made a daily high of $2.044, which is above yesterday’s print of 2.024. Continue to hold the short put and/or long call options.
The June euro lost 28 pips on volume of 225,902 contracts. Total open interest declined by 1,822 contracts, which relative to volume is approximately 55% below average. As this report is being compiled on April 8, the June contract is trading 26 pips above yesterday’s close. The euro remains on short and intermediate term buy signals and should be traded from the long side only. Do not short the euro.
EUR/JPY: On April 7, EUR/JPY generated a short-term sell signal and remains on an intermediate term sell signal.
AUD/CAD: On April 8, AUD/CAD will generate a short-term sell signal and is getting close to generating an intermediate term sell signal.
June yen gained 117 pips on volume of 224,915 contracts. Total open interest declined by 1,216 contracts, which relative to volume is approximately 75% below average, and a total open interest decline on yesterday’s strong advance is slightly negative, but understandable considering the magnitude of the advance. It appears that longs were taking profits and shorts were getting blown out of the water.
As this report is being compiled on April 8, the June contract is trading just 13 pips lower on the day. The yen is the closest instrument to a runaway freight train. Do not short this currency and do not enter new bullish positions at current levels. The Japanese Central Bank may intervene at any time. If you must trade the yen do with via options.
The June British pound lost 66 pips on volume of 86,671 contracts. Total open interest declined by 1,460 contracts, which relative to volume is approximately 35% below average. As this report is being compiled on April 8, the June contract is trading 54 pips higher and has made a daily high of 1.4143, which is slightly below yesterday’s print of 1.4160.
On April 6, the June pound generated a short-term sell signal and remains on an intermediate term sell signal. Usually, after the generation of a sell signal, markets have a tendency to rally from 1-3 days and if you are so inclined, this is the time to initiate bearish positions. However, we want to caution clients that the vote for the United Kingdom to leave the European economic union is 2 1/2 months away and the pound can trade higher temporarily to blow out the large contingent of short-sellers. We have no recommendation.
Copper: On April 8, May and July copper will generate intermediate term sell signals after generating short-term sell signals on April 1.
May copper lost 6.70 cents on very heavy volume of 140,793 contracts. Total open interest exploded higher, up 11,403 contracts, which relative to volume is approximately 230% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices to a new low for the move of 2.0670. We have no recommendation.
Dow Jones Transportation Index:
On April 7, the Dow Jones Transportation Index generated a short-term sell signal, but remains on an intermediate term buy signal. The transportation Index is having its usual counter trend rally and is trading up 1.43% for the day. Clients may want to consider shorting the ETF for the transportation index, ticker symbol IYT.
From the April 6 note the Dow Transport Index:
“In our view, this (the sell signal) has ominous implications for the market as a whole and after making the high for the move of 8114.27 on March 21, the transportation index has been trading sideways to lower. The March 21 print preceded the SPX high by several days.
IBB: The NASDAQ biotech index IBB will generate an intermediate term buy signal on April 8 if the daily low is above OIA’s key pivot point for April 8 of 271.97. Thus far in trading IBB has made a daily low of 274.83. The biotech index generated a short-term buy signal on April 4.
S&P 500 E-mini:
The June S&P 500 E-mini lost 25.25 points on heavy volume of 2,056,303 contracts. Volume exceeded that of April 6 when the June contract gained 21.50 points on volume of 1,897,833 contracts and total open interest declined by 734. Also, volume exceeded that of April 5 when the June contract lost 18.75 points on volume of 1,830,396 contracts and total open interest increased by 539.
On April 6, total open interest increased by 13,329 contracts, which relative to volume is approximately 70% below average, but an open interest increase on yesterday’s decline indicates that new short-sellers were entering the market and that longs were not liquidating. During most of the rally, we saw series of days in which total open interest increased and yet on yesterday’s decline and the one that occurred on April 5, longs were not budging.
The market hasn’t made a decisive down move, but we think it is getting close. Usually, April tends to be strong for the major indices, but much of this will depend upon the upcoming earnings reports which may prove to be dismal reading.
From the April 6 note on the S&P 500 E-mini:
“We think the market is in the process of rolling over and the rally of the past several weeks a typical bear market bounce. The 10 month moving average for the S&P 500 cash index of 2017.97 is below the 20 month moving average of 2035.99. This tells us the markets’ weakness is not temporary, but something more serious.For this to reverse, the S&P 500 would have to display a considerable amount of strength over a long period of time and this is unlikely in our view.:
“We will be examining some bearish option strategies and encourage clients who subscribe to OIA-Direct to call with any question.”