Bloomberg Access:{OIAR<GO>}

WTI crude oil:

March WTI crude oil advanced 86 cents on volume of 1,345,949 contracts. Total open interest increased by 26,103 contracts, which relative to volume is approximately 20% below average. The March contract accounted for a loss of 42,230 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in March and increase total open interest. Friday’s action was positive, but as we have pointed out before, the March contract has been unable to make a low above our pivot point, which would indicate the rally would resume.

The COT report released on Friday revealed that managed money liquidated 8,180 of their long positions and added 14,261 to their short positions. Commercial interests added 10,950 to their long positions and also added 2,395 to their short positions. As a result, managed money was long crude oil by ratio of 6.20:1, down from the previous week of 8.00:1 and the ratio two weeks ago of 7.83:1. Still, managed money is heavily long, yet the market has been unable to show any pattern of sustained strength.

As this report is being compiled on February 13, the March contract is trading 99 cents lower, has made a daily high of 53.95, which is below Friday’s print of 54.13 and a low of 52.77, which is below Friday’s print of 52.90. For the rally to resume, the March contract must make the daily low above OIA’s pivot point for February 13 of 53.62 and a sell signal will be generated if the daily high is below OIA’s key pivot point of 52.41. Stand aside.

Natural gas:

March natural gas lost 10.7 cents on heavy volume of 559,304 contracts. Total open interest increased by a substantial 29,201 contracts, which relative to volume is approximately 120% above average. The March contract lost 16,670 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in March and increase total open interest substantially above average. Friday’s action is the most bearish we’ve seen since the natural gas market collapsed several weeks ago.

However, the COT report released on Friday still shows that managed money is heavily long natural gas and they added 562 to their long positions and also added 7,615 to their short positions. Commercial interests liquidated 25,180 of their long positions and also liquidated 27,172 of their short positions. As a result, managed money was long natural gas (as of February 7) by ratio of 1.84:1, down from the previous week of 1.94:1 and substantially below the ratio two weeks ago of 2.24:1.

Although, Friday’s massive increase of open interest as prices plumb new lows for the move would typically indicate a short term bottom, the reality is with the huge number of speculative longs in the market, the continuing power of long liquidation will weigh on the market. Natural gas is massively oversold relative to its 20 (3.207) and 50 day (3.366) moving averages, but this not does not preclude continued liquidation until there is a new fundamental driver for higher prices.

As this report is being compiled on February 13, the March contract has made another new low for the move of $2.952, which takes natural gas prices to levels last seen in late November 2016. On January 4, OIA announced that March natural gas generated short and intermediate term sell signals and we have been advising clients to stand aside in this market ever since.

Euro: The March and June 2017 euro will generate short term sell signals on February 13. Both contracts remain on intermediate term sell signals.

The March euro lost 27 pips on volume of 175,546 contracts. Total open interest increased by 538 contracts, which relative to volume is approximately 85% below average. As this report is being compiled on February 13, the March contract is trading 35 pips lower on low volume. The COT report released on Friday revealed that leverage funds liquidated 2,057 of their long positions and also liquidated 235 of their short positions.

As result, leverage funds are short the euro by ratio of 3.04:1, up from the previous week of 2.85:1, but down from the ratio two weeks ago of 3.49:1. We think the euro is headed to parity with the dollar. We recommend waiting for a counter trend rally before initiating bearish positions.

Dollar index:

The March dollar index advanced 14.4 points on volume of 35,135 contracts. Total open interest increased by 401 contracts, which relative to volume is approximately 45% below average, but a total open interest increase on Friday’s modest advance is positive.

Leverage funds got considerably more bullish on the dollar index in the latest COT report and added 2,109 to their long positions and liquidated 3,083 of their short positions. As of February 7, leverage funds were long the dollar index by ratio of 4.64:1, up substantially from the previous week of 2.91:1 and the ratio two weeks ago of 2.95:1.

As this report is being compiled on February 13, March dollar index is trading 23.4 points higher on the day, but will NOT generate a short term buy signal on February 13. For a short term buy signal to occur, which we think is inevitable, the low of the day must be above OIA’s key pivot point for February 13 of 100.814. In the February 8 report, in anticipation of the buy signal in the dollar index, we recommended long positions in the dollar index ETF UUP.

From the February 8 research note:

“We still  like the dollar index ETF UUP on the long side and long positions can be entered today at current levels with a sell stop slightly below the February 2 low for the move of $25.65.”