March natural gas lost 9.00 cents on volume of 493,339 contracts. Volume declined from February 10 when the March contract lost 10.7 cents on volume of 559,304 contracts and total open interest increased by massive 29,201. On February 13, total open interest increased massively again, this time by 27,324 contracts, which relative to volume is approximately 120% above average.
This indicates that new short-sellers continued to initiate new positions for the second day in a row as prices decline to their lowest levels in three months. The March contract lost 15,901 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.
It is stunning to say the least that short-sellers are becoming extremely aggressive at relatively low levels, which leads us to think that a high portion of these are commercial interests who see lower prices ahead. In prior reports, we’ve written about the large contingent of speculative longs who have refused to liquidate even though the March contract is trading approximately $1.00 below the high made several weeks ago.
On January 4, OIA announced that March natural gas generated short and intermediate term sell signals and we have been recommending a stand aside posture ever since.
Dollar index: The March dollar index will not generate a short term buy signal on February 14 because the low of the day (100.700) is below OIA’s key pivot point of 100.798. For a short term buy signal to occur, the daily low must be above the pivot point.
The March dollar index gained 15.9 points on low volume of 24,284 contracts. Total open interest increased just 74 contracts. As this report is being compiled on February 14, the March contract is trading 36 points higher and has made a new high for the move of 103.385, which is the highest level since 101.485 made on January 20.
We think the short term buy signal will occur in tomorrow’s trading. Although, we recommend a stand aside posture in dollar index futures, in the February 8 report, we recommended the initiation of long positions in the dollar index ETF, UUP. Continue to hold this position.
Euro: On February 13, the March and June euro generated short term sell signals and remain on intermediate term sell signals.
The March euro lost 33 pips on light volume of 138,977 contracts. Total open interest increased by a hefty 4,634 contracts, which relative to volume is approximately 25% above average. As this report is being compiled on February 14, the March contract is trading 20 pips below yesterday’s close and has made a new low for the move of 1.0571, which is the lowest print since 1.0481 made on January 11.
Now that the euro is on a short term sell signal, we recommend waiting for a counter trend rally that may last for 1-3 days before initiating bearish positions. With the French elections coming up in April, we think the path of least resistance is lower and expect parity with the dollar sometime this year.
The March Mexican peso advanced 4 pips on volume of 24,791 contracts. Total open interest declined by 1,160 contracts, which relative to volume is approximately 75% above average meaning that liquidation was substantial on yesterday’s modest gain. As this report is being compiled on February 14, the March contract continues its advance, up 8 pips and has made a new high for the move of .04929, which is the highest print since .04961 made on December 12.
On January 30, OIA announced that the March peso generated a short term buy signal and an intermediate term buy signal on February 9. Additionally, in the January 30 research note, we recommend the initiation of bullish positions in the peso. Continue to hold because most of the negative news has been discounted for now and higher prices are likely ahead.
The COT report released last Friday showed that leverage funds added 3,976 to their long positions and liquidated 8,110 of their short positions. As a result, leverage funds are short the Mexican peso by ratio of 3.17:1 and this is down from the previous week of 4.15:1. Speculative shorts will continue to add fuel to the upside move.
Yen: The March Japanese yen 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 February 14 of .8775. The March contract remains on an intermediate term sell signal.
10 Year Treasury Note: The March 10 year treasury note will generate a short term sell signal if the daily high is below OIA’s key pivot point for February 14 of 124-065. The March contract remains on an intermediate term sell signal.
S&P 500 E-mini:
The March S&P 500 E-mini gained 13.50 points on lackluster volume of 1,226,784 contracts. Volume increased somewhat from February 10 when the March contract gained 8.50 points on volume of 1,182,263 contracts and total open interest increased by 15,866. On February 13, total open interest increased by a sizable 47,455 contracts, which relative to volume is approximately 35% above average, which indicates that new buyers were flooding into the E-mini and driving prices to a new all-time high of 2329.00. As this report is being compiled on February 14, another new all-time high has been made (2333.75) and the March contract is trading up 6.75 points.
The COT report released on Friday showed that leverage funds added 1,066 to their long positions and also added 2,595 to their short positions. It should be noted that our analysis of the S&P 500 is based on the large contract (250 x) and not on the E-mini contract. The reason for this is we find that the large contract is a better gauge of large spec investor sentiment.
The report revealed that leverage funds are short the large S&P 500 contract by ratio of 2.86:1, down from the previous week of 2.96:1, but substantially above the ratio two weeks ago of 1.65:1.
Although, we advise against shorting this market, there are some option strategies that are slightly bearish to neutral that can be employed in the E-mini. Interested clients should call.
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