Bloomberg Access:{OIAR<GO>}

Natural gas:

April natural gas advanced 4.8 cents on volume of 516,280 contracts. Total open interest declined by 8,174 contracts, which relative to volume is approximately 35% below average, but a total open interest decline on yesterday’s advance confirms that market participants showing losses were liquidating as prices bounced from their lows. The March contract accounted for a loss of 16,720 of open interest.

As this report is being compiled on February 24, the April contract is trading 1.9 cents above yesterday’s close on low volume. On January 4, OIA announced that natural gas generated short and intermediate term sell signals and we have been advising a stand aside posture ever since.

10 Year Treasury Note: The March and June 10 year treasury note will generate intermediate term buy signals on February 24 after generating short term buy signals on January 5.

The March 10 year treasury note gained 9 points on extraordinarily heavy volume of 5,687,746 contracts. Total open interest declined by 70,796 contracts, which relative to volume is approximately 45% below average. The total open interest decline in yesterday’s trading confirms that short-sellers were powering the market higher, not new buying.

The COT report released last Friday revealed that leverage funds added 31,314 to their long positions and also added a massive 113,567 contracts to their short positions. This left leverage funds short the 10 year note by a ratio of 1.46:1, up from the previous week of 1.31:1 and the ratio two weeks ago of 1.26:1.

As this report is being compiled on February 24, the March contract is trading 15.5 points above yesterday’s close on heavy volume and has made a new high for the move of 125-210, which takes out the previous high print since 125-180 made on February 8 and is the highest price since 125-245 made on December 5, 2016.

With the heavy short position of leverage funds combined with the conventional wisdom that interest rates are headed higher, rather than lower as it now appears it is difficult to ascertain how much higher the move can go, but we strongly advise against trying to pick the top in the 10 year note.

Mexican peso:

The March Mexican peso advanced by a very strong 67 pips on volume of 51,741 contracts. Although the move was strong, volume was the lowest of the past three trading sessions when the peso advanced. On February 22, March contract gained 27 pips on volume of 57,921 and on February 21 when the peso gained 110 pips, the volume traded with 63,603.In summary, as prices moved to multi-month highs volume began to dry up on the advance.

On February 23, total open interest declined by 2,083 contracts, which relative to volume is approximately 60% above average meaning liquidation was extremely heavy on yesterday’s strong advance. This is not a big surprise considering that leverage funds remain heavily short the Mexican peso. As this report is being compiled on February 24, the March contract is having one of its few corrective days, trading down 46 pips. Continue to hold bullish positions in the peso originally recommended on January 30.

Gold:

April gold advanced by a very strong $18.10 on heavy volume of 289,048 contracts. Total open interest in increased explosively higher, up 22,431 contracts, which relative to volume is approximately 210% above average indicating that new buyers were flooding into gold and sending prices to a high of 1252.20.

As this report is being compiled on February 24, the April contract continues its advanced up $7.30 and has made a new high for the move of 1261.20, which is the highest print since 1269.00 made on November 11, 2016 right after the presidential election. The performance of gold has been outstanding especially considering the dollar index has remained firm with an upward bias. However, the moving average setup is bearish: the 50 day moving average stands at 1196.00, 100 day at 1220.20 and the 200 day moving average of 1271.80.

On January 5, OIA announced that April gold generated a short term buy signal and intermediate term buy signal on February 6. One positive for gold is that the level of speculative interest is actually at a low ebb. As of the latest COT report, managed money is long gold by only 1.88:1, which is down from the previous week of 1.97:1 and the ratio two weeks ago of 1.99:1.

In other words, there are many potential participants in gold that have not yet entered the market. Still, with the negative moving average setup, gold has much more work to do before we can become strongly bullish. We have no recommendation.

Lean hogs: On February 23, April and June lean hogs generated short term sell signals, but remain on intermediate term buy signals.

April hogs lost 1.17 cents on volume of 44,754 contracts. Total open interest declined by 3,323 contracts, which relative to volume is approximately 190% above average meaning that liquidation was extremely heavy on yesterday’s decline to a multi-month low of 66.025. As this report is being compiled on February 24 the April contract is having its usual counter trend rally after the generation of a sell signal, trading up 1.20 cents on lackluster volume.

In yesterday’s report, we said that the rally could carry the April contract to the 50 day moving average of 68.727 or conceivably to the 20 day moving average of 69.787. At that point, bearish positions should be initiated. Wait for at least one more day before considering bearish positions.