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WTI crude oil: On June 2, the July and August 2017 WTI contracts generated short term sell signals. These reversed the May 19 short term buy signals. Both contracts remain on intermediate term sell signals.

July WTI crude oil lost 70 cents on strong volume of 1,355,634 contracts. Volume was the heaviest since May 25 when the July contract lost $2.46 on volume of 1,841,408 contracts and total open interest declined by 9,386. On June 2, total open interest increased by 18,626 contracts, which relative to volume is approximately 40% below average. Though the open interest increase was below average, the fact that it increased indicates that new short-sellers were entering the market and driving prices to a new low $46.74, which is the lowest print since 46.40 made on May 10.

The COT report released on Friday revealed that managed money added 2,308 to their long positions and liquidated 10,144 of their short positions. Commercial interests liquidated 12,243 of their long positions and also liquidated 13,111 of their short positions. As of the May 30 tabulation date, managed money was long WTI crude oil by a ratio of 2.77:1, up from the previous week of 2.51:1 and the ratio two weeks ago of 1.65:1. The increase in the ratio during the past couple of weeks has been due to the liquidation of short positions, not the addition of  new long positions.

While the weekly moving averages show a mixed picture, the daily moving averages are definitively in a bearish set up. The 20 day moving average stands at 48.77, 50 day: 49.55, 100 day: 50.79, 200 day: 49.63. The moving averages used in the daily and weekly charts are based on a continuation contract to reflect the contango that currently exists in the market and to accurately reflect the price of the nearby month.

Looking at the longer-term moving averages: the 10 month and 20 month, the market remain in a bullish set up with the 10 month moving average on the continuation chart standing at 49.78 and the 20 month at 45.49. As this report is being compiled on June 5, the July contract is trading 48 cents lower and has made a daily low of 46.86. It appears that the July contract is headed for a test of the three-month low of $44.13 made on May 5. There is no reason to be involved in the crude oil market at this time.

Gasoline: On June 2, July and August 2017 New York gasoline generated short term sell signals. Both contracts remain on intermediate term sell signals.

Natural gas: On June 2, July and August 2017 New York natural gas generated intermediate term sell signals after generating short term sell signals on May 30.

We have recommended waiting for rally before recommending bearish positions and thus far the market has been trading in a steady downward trajectory. The COT report revealed that managed money liquidated 33,918 of their long positions and added 28,225 to their short positions. Commercial interests liquidated 9,002 of their long positions and also liquidated 8,046 of their short positions. As of the May 30 tabulation date, managed money was long natural gas by ratio of 2.38:1, down sharply from the previous week of 3.42:1 and the ratio two weeks ago of 3.75:1 (which was the high ratio for 2017).

Euro:

The June euro advanced 62 pips on volume of 187,800 contracts. Total open interest increased by 4,008 contracts, which relative to volume is approximately 20% below average. However, the total open interest increase in trading on Friday indicated that new buyers continued to move into the euro , which sent it to a new high for the move of 1.1294, which is highest print since 1.1317 made the week of November 7, 2017.

The COT report released on Friday revealed that leverage funds added 2,008 contracts to their long positions and liquidated 8,980 of their short positions. As of the May 30 tabulation date, leverage funds were long the euro by a ratio of 1.09:1, a REVERSAL from the previous week when leverage funds were short by ratio of 1.08:1. Two weeks ago leverage funds were short by 1.61:1.

Although we have not looked at our archives from 2016, we have no doubt this is the first time leverage funds have been long the euro in at least one year. Now that the funds are short, this should set up the long awaited correction that we have been anticipating. Looking at the moving averages on the daily continuation chart, they are in a bullish set up with the 20 day moving average standing at 1.1118, 50 day: 1.0911. 100 day: 1.0793 and the 200 day 1.0860. Ideally, we would like to see the euro correct down to the 50 day moving average, which would provide a solid buying opportunity, although this may be too much to ask.

Though the daily moving averages are in a bullish set up, the weekly and monthly moving averages are not. On the continuation chart, the weekly moving averages are as follows: 10 week: 1.0969, 20 week 1.0829, 50 week: 1.0900. 100 week: 1.1005. Additionally, the 10 and 20 month moving averages are in a bearish set up with the 10 month standing at 1.0889 the 20 month at 1.0984. In summary, the euro has much more work to do on the upside to convert the weekly and monthly moving averages into a bullish set up. Our belief is the euro will spend some time in a corrective mode before taking out recent highs. We recommend a stand aside posture.

10 Year U.S. Treasury Note:

On June 2, the September 10 year treasury note advanced by a strong 14.5 points on volume of 1,636,175 contracts. Surprisingly, total open interest declined by 32,408 contracts, which relative to volume is approximately 20% below average. A total open interest decline on Friday’s advance indicates that both longs and short-sellers liquidating on the rally as the September contract made a new high for the move of 126-255, which is the highest print on the continuation for since 126-200 made by the June 2017 contract during the week of April 17, 2017.

The COT report revealed that leverage funds liquidated 68,331 of their long positions and added 5,024 to their short positions. As of the  May 30 tabulation date, leverage funds were short the 10 year treasury note by a ratio of 1.20:1, up from the previous week of 1.08:1 and the ratio two weeks ago of 1.10:1.

The daily moving averages on the continuation chart show a short term bullish set up with the 20 day standing at 125-296, 50 day, 125-182, 100 day, 125-005 and the 200 day standing at 126-226. For the daily moving averages to move into a solid bullish set up, the 20 and 50 day moving averages must be above the 200 day moving average.

The weekly moving averages on the continuation chart reveal a bearish set up. The 10 week stands at 125-296, 20 week, 120-068, 50 week, 127-163 and the 100 week of 128-050. The 10 and 20 month moving averages on the continuation chart also reflect a bearish set up with the 10-month standing at 126-171 and the 20 month 128-078. Unless the economy weakens considerably, we do not envision the weekly and monthly moving averages moving into bullish setups.

The catalyst for renewed weakness may be this month’s meeting of the FOMC. We recommend a stand aside posture and think the 10 year note will be a terrific opportunity on the short side once a short term sell signal has been generated.  This will occur if the daily high is below OIA’s key pivot point for June 5 of 125-220, which is one full point below today’s high of 126-225. On March 22, OIA announced that the June US treasury note generated short and intermediate term buy signals.