WTI crude oil:
August WTI crude oil lost $1.31 on volume of 826,554 contracts.Total open interest increased by a sizable 20,946 contracts, which relative the volume is average. Volume declined considerably from June 24 when the August contract lost 2.47 on volume of 1,096,908 contracts and total open interest declined by 21,775. Yesterday’s open interest increase confirms that new short-sellers were entering the market in substantial numbers and driving prices lower (45.83). The August contract gained 8,702 of open interest. As this report is being compiled on June 28 August WTI is rallying, up 88 cents on relatively low volume. Although, we think crude may drift lower, especially if the dollar index continues to stay strong, we do NOT envision a resumption of the vicious bear market seen earlier this year. Continue to hold the profitable short call position recommended in the June 20 report.
August natural gas advanced 4.7 cents on volume of 279,652 contracts. Total open interest declined by 3,253 contracts, which relative to volume is approximately 45% below average. The July contract lost 17,474 of open interest. The COT report which was released last Friday showed that managed money remains short natural gas by ratio of 1.13:1, although they added 5698 to their long positions and liquidated 8002 of their short positions. The short ratio is down from 1.19:1 made the previous week and 1.27:1 the ratio of two weeks ago.
The rise of natural gas prices after making their contract low at $1.99 on February 29, 2016 is one of the great untold stories in the financial press. As clients know, OIA announced on June 1 that August natural gas generated a short-term buy signal and prior to this had been on intermediate-term buy signal. Since the June 1 close of $2.453, the August contract has risen nearly 45 cents through today’s trading.
The moving average setup is bullish and during the past day, the 50 day moving average for the August contract of 2.456 has crossed above the 200 day moving average of 2.452. It has been a couple of years since the natural gas market has experienced a bullish 50 x 200 day moving average cross up. In our view natural gas should be traded from the long side only. The year-to-date moving average for the August contract is 2.345 and currently the August contract is trading approximately 50 cents above the year-to-date moving average.
Although, from the seasonal point of view natural gas should be topping, we think there could be some real fireworks this winter especially if temperatures remain on the frigid side. At this juncture we recommend a stand aside posture.
Copper: On June 27, September copper generated a short-term buy signal, but remains on intermediate-term sell signal.
September copper gained 95 points on volume of 87,324 contracts. Total open interest declined by 5,089 contracts, which relative the volume is approximately 125% above average. The July contract accounted for a loss of 5,780 of open interest. The COT report revealed that managed money added 774 contracts to their long positions and liquidated 18,553 of their short positions. Commercial interests liquidated 8,746 of their long positions and added 594 to their short positions. As of the current report, managed money remains short copper by a ratio of 1.87:1, but this is down from the previous week of 2.51:1 and the ratio two weeks ago of 2.12:1. We see no compelling reason to be involved in the copper market
Dollar index: On June 27, the September dollar index generated short and intermediate term buy signals.
The September dollar index advanced 1.129 points. According to exchange statistics, total volume traded was 29,061 contracts, however, the exchange reported that total open interest increased by 47,373, which is impossible. Total open interest increases cannot exceed volume. More than likely, volume was 47,373 contracts and total open interest increased 29,061. There is no reason to be involved in the dollar index.
Euro: On June 27, the September euro generated short and intermediate term sell signals.
The September euro lost 1.19 cents on volume of 218,952 contracts. Total open interest increase by a massive 8,566 contracts, which relative the volume is approximately 55% above average meaning that aggressive new short-sellers were entering the market in substantial numbers and driving prices lower (1.1003). As this report is being compiled on June 28 the September euro is rallying, which is to be expected after the generation of sell signals. Conceivably the euro may continue to rally for another day or two, but will resume its downtrend. We have no recommendation.
British Pound: On June 27, the September British pound generated short and intermediate term sell signals.
The September British pound lost 4.70 cents on volume of 229,581 contracts. Volume declined dramatically from June 24 when the September contract lost 11.53 cents on volume of 506,100 contracts and total open interest increased by 4,201 contracts. On June 27, total open interest increased by 5,483, which relative to volume is approximately 10% below average.
In yesterday’s report, we commented on the substantial increase of open interest in the euro during the past two days compared to the open interest increase in the pound, which has been substantially below that of the euro in the same time frame. For example, during the past two days the euro has declined by 3.54 cents while total open interest has increased by 15,024 contracts. By contrast, the pound has declined by a massive 16.23 cents and total open interest has increased by just 9,684.
This tells us that new short-sellers are waiting in the wings looking to sell any rally. As this report is being compiled on June 28, the September pound is rallying, up 1.44 cents on low volume. The pound is too hazardous to trade and we recommend a stand aside posture. Volatility remains extremely high.
S&P 500 E-mini: On June 27, the September S&P 500 E-mini generated short and intermediate term sell signals.
The September S&P 500 E-mini lost 33.50 points on substantial volume of 3,026,066 contracts. Volume fell from June 24 when the September contract lost 87.25 points on volume of 4,184,892 and total open interest increased by a staggering 168,488 contracts. On June 27, total open interest increased by 35,213 contracts, which relative to volume is approximately 50% below average. The total open interest increase for the second day on a major price decline confirmed that new short-sellers were entering the market in substantial numbers and this drove prices to a new low for the move of 1981.50.
As this report is being compiled on June 28, the September contract is having its typical counter trend rally after generating sell signals and trading up 24.50 points. It has made a daily high of 2018.25 and low of 1982.25, which is fractionally above yesterday’s print. It should be noted that the July-August-September time frame is usually a period of under performance for the major indices.
We think it is premature to enter bearish positions and want to see another day or two of rally activity before making a recommendation. The 10 year note is trading unchanged even though equities are rallying and it appears likely that further declines in the 10 year yield are on the horizon, which may indicate that a further slowdown in the global economy is on the horizon. Stand aside for now.