August natural gas lost 5.2 cents on volume of 368,736 contracts. Total open interest declined by 3,462 contracts, which relative to volume is approximately 50% below average. The August contract accounted for a loss of 694 of open interest. As this report is being compiled on June 30, the August contract is trading lower, down 5.7 or -1.87%.
On June 28, OIA announced that August natural gas generated a short term buy signal and currently remains on an intermediate term sell signal. Usually after the generation of a short term buy signal, markets have a tendency to pullback and this is what we have been seeing for the past two days.
However, because we are concerned about the seasonal tendency for natural gas the bottom in July, it is conceivable the short term buy signal could be reversed. This would occur if the daily high is below OIA’s key pivot point for June 30 of $2.983. If this occurs, we recommend liquidating bullish positions and move to the sidelines until such time as new buy signal is generated.
WTI crude oil:
August WTI crude oil advanced 19 cents on volume of 1,153,325 contracts. Total open interest increased by 9,108 contracts, which relative to volume is approximately 55% below average. The August contract lost 14,675 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in August and increase total open interest.
Yesterday’s open interest increase on the price advance is the third one in a row and this trend began on June 27. The August contract is getting close to generating a short term buy signal and this will occur if the daily low is above OIA’s key pivot point June 30 of $45.82. Stand aside for now.
10 Year US Treasury Note:
The September 10 year treasury is close to generating ann intermediate term sell signal. This will occur if the daily high is below OIA’s key pivot point for June 30 of 125-225. On June 28, OIA announced that the September note generated a short term sell signal. Since then, the market has not had its usual counter trend rally which would have enabled clients to initiate bearish positions. Wait for the rally.
From the June 27 note on the 10 year treasury
“For those of you who want to initiate bearish positions in the September note, wait for a rally. Usually, after the generation of a short term sell signal, the market has tendency for a counter trend rally which may last 1-3 days. A move to 126-234–126-235 is a reasonable level at which to initiate bearish positions.”
September British pound advanced 55 pips on volume of 129,919 contracts. Total open interest skyrocketed higher, up 7,664 contracts, which relative to volume is approximately 140% above average. This follows the action of June 28 when the pound advanced by 1.28 cents on volume of 190,079 contracts and total open interest increased by 5,284.
In summary, the action for the past two days has been unmistakably bullish. On June 28, OIA announced that the September pound generated short and intermediate term buy signals. As this report is being compiled on June 30, the pound is trading 10 pips above yesterday’s close and has made a new high for the move of 1.3061, which is above yesterday’s print of 1.3047. We have no recommendation.
Chicago and Kansas City wheat:
September Chicago wheat advanced by 23.00 cents on volume of 277,153 contracts. Total open interest declined by 1,263 contract, which relative to volume is approximately 75% below average. The July contract accounted for a loss of 11,118 of open interest, which means there were insufficient open interest increases in the forward months to offset the decline in July.
On the other hand, Kansas City wheat rose 19.50 cents on strong volume of 94,812 contracts and total open interest increased by 1,050 contracts, which relative to volume is approximately 50% below average, but the total open interest increase indicates that new buyers were rushing into Kansas City wheat. The July contract lost 8,286 of open interest, which means there were enough open interest increases in the forward months to offset the loss in July.
In our next research note, we will provide the COT stats which will be released this afternoon. Needless to say, managed money has been massively net short Chicago wheat and net long Kansas City. Currently September Chicago wheat is trading 29.50 cents higher, and has made a new high for the move of 5.26, which takes out the high for the week of June 6, 2016 of $5,24. KC wheat is trading 28.75 cents above yesterday’s close.
Although, we have no current recommendation, on May 1, our advice was to trade both Chicago and KC wheat from the long side.
From the May 1, 2017 note on Kansas City Wheat:
“Kansas City wheat: On May 1, July Kansas City wheat generated a short term buy signal, and an intermediate term buy signal will be generated on May 2.”
“July Kansas City wheat skyrocketed 28.50 cents on extremely heavy volume of 105,352 contracts. To put yesterday’s volume in perspective, consider that the average daily volume year to date for Kansas City wheat is 48,270 contracts. On May 1, total open interest declined by 1,697 contracts, which relative to volume is approximately 35% below average, and this is not surprising because managed money is short Kansas City wheat.”
“According to the most recent COT report tabulated on April 25, managed money added 5,263 to their long positions and also added 7,807 to their short positions. Commercial interests liquidated 3,373 of their long positions and also liquidated 9,039 of their short positions. As of the April 25 tabulation date, managed money was short Kansas City wheat by ratio of 1.21:1, up from the previous week of 1.19:1 and the ratio of 1.15:1 made two weeks ago.”
“As this report is being compiled on May 2, the July contract is trading 3.00 cents above yesterday’s close and has made a new high for the move of 4.74 3/4, which takes out the March 20 high of 4.70. It appears the July contract is headed toward the high of 4.98 1/4 made on February 16. However, we expect to see consolidation and after the generation of a short term buy signals, markets have a tendency to pullback and this can last from 1-3 days.”
“In the case of very bullish action such as what is occurring in the Kansas City contract, the move may be extended for a day or two, but expect corrective activity in the period immediately ahead. At this juncture we do not have a specific recommendation, but both markets should be traded from the long side (Chicago and Kansas City).”
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