WTI crude oil:
April WTI crude oil lost 9 cents on volume of 1,177,532 contracts. Total open interest increased by 24,373 contracts, which relative to volume is approximately 20% below average. However, the April contract lost 24,516 of open interest, which means there was more than enough open interest increases in the forward months to offset the decline in April and increase total open interest. Yesterday’s total open interest increase is the largest since the major slide in oil prices began on March 8. On March 8, the April contract lost $2.86, total open interest increased by 19,543.
Although, total open interest increases on recent price declines have been nothing to write home about, we are not seeing are total open interest declines when crude closes lower. This tells us that longs continue to hold their positions despite crude trading at multi-month lows. These stubborn longs must be blown out before crude can begin the process of turning, however this may be a month or two away.
As this report is being compiled on March 14, the April contract is trading sharply lower again, down 89 cents or-1.86% on heavy volume. Today, is the tabulation date for the COT report to be released this Friday and at that time will have a much better idea of the extent to which managed money has liquidated their positions.
On March 8, OIA announced that April and May WTI crude oil generated short and intermediate term sell signals. We recommended a stand aside posture prior to the decline and clients should remain on the sidelines.
April natural gas gained 3.5 cents on volume of 398,787 contracts. Volume fell from March 10 when the April contract advanced 3.4 cents on volume of 453,954 contracts and total open interest declined by 3,684. Additionally, volume was below that of March 9 when the April contract increased by 7.3 cents on volume of 448,974 and total open interest declined by 6,591. In summary, volume on March 13 was the lowest of all the sessions from March 8.
On March 13, total open interest increased substantially, up 9,666, which relative to volume is average.The reduced volume combined with the strong increase of open interest indicates that Johnny-come-lately’s were getting on board natural gas. This was probably due to the storm that is engulfing the Northeast. Apparently, the storm is not as bad as most people thought and this is impacting natural gas prices on March 14. As this report is being compiled, the April contract is trading down 8.5 cents or -2.86% lower on the day as the Johnny-come lately’s liquidate.
On March 10, OIA announced that April and May natural gas generated short term buy signals and they remain on intermediate term sell signals.
Yesterday, the April contract made a high of $3.085, which is the highest print since 3.090 made on February 15, 2017. Additionally, it nearly touched the 50 day moving average on the continuation chart of 3.096. Although, from a seasonal point of view natural gas prices perform well during March April and May, we cannot discount the possibility of a signal reversal.
For a short term sell signal to occur, the daily high would have to be below OIA’s key pivot point for March 14 of $2.833. Accordingly, we recommend waiting until tomorrow before considering bullish positions. Additionally, we have recommended using options due to the volatility of natural gas. For equity speculators equity, ETF UNG can be used.
Euro: On March 13, the June euro generated a short term buy signal and currently remains on an intermediate term sell signal.
The June euro lost 33 pips on volume of 190,580 contracts. Total open interest declined by 6,186 contracts, which relative to volume is approximately 15% above average. As this report is being compiled on March 14, the June contract is having its typical pullback, which occurs after the generation of the buy signal and is trading 40 pips lower or -0.38%.
Yesterday, we recommended the liquidation of the long dollar index ETF position UUP and move to the sidelines because we anticipate the dollar index will generate a short term sell signal due to the euro’s strength. We have no recommendation.