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WTI crude oil:

July WTI crude oil advanced 90 cents on volume of 1,191,211 contracts. Total open interest increased by 10,397 contracts, which relative to volume is approximately 50% below average. The July contract accounted for a loss of 1,364 of open interest. On Friday, the July contract made a low of $48.18, and the market should find support above this level. A violation of Friday’s low would be negative in our view.

The COT report released on Friday revealed that managed money liquidated 6,971 of their long positions and also liquidated a massive 63,125 contracts of their short positions. Commercial interests liquidated 19,545 of their long positions and also liquidated 24,089 of their short positions. Liquidation across the board from managed money to commercial interests confirms the very large decline of total open interest that crude oil experienced on the rally, which we wrote about extensively.

As of the May 23 tabulation date managed money was long WTI crude oil by ratio of 2.51:1, up substantially from the previous week of 1.65:1 and the ratio two weeks ago of 1.63:1. Keep in mind, the ratio increased solely because of the massive decline of short positions by managed money.

As this report is being compiled on May 30, the July contract is trading 43 cents lower and has made a daily low of 49.03. While we have no strong feeling about crude oil at this juncture, we tend to think the market will trade in a sideways to slightly higher pattern. On May 19, July and August WTI crude oil generated short term buy signals, but continue to be on intermediate term sell signals.

Natural gas: July and August 2017 New York natural gas will generate short term sell signals on May 30. Both contracts remain on intermediate term buy signals.

July natural gas gained 3.5 cents on light pre-holiday volume of 334,085 contracts. However, total open interest declined massively, this time by 13,468 contracts, which relative to volume is approximately 55% above average. The June contract accounted for a loss of 6,164 of open interest.

The COT report revealed that managed money liquidated 3,780 of their long positions and added 7,498 to their short positions. Commercial interests added 28,362 to their long positions and also added 35,472 to their short positions. As of the May 23 tabulation date, managed money was long natural gas by a ratio of 3.42:1, down from the previous week of 3.75:1 and above the ratio two weeks ago of 3.34:1.

As this report is being compiled on May 30, the July contract is trading sharply lower, down 16.1 cents or -4.89% and has made a daily low of $3.145, which is the lowest print since 3.104 made on March 20, 2017. On the continuation chart, it is the lowest price since 3.083 made by the May 2017 contract on April 25.

Now that natural gas is on a short term sell signal, we recommend waiting for a counter trend rally, which may last 1-3 days and this would be the opportune time to initiate bearish positions. Unfortunately, the market broke sharply during the holiday session, and has continued lower on Tuesday.

Soybean oil: On May 26, July 2017 Chicago soybean oil generated a short term sell signal, which reversed the May 3 short term buy signal. July soybean oil remains on an intermediate term sell signal. Stand aside.

Gold: August 2017 New York gold will generate an intermediate term buy signal on May 30. On May 25, August New York gold generated a short term buy signal.

August gold advanced $11.70 on heavy volume of 439,416 contracts. Total open interest declined by 8,545 contracts, which relative to volume is approximately 20% below average. The decline of total open interest was due to the massive decline of open interest in the June 2017 contract of 61,627 as it approaches first notice day.

The COT report released on Friday revealed that managed money added 29,799 contracts to their long positions and liquidated 15,381 of their short positions. Commercial interests liquidated 1,062 of their long positions and added 17,184 to their short positions. As of the latest COT report tabulated on May 23, managed money is long gold by ratio of 3.18:1, up substantially from the previous week of 2.00:1 and only slightly above the ratio two weeks ago of 2.73:1.

We think higher prices are ahead, but the market may trade in a sideways pattern until gold enters its strong seasonal time frame beginning in August. As we have pointed out in prior notes, the danger to gold in the short term may be a temporary rally in the dollar. We are expecting the euro to correct in the coming weeks and this could temporarily lift the dollar index causing it to generate a short term buy signal. We think this would be temporary and that the signal would reverse, but the rally could dampen the enthusiasm for gold and the precious metals in general.

Yen: The June and September 2017 Japanese yen will generate intermediate term buy signals on May 30 after generating short term buy signals on May 22.

The June Japanese yen advanced 35 pips Friday on volume of 127,955 contracts. Total open interest declined by 2,171 contracts, which relative to volume is approximately 35% below average.

The COT report released on Friday revealed that leverage funds added 5 contracts to their long positions and liquidated 2,493 of their short positions. As of the May 23 tabulation date, leverage funds were short the yen by a ratio of 1.65:1, down from the previous week of 1.71:1, but up from the ratio two weeks ago of 1.12:1.  As this report is being compiled on May 30, the June contract is trading 44 pips above Friday’s close and has made a high of .9043, which is the highest print since .9082 made on May 18. It appears the yen is headed toward a test of the 200 day moving average of .9149. We have no recommendation.

British pound: The June and September 2017 British pound will generate short term sell signals on May 30. The short term sell signal reverses the March 22 short term buy signal. Both contracts remain on intermediate term buy signals.

The June British pound lost 1.41 cents on heavy volume of 168,159 contracts. Surprisingly, total open interest increased only 1,756, which relative to volume is approximately 50% below average. However, a total open interest increase on Friday’s strong decline is bearish and indicates that new short-sellers were piling into the pound and sending it to a low of 1.2782 for the June contract and 1.2819 for September.

The COT report revealed that leverage funds added 1,203 to their long positions and liquidated 4,589 of their short positions. As of the May 23 tabulation date, leverage funds were long the British pound by a ratio of 1.04:1, a REVERSAL from the previous week when they were short by ratio of 1.09:1. Two weeks ago, leverage funds were short the British pound by ratio of 1.23:1.

In numerous notes on the pound, we stated the pound would likely be close to a top when leverage funds assumed a net long position. Almost on schedule, the pound generates a short term sell signal as leverage funds assumed a net long position while the pound reached the highest level on the continuation chart since the week of September 26, 2016.

Currently, the September contract is trading below the 20 day moving average of 1.2933 and we tend to think this will be a significant point of resistance. It is trading above the 50 day moving average of 1.2737 and the 100 day moving average of 1.2566. The 200 day moving average stands at 1.2618. Although, the daily moving averages are in a bullish set up, we think this is about to change.

Looking at the longer-term moving averages the setup is distinctly bearish. The 20 week moving average stands at 1.2597, 50 week, 1.2703 and the 100 week moving average stands at 1.3775. The monthly moving averages reflect the same bearish set up with the ten-month moving average standing at 1.2667 and the 20 day moving average of 1.3555.

In summary, longer-term the setup for the pound is bearish and we expect that after a 1-3 day rally, which we think will be rather weak, the pound will turn lower. One mitigating factor against substantial bearishness is the seasonal tendency for the pound to bottom during the month of May and rally through June and July, then turn lower in August. We tend to think this pattern will not play itself out in 2017.