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WTI crude oil:

June WTI crude oil advanced 21 cents on volume of 1,380,776 contracts. Total open interest increased by 13,033 contracts, which relative to volume is approximately 50% below average. The June contract accounted for a loss of 50,502 of open interest, which means that there were sufficient open interest increases in the forward months to offset the decline in June and increase total open interest.Yesterday’s action was neutral.

As this report is being compiled on May 9, the June contract is trading 51 cents lower, but has not taken out yesterday’s print of 45.73. As we said in yesterday’s research note, we think the front month WTI contract is headed for a test of the May 5 low for the June contract of 43.76. Many analysts are calling for a bottom in the $40.00 area, but as clients know we may project targets based upon market action, but do not attempt to predict targets based upon fundamental data. Do not trade this market from the long side until such time as OIA announces a new short term buy signal.

Natural gas:

June natural gas lost 9.4 cents on strong volume of 460,639 contracts. Volume outpaced that of May 5 when the June contract gained 8.00 cents on volume of 368,975 contracts and total open interest increased by 14,187, a number that is substantially above average and which showed that new buyers were moving aggressively into natural gas.

On May 8, total open interest increased by 8,423 contracts, which relative to volume is approximately 25% below average. The June contract accounted for a loss of 17,680 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in June and increase total open interest.

The COT report released last Friday revealed that managed money added 17,389 contracts to their long positions and liquidated 7,062 of their short positions. Commercial interests added 18,415 to their long positions and also added 38,023 to their short positions. As of the May 2 tabulation date, managed money was long natural gas by ratio of 3.08:1, up strongly from the previous week of 2.71:1 and the ratio two weeks ago of 2.74:1.

Natural gas is getting near the tail end of its strong seasonal period. March, April and May are terrific months for natural gas performance, but June, July and August tend to be months of sub par months performance. On April 25, OIA announced that June and July 2017 New York natural gas generated short term sell signals and as of this writing have not generated intermediate term sell signals.

Ever since the sell signal, natural gas has been trading in a sideways pattern and the question that remains unanswered is whether it will break sharply higher or lower from here. For the rally to resume, the June contract must make a daily low above OIA’s pivot point of $3.268. For the downtrend to resume, the June contract must make a daily high below OIA’s pivot point for May 8 of 3.196.

Taking into account that managed money is heavily long natural gas, if the market makes a daily high below our pivot point, expect to see substantial selling, especially if temperatures in the Midwest South and East remain below normal. The engine that drives natural gas consumption in summer is hot weather due to increased use of air-conditioning. At this juncture, we see no reason to be involved in natural gas until it makes a definitive move above or below the pivot point parameters.

10 Year US Treasury Note: On May 4, OIA announced that the June ten-year note generated a short term sell signal and as of this writing remains on an intermediate term buy signal, but we think this will change within the next couple of days.

The June US 10 year treasury note lost 5 points on volume of 1,179,610 contracts. Total open interest increased by 19,218 contracts, which relative to volume is approximately 35% below average, but a total open interest increase accompanying yesterday’s decline indicated that new short-sellers were entering the market as the June contract made a low of 124-300.

The COT report released on Friday revealed that leverage funds added 25,832 contracts to their long positions and also added 61,565 to their short positions. As of the May 2 tabulation date, leverage funds were short the 10 year note by ratio of 1.26:1, up from the previous week of 1.21:1, but down from the ratio two weeks ago of 1.30:1.

As this report is being compiled on May 9, the June contract is trading 8 points lower and has made a new low for the move of 124-240, which is the lowest print since 124-200 made on April 10. Unfortunately, ever since the June contract generated a short term sell signal on May 4, the market has not had its typical counter trend rally, which would have enabled clients to initiate bearish positions.

We recommend against chasing the downtrend and to wait for a minor rally, which may last for a day possibly two. Though the 10 year note market has had some air taken out of it, the June contract is trading only fractionally below its 10 week moving average of 124-315, therefore we do not expect much of a rally from here.

Mexican peso:

The June Mexican peso lost 52 pips on light volume of 31,201 contracts. Total open interest declined by 504 contracts, which relative to volume is approximately 35% below average.

The COT report released on Friday revealed that leverage funds liquidated 673 contracts of their long positions and added 1,235 to their short positions. As of the May 2 tabulation date, leverage funds were long the Mexican peso by a ratio of 2.50:1, down from the previous week’s ratio of 2.61:1, but up from the ratio two weeks ago of 2.29:1.

As this report is being compiled on May 9, the June contract is trading 2 pips lower and has made a daily low of .05158, which is the lowest print since .05157 made on April 27. In the April 28 research note, written on May 1, we recommended waiting one more day before initiating bearish positions and stated that the rally should begin to falter either on May 1 or May 2 at the latest. The rally topped at .05313 on May 2 and has been heading steadily lower ever since.

From the April 28 note on the Mexican Peso:

“We think the peso is a potentially a good short position, but much of this will depend on the extent of the rally tomorrow. On April 27, the June Mexican peso generated a short term sell signal and since then rallied on April 28 and now on May 1, which is typical after the generation of a short term sell signal. The rally should begin to falter either today or tomorrow at the latest and today’s volume in the June contract of 11,157 indicates a lack of  participation.”

Euro:

The June euro lost 57 pips on volume of 180,460 contracts. Total open interest declined by 2,790 contracts, which relative to volume is approximately 40% below average, but the total open interest decline on yesterday’s loss is perfectly congruent bullish open interest action. Yesterday, the June contract made a high of 1.1036, which was only 13 pips above the previous day’s high of 1.1023. In our May 5 note, we said the move in the euro in the aftermath of the French election would be a “buy on the rumor-sell on the news” event and this was exactly the case.

As this report is being compiled on May 9, the June contract continues its corrective activity, down 50 pips on the day and has made a low of 1.0892, which is slightly below the May 4 print of 1.0897. We like the long side of the June euro in the 1.0750-1.0800 area. Continue to stand aside. The June euro remains on short and intermediate term buy signals.

Yen: The June Japanese yen generated a short term sell signal on April 26 and an intermediate term sell signal on May 4.

The June yen lost 34 pips on volume of 139,564 contracts. Though volume was light the open interest increase was heavy, up 4,589 contracts, which relative to volume is approximately 25% above average and this indicated that new short sellers were driving prices lower.

The COT report released on Friday showed that leverage funds continue to maintain a net long position and in the latest report liquidated 9,247 of their long positions and added 1,620 to their short positions. As of the May 2 tabulation date, leverage funds were long the yen by a ratio of 1.51:1, down from the previous week of 2.01:1, but up from the ratio two weeks ago of 1.47:1. As is typically the case, professional money managers were caught long at the top of the market and now will be forced to liquidate as prices continue their downward trajectory.

As this report is being compiled on May 9, the June contract is trading sharply lower, down 80 pips or -1.01%. The June contract has made a new low for the move of .8758, which is the lowest print since .8741 made on March 15, 2017. Unfortunately, ever since the June yen generated a short term sell signal on April 26, the market has had no rally of a substantial nature and for the most part has headed straight down. Do not chase the market lower. Clients should call and email with questions on strategy and tactics.