WTI crude oil:
July WTI crude oil lost 11 cents on volume of 1,293,944 contracts. Total open interest declined by 22,392 contracts, which relative to volume is approximately 25% below average. The June contract, which expires shortly lost 1,544 of open interest and there were additional open interest declines in the forward months. The liquidation in crude oil has nothing been short of spectacular and has been consistent since May 17.
From May 17 through May 24, crude oil advanced by $2.36 while total open interest in this time frame declined by a total of 148,417 contracts. This indicates pervasive liquidation over a several days and while price action has been outstanding, open interest action has been telling us, all is not well in the crude oil market.
As this report is being compiled on May 25, the July contract has fallen sharply and currently is trading down $2.02 or -3.93% and has made a daily low of $48.75, which is the lowest print since 48.38 made on May 18. Today’s low is almost exactly at the 20 day moving average of 48.79.
We have been warning clients ever since crude oil generated a short term buy signal on May 19 to wait for the pullback before initiating bullish positions. The market never had its pullback and May 25 is the first since the buy signal. For the buy signal to reverse and a new short term sell signal generated, the high of the day must be below OIA’s key pivot point for May 25 of $48.14.
From a speculative point of view, we see WTI as becoming more balanced due to the massive liquidation as the market rallied and the sharp downside move on May 25. Volume is heavy on May 25 and we will wait until tomorrow’s open interest stats to evaluate whether it was continued massive liquidation that sent prices lower today or whether new short-sellers were piling into the market.
We examined some key moving averages on the continuation chart and they point to a bearish set up. For example, on the continuation chart, the 20 day moving average stands at 48.51, 50 day, 49.54 and 100 day moving average stands at 51.05. The 200 day moving average of 49.52 is slightly below the 50 day moving average. For the WTI to improve its technical picture, prices have to stay elevated above the $50 range for the shorter-term moving averages to align in a bullish formation. Continue to stand aside.
From the May 19 note on WTI crude oil:
“Now that the July contract is on a short term buy signal, the market should experience a pullback that lasts from 1-3 days and this would be the opportunity to initiate bullish positions. The OPEC meeting occurs on May 25, just three days away and crude should trade firmly until the meeting. After the results are known, crude should have its pullback if this has not transpired prior to the meeting. The exception would be a surprise in the announcement that takes the market off guard. We advise a stand aside posture until crude has corrected. ”
Gold: June and August 2017 New York gold will generate a short term buy signals on May 25. Both contracts remain on intermediate term sell signals.
Live cattle: August live cattle will generate a short term sell signal if the daily high is below OIA’s key pivot point for May 25 of 119.252.
New York Composite Index: On May 24, the New York Composite Index generated a short term buy signal, which reversed the May 18 short term sell signal. This index remains on an intermediate term buy signal.
S&P 400: The S&P 400 mid-cap index will generate a short term buy signal on May 25. This reverses the May 18 short term sell signal. This index remains on an intermediate term buy signal.
Dow Jones Industrial Average: The Dow Jones Industrial Average will generate a short term buy signal on May 25. This reverses the May 18 short term sell signal. This index remains on an intermediate term buy signal.
Russell 2000: The Russell 2000, remains on an short term sell signal on May 25. The sell signal was generated on May 18. It remains on an intermediate term buy signal.