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WTI crude oil:

February WTI crude oil advanced $1.06 on volume of 368,884 contracts. Total open interest increased by 4,916 contracts, which relative to volume is approximately 45% below average. The February contract accounted for loss of 1,610 of open interest. As this report is being compiled on December 30, the February contract has reversed course and trading down $1.20 from yesterday’s close and has made a daily low of $36.40, which takes out yesterday’s print of 36.66 and is the lowest price since 36.28 made on December 23. The February contract remains on short and intermediate term sell signals. No recommendation.

The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.6 million barrels from the previous week. At 487.4 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 0.9 million barrels last week, and are in the middle of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 1.8 million barrels last week and are in the upper half of the average range for this time of year. Propane/propylene inventories rose 0.1 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories remained unchanged last week.

Natural gas: On December 29, February natural gas generated a short-term buy signal, but remains on an intermediate term sell signal.

February natural gas advanced 11.4 cents on volume of 366,473 contracts. Total open interest declined by a massive 20,792 contracts, which relative to volume is approximately 120% above average meaning that liquidation by short-sellers was extremely heavy and this was driving prices to a new high for the move of $2.386, which is the highest price since 2.395 made on November 25.

As this report is being compiled on December 30, the February contract is correcting its overbought condition and trading 16.9 cents lower, or -7.13%. Usually, after the generation of a short-term buy signal, markets have a tendency to pullback from 1-3 days before resuming the uptrend. In the case of natural gas, the fundamentals are extremely bearish, and it is likely the short term sell signal could reverse within the next couple of days. On the other hand, there are huge numbers of shorts packed into natural gas, and if weather in the Midwest and East coast turns cold, the short covering rally could continue.

For the past two days beginning on December 28, February natural gas has advanced 29.1 cents while total open interest has declined on each day for a cumulative loss of 25,519. We recommend a stand aside posture.

Dollar index:

The March dollar index advanced 22.3 points on light holiday volume of 17,376 contracts. Total open interest increased by 404 contracts, which relative to volume is average. On December 28, the March contract generated a short-term sell signal and since then the market has had one day of corrective rally activity and December 30 is the second day the market is trading higher again. Conceivably, we could see a further rally in tomorrow’s holiday shortened trade and this should be the extent of it unless the dollar index is headed towards a reversal of the sell signal. The March contract remains on an intermediate term buy signal. No¬†recommendation.

Euro:

The March euro lost 38 pips on volume of 111,591 contracts. Total open interest declined by 642 contracts, which relative to volume is approximately 75% below average. On December 28, the March contract generated a short-term buy signal and yesterday was the first day of the corrective move lower and the euro is trading lower for a second day on December 30. However, it has not taken out yesterday’s print of 1.0921 and it appears likely the euro will resume its uptrend after the corrective activity has been exhausted. The March contract remains on an intermediate term sell signal. We have no recommendation.

Yen: On December 29, the March yen generated an intermediate term buy signal after generating a short-term buy signal on December 21.

The March yen lost 3 pips on light holiday volume of 53,793 contracts. Total open interest increased by 1,717 contracts, which relative to volume is approximately 10% above average meaning a battle ensued between buyers and sellers and sellers were able to edge the market fractionally lower.

As this report is being compiled on December 30, the March contract is trading down 16 pips or -0.19%, which is overdue considering the yen has been trending higher ever since it generated a short-term buy signal on the 21st. We are bullish yen, but at this juncture feel it’s premature to initiate bullish positions. As stated before, we think the market has more work to do on the downside and would like to see the 50 day moving average move up above the 100 and 200 day moving averages. If there is a pullback to the .8200- .8250 area, we may recommend shorting out of the money puts in the March contract. Stand aside for now.

Copper: March copper will generate a short-term buy signal on December 30, but remains on an intermediate term sell signal.

March copper advanced 5.75 cents on volume of 46,994 contracts. Total open interest declined by a substantial 3,759 contracts, which relative to volume is approximately 220% above average meaning liquidation was extremely heavy on yesterday’s strong advance.

As this report is being compiled on December 30, the March contract is trading 1.05 cents above yesterday’s close and has slightly taken out yesterday’s high of 2.1480. Although copper fundamentals are bearish, the market has a tendency to have strong rallies periodically, however, we do not think this merits long positions, nor would we recommend shorting copper now that it is on the buy signal.

Keep in mind that managed money is substantially short copper and according to the latest COT report, released on December 28, managed money is short by ratio of 1.98:1, and this group should provide support to the market as copper works its way higher.We have no recommendation.

S&P 500 E-mini:

The S&P 500 E-mini advanced by a strong 24.00 points on light holiday volume of 836,187 contracts. Total open interest increased by a very disappointing 6,429 contracts, which relative to volume is approximately 60% below average. From December 22 through December 29 the March contract rallied 57.75 points, but total open interest has declined by a cumulative 63,489 contracts during this time frame. Remarkably, the most favorable open interest action occurred yesterday and this increase was substantially below average despite the strong move.

As this report is being compiled on December 30, the March contract is trading 9.50 points lower and has made a daily low of 2061.25. This is right on the cusp of OIA’s key pivot point of 2061.30 for the generation of a short-term buy signal. With 2 1/2 hours remaining in the session, the market could definitively penetrate the pivot point, which would mean that the March contract would remain on a short-term sell signal.

If not, we will await tomorrow’s action to confirm whether a buy signal has occurred. In other words, if in tomorrow’s trading, the low of the day is above the pivot point,¬†December 31 would be the day when the short-term buy signal is generated.We have no recommendation at this juncture.