Tomorrow, the USDA releases its monthly WASDE report. This will be a major market mover in the grain complex and we recommend a stand aside posture until after the report.
October live cattle lost 7.5 points on very light volume of 33,315 contracts. However, total open interest increased by a sizable 1,280 contracts, which relative to volume is approximately 25% above average. The August contract lost 783 of open interest, October 2016 -444, which means there were sufficient open interest increases in the forward months to offset the decline in these two delivery months and increase total open interest substantially.
As this report is being compiled on August 11, the October contract is trading nearly unchanged on the day after being sharply lower in the early part of the session and made a new low for the move of 113.050, which is the lowest print since 112.400 made on August 1. The low on August 11 is slightly above the 50 day moving average of 112.984 and above the 20 day moving average of 112.214.
The 20 day moving average should cross above the 50 day moving average in the next couple of days and as we said before, we want to see positive open interest action relative to price advances and declines, which is something that has NOT occurred during the past several sessions. It is likely that today’s low is going to be a major trading low. Continue to stand aside until we get today’s volume and open interest stats.
WTI crude oil:
September WTI crude oil lost $1.06 on heavy volume of 1,293,374 contracts. Volume is the strongest since July 13 when 1,447,908 contracts were traded and the September contract closed at $45.44. On August 10, total open interest increased by 14,924 contracts, which relative to volume is approximately 45% below average, but the September contract lost 52,067 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in September and increase total open interest. Yesterday’s action was decidedly bearish. For the past three days beginning on August 8, total open interest relative to price advances and declines has been acting in a bearish fashion.
As this report is being compiled on August 11, the September contract is rocketing higher, up $1.77 or +4.24% and has made a daily high of 43.86, which is the highest print since 44.37 made on July 25. While it is too early to tell whether WTI has turned after making its low for the move of 39.19 on August 3, in order for the September contract to generate a short term buy signal, the low of the day must be above OIA’s key pivot point for August 11 of $43.79 and the high thus far and trading has been 43.86. Stand aside.
Natural gas: On August 10, September and October natural gas generated short term sell signals and remain on intermediate term buy signals.
September natural gas lost 5.4 cents on strong volume of 479,522 contracts. Volume declined from August 9 when the September contract lost 13.3 cents on volume of 555,983 contracts and total open interest increased by 17,874. On August 10, total open interest increased again, this time by 11,096 contracts, which relative to volume is approximately 10% below average, but an open interest increase on yesterday’s decline confirms the bearish set up for the market. The September contract accounted for a loss of 18,876 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in September and increase total open interest substantially.
As this report is being compiled on August 11, the September contract is trading 2.2 cents below yesterday’s close and has made a new low for the move of $2.529, which takes out yesterday’s print of 2.551 and is the lowest since 2.518 made on June 6. As we have said before, July and said August are two of the weakest months of the calendar for natural gas, and we expect prices to drift lower and for speculators continue to get increasingly bearish.
This will set up a strong seasonal move, which we expect during the months of September and October. The year to date moving average comes in at 2.443 and currently the September contract is trading 10 cents above the year to date moving average. Continue to stand aside.
The Energy Information Administration announced that working gas in storage was 3,317 Bcf as of Friday, August 5, 2016, according to EIA estimates. This represents a net increase of 29 Bcf from the previous week. Stocks were 361 Bcf higher than last year at this time and 440 Bcf above the five-year average of 2,877 Bcf. At 3,317 Bcf, total working gas is above the five-year historical range.
December gold advanced $5.20 on volume of 205,037 contracts. Total open interest declined by 1,051 contracts, which relative to volume is approximately 75% below average and a total open interest decline on yesterday’s advance is negative. The December contract accounted for a loss of 2,989 of open interest. Yesterday, the market traded on the positive side from the beginning of the early evening session on August 9 and made a high of 1363.60, which is the highest print since 1371.00 made on August 5. Yet, total open interest declined.
Yesterday’s dismal open interest action follows that of August 9 when December gold gained 5.40 on volume of 142,652 contracts and total open interest increased only 605 contracts, which is dramatically below average. In summary, December gold has gained $10.60 during the past two days, yet open interest during the two day period has declined by 446 contracts. This is atypically negative for gold and in our review increases the likelihood that gold will continue to correct either through absolute price declines or consolidate in the 30 day trading range of 1318.50-1384.40. In any event, we continue to recommend a stand aside posture but think gold is headed much higher, only not right now.