I will be on vacation, but will provide research notes on specific futures when there is something of interest to report. Please call or email with any question pertaining to your individual situation.
October live cattle advanced by a strong 2.40 cents on heavy volume of 72,260 contracts. Total open interest increased by 1,414 contracts, which relative to volume is approximately 20% below average. However, the August contract lost 751 of open interest and October -592, which means there were more than enough open interest increases in the forward months to offset the decline in the two delivery months.
Although, it appears that cattle experienced a key reversal day yesterday, we think that a test of yesterday’s low of 103.775 is likely and as we pointed out in the April 25 research note on live cattle (extract below), we think the market will find support at the 100.750-102.925 level. Stand aside.
From Live Cattle: a Technical Analysis Published on April 25, 2016
“The low made Friday was slightly above the April 2012 and May 2012 prints of 112.300 and 112.225 respectively.We think these will be penetrated and the next area of major support is the May and June 2011 lows of 101.625 and 100.750 respectively.We tend to think that May and June 2011 support will likely hold for the following reason: When commodities break through their former all-time highs, those highs become areas of support.”
“For live cattle, the all time highs made early this century first occurred during October 2003 at 102.925. During March 2007, cattle made a run at the October 2003 high and printed 102.925, the exact high made 3 1/2 years earlier.”
“During 2008, the all-time highs of October 2003 and March 2007 were broken when live cattle made the high of 104.500 in June 2008. During the subsequent three months, live cattle continued to make all-time highs until the final 2008 high (107.050) was made in September. This held until December 2010 when the September 2008 print was taken out with a new all-time high of 108.700.”
“The lows of May and June 2011 (101.625 and 100.750 respectively) dovetail closely with the previous all-time highs of 102.925 made during October 2003 and March 2007. We think there is a high likelihood the October 2003 and March 2007 highs and the May and June 2011 lows will provide support to live cattle (100.750 – 102.925).”
WTI crude oil:
October WTI crude oil lost 63 cents on light volume of 790,086 contracts. Total open interest increased by 13,789 contracts, which relative to volume is approximately 25% below average, but an open interest increase on yesterday’s decline is negative. The October contract gained 3,503 of open interest. As this report is being compiled after the release of the EIA report showing an increase in stocks, the October contract is trading sharply lower, down $1.56 or -3.37%. The October contract will generate a short term sell signal if the daily low high is below OIA’s key pivot point for August 31 of $44.45. Stand aside.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.3 million barrels from the previous week. At 525.9 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 0.7 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories remained unchanged while blending components inventories decreased last week. Distillate fuel inventories increased by 1.5 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.4 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 4.5 million barrels last week.
October natural gas lost 6.9 cents on light volume of 320,036 contracts. Total open interest increased by 1,375 contracts, which relative to volume is approximately 75% below average. The September contract accounted for a loss of 288 of open interest, October -8,149. As this report is being compiled on August 31, the October contract is trading 5.3 cents higher or +1.84% as the market resumes its rally after having a correction lasting two days after the October contract generated a short term buy signal on August 26.
Natural gas is performing well considering that the S&P 500 E-mini is down 12.25 points and crude oil along with the products are trading sharply lower. The market is becoming very sensitive to the prospect of of increased hurricane activity in the Gulf of Mexico. Although, we were a bit premature about recommending bullish positions, if you are not in the market, we suggest with volatility low and prospects for higher prices ahead, that bullish positions be initiated. We recommend using options due to the volatility of natural gas.
Dollar index: It appears likely that the September dollar index will generate a short term buy signal on August 31 and the confirmed buy signal will occur if the low of the day remains above OIA’s key pivot point for August 31 of 95.590.
Euro: The September euro will generate a short term sell signal on August 31 provided the daily high remains below OIA’s key pivot point for August 31 of 1.1188.
Canadian dollar: The September Canadian dollar will generate a short term sell signal on August 31 provided the daily high is below OIA’s key pivot point for August 31 of 76.74.
December gold lost $10.60 on volume of 172,448 contracts. Total open interest declined just 704 contracts which relative to volume is approximately 80% below average. The sharp decline combined with low volume and a minor decline in open interest is troubling to say the least. We know that according to the COT stats that managed money is heavily long gold and according to last week’s report by a ratio of 9.22:1.
Yesterday December gold made a new low for the move of $1312.00 and this has been taken out on August 31 (1306.90), which is the lowest print since 1314.80 made on June 28.Looking at the chart, there is no support until the June 24 low of 1259.10, which was the day that gold advanced $59.50. While we don’t think gold prices are headed to the June 24 low, with the hefty long position of managed money, there will be continual overhead selling pressure until the weak longs have been taken out. Stand aside.