Tomorrow, we will issue a research note on today’s action in the euro.
WTI crude oil:
January WTI oil lost $1.16 on heavy volume of 1,690,478 contracts and is the strongest since December 1 when the January contract gained 1.62 on volume of 2,045,657 contracts and total open interest declined by 5,771 while the January contract lost 32,603. On December 7, total open interest declined by 25,890 contracts, which relative to volume is approximately 40% below average, but a total open interest decline in yesterday’s trading is perfectly normal. The January contract accounted for a loss of 76,829 and this is the lead month, which means there was substantial liquidation, which helps bring the market back into balance.
As this report is being compiled on December 8, the January contract is trading 75 cents above yesterday’s close and has made a daily low of $49.61, which is only 11 cents below yesterday’s print of 49.72 and is the lowest since 48.98 made on December 1 when January WTI generated short and intermediate term buy signals.
The outstanding feature on December 8 is the very strong dollar index, and this is not dampening crude oil prices, which means that our scenario of the pullback to the 20 day moving average of 47.59 may be unrealistic. It should be noted that the S&P 500 E-mini is currently trading 10.75 points above yesterday’s close and this may be supporting crude oil prices. In summary, it appears that crude oil wants to go higher. Please call or email for our recommendations.
January natural gas lost 3.2 cents very heavy volume of 720,427 contracts. Volume substantially exceeded that of December 5 when the January contract gained 21.8 on volume of 495,938 contracts and total open interest increased by 18,178. On December 7, total open interest increased by 7,015 contracts, which relative to volume is approximately 50% below average. The January contract accounted for a loss of 22,338, which means there were sufficient open interest increases in the forward months to offset the decline in January and increase total open interest.
Yesterday, the January contract made a fractional new 52 week high of 3.748, compared to the previous day’s print of $3.732. As this report is being compiled on December 8 after the release of the EIA natural gas storage report, the January contract is trading 5.7 cents higher on the day and has made a daily high of 3.693 and a low of 3.503. The market is massively overbought and we recommend a stand aside posture. Do NOT short natural gas
The Energy Information Administration announced that working gas in storage was 3,953 Bcf as of Friday, December 2, 2016, according to EIA estimates. This represents a net decline of 42 Bcf from the previous week. Stocks were 51 Bcf higher than last year at this time and 254 Bcf above the five-year average of 3,699 Bcf. At 3,953 Bcf, total working gas is above the five-year historical range.
Dollar index: The March dollar index is trading sharply higher on December 8 and currently remains on short and intermediate term buy signals. The rally will resume if the daily low is above OIA’s pivot point for December 8 of 101.100 and the low thus far in trading has been 99.250.
S&P 500 E-mini:
The S&P 500 E-mini advanced 26.75 points on substantial volume of 2,653,090 contracts. Though volume was impressive, the total open interest increase was disappointing. It increased by only 28,851 contracts, which relative to volume is approximately 45% below average. Though open interest action has been positive, it has not been what we would call a barn burner.
However, this is to be somewhat expected considering that the major indices are at all-time highs. The current narrative being used to justify the rally is about the new administration and their plans for infrastructure, corporate and personal tax cuts. We think the market is ahead of itself, but the seasonal pattern of higher equity prices during the month of December and January should continue. Please call or email for trading strategies and tactics.