WTI crude oil:
February WTI crude oil advanced 23 cents on volume of 954,336 contracts. Total open interest increased by 8,180, which relative to volume is approximately 55% below average. The February contract accounted for a loss of 24,101 of open interest. As this report is being compiled on January 9, the February contract is trading $1.61 lower or -2.98%.
For the past couple weeks, crude has been trading in a narrow range and has made two attempts to break out. First on December 12, then on January 3. On January 3 the February contract advanced to a high of 55.24, but closed $1.39 lower on heavy volume of 1,434,526 while total open interest increased by 24,959.
The COT report released on Friday revealed that managed money liquidated 821 of their long positions and added 4,721 to their short positions. Commercial interests added 30,865 to their long positions and also added 35,538 to their short positions. This left managed money long crude oil by a ratio of 4.65:1, though this is down from the previous week of 4.97:1 and the ratio two weeks ago of 4.89:1. Still, this is a very high ratio, which means there is ample selling pressure if prices continue to move lower as we expect.
On January 9, the February contract has made a low of $52.25, which is slightly above the low going back to December 22 of 52.08. We think it is likely that February crude will generate a short term sell signal and for this to occur the daily high must be below OIA’s key pivot point for January 9 of $52.16. We have no recommendation at this juncture.
Natural gas: On January 4, February and March 2017 New York natural gas futures generated short and intermediate term sell signals.
February natural gas gained 1.2 cents on volume of 387,639 contracts. Total open interest increased by 2,086 contracts, which relative to volume is approximately 70% below average. The February contract accounted for a loss of 4,278 of open interest. As this report is being compiled on January 9, the February contract is trading sharply lower, down 16.7 cents or -5.08% and trading below its 200 day moving average of 3.251.
The COT report released on Friday revealed that managed money added 6,846 to their long positions and also added 9,387 to their short positions. Commercial interests added 5,289 to their long positions and also added 4,979 to their short positions. This left managed money long by a stratospheric 2.68:1, down from 2.87:1 and the ratio two weeks ago of 2.70:1.
Still, similar to crude oil this is an extremely high ratio of longs to shorts and on January 9, prices have moved to their lowest levels ($3.108) since November 23 (3.067). The danger is there are huge numbers of speculative longs that are showing substantial losses. To put a finer point on this: on January 3, February natural gas declined by a massive 39.7 cents on volume of 609,277 contracts. However, despite this massive collapse in futures, total open interest declined only 19,502, which is approximately 10% above average.
In other words despite the massive, decline large numbers of speculators were hanging on. The low made on January 3 was 3.267 and natural gas is currently trading approximately 16 cents below this number. On December 30 when February natural gas lost 7.8 cents on volume of 249,937 contracts, total open interest increased by 7,783, which again confirms that longs were not liquidating. The low made on December 30 was 3.690, or approximately 59 cents above today’s print. We think a test of the November 9 low of 2.766 is likely in the weeks ahead. Stand aside.
The March dollar index advanced 68.1 points on volume of 38,362 contracts. Total open interest increased only 202 contracts, which relative to volume is approximately 70% below average. On January 5, the March contract lost 1.181 points on volume of 60,921 and total open interest declined by 1,639.
The March contract is getting close to generating a short term sell signal and this will occur if the daily high is below OIA’s key pivot point for January 9 of 101.952. The COT report released on Friday revealed that managed money added 2,204 to their long positions and liquidated 6,314 of their short positions.. This left managed money long the dollar index by a ratio of 2.24:1, up substantially from the previous week of 1.46:1 and the ratio two weeks ago of 1.65:1.
The dollar index is undergoing a typical pullback and the catalyst for this has been strength in the euro and yen, although both of these remain on short and intermediate term sell signals. We see the pullback as temporary and a retreat to the 50 day moving average of 100.860 cannot be ruled out. After a sufficient number of speculative longs have been shaken out of the market, we expect the dollar index to resume its advance, especially when the 10 year treasury note begins to decline again.
Currently, the 10 year note is on a short term buy signal buy signal (January 5), but an intermediate term sell signal. However, the 10 year is loaded with speculative shorts, therefore a sharp rally is possible from here.
Canadian dollar: On January 6, the March 2017 Canadian dollar generated short and intermediate term buy signals. We have no recommendation.