Natural Gas: September NY natural gas will generate a short term sell signal on July 24. This reverses the July 18 short term buy signal. September natural gas remains on an intermediate term sell signal.
September natural gas lost 7.2 cents on volume of 437,263 contracts. Total open interest increased by 2,469 contracts, which relative to volume is approximately 75% below average, however a total open interest increase on Friday’s decline indicates that short-sellers were entering the market. The August contract lost 7,425 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in August and increase total open interest.
The COT report released on Friday revealed that managed money liquidated 8,920 of their long positions and also liquidated 11,353 of their short positions. Commercial interests liquidated 3,560 of their long positions and also liquidated 10,438 of their short positions. As of the latest report, managed money was long natural gas by a ratio of 1.53:1, up slightly from the previous week of 1.49:1 and the ratio two weeks ago of 1.51:1.
As this report is compiled on July 24, the September contract is trading sharply lower, down 7.4 cents or -2.50% and has made a low of 2.879 which is slightly above the three months low of 2.830 made on July 5.
In previous notes, we wrote about the likelihood of a test of the early July lows and thought it was highly likely that the seasonal low would be made during the month August. From there, we expect a gradual rise natural gas prices into winter, which is when the biggest draws of natural gas occur.
Gold: On July 21, August and October 2017 New York gold generated short term buy signals, but remain on intermediate term sell signals. The October contract is getting close to generating an intermediate term buy signal and this will occur if the daily low is above OIA’s key pivot point for July 24 of $1260.30.
August 2017 NY gold advanced $9.40 on volume of 300,329 contracts. Total open interest declined by 17,379 contracts, which relative to volume is approximately 140% above average. The August contract, which expires shortly lost 31,036 of open interest there were not enough open interest increases in the forward months to offset the decline in August. Friday’s performance was disappointing.
The COT report released on Friday revealed that managed money added 3,409 their long positions and liquidated 2,282 of their short positions. Commercial interests added 111 to their long positions and also added 3,272 to their short positions. As of the latest report, managed money is long gold by a ratio of 1.30:1, up from the previous week of 1.23:1, but down from the ratio two weeks ago of 1.35:1.
Although gold has not reacted to the weak dollar and the relatively modest interest rate increases in the 10 year note, we think it is likely gold will experience substantial firmness in the period just ahead. The moving average setup on a daily and weekly basis is bullish.
For example, the 10 week moving average stands at 1251.20, 20 week 1252.10, 50 week 1243.40 and the 100 week moving average of 1221.30 on the continuation chart.
The daily moving averages show a similar set up with the 20 day moving average of 1233.40, 50 day of 1249.00, 100 day of 1247.30 in the 200 day at 1230.80. The moving averages are telling us that the market has found firmer footing over an extended period of time.
Seasonally gold begins to strengthen in August. For example, during the past 20 years the average gain during of August is 1.9% and the average advance during September is 2.4%.
We think light bullish positions are warranted, especially because the risk is relatively low at this juncture. One caveat is that the euro could begin to weaken, which would strengthen the dollar and this could dampen gold’s advance.
10 Year Treasury Note: On July 19, the September 10 year treasury note generated a short term buy signal and is getting close to generating intermediate term buy signal. This will occur OIA’s key pivot point for July 24 of 126-058
The September 10 year note advanced 8 points on light volume of 759,204 contracts. However, total open interest declined by massive 57,535 contracts, which relative to volume is approximately 210% above average and this means that massive liquidation occurred as the September contract made a high of 126-.126.
The COT report revealed that leverage funds liquidated 25,190 of their long positions and added 69,933 to their short positions. As of the report that was tabulated on July 18, leverage funds are short the 10 year note by a ratio of 1.06:1, which is a reversal from the previous week when they were long by a ratio of 1.11:1 and the ratio two weeks ago of 1.01:1. No recommendation.
Yen: On July 21, the September yen generated a a short term buy signal and is getting close to the and intermediate term buy signal. This will occur if the daily low is above OIA’s he pivot point for July 24 of .9022.
The COT report revealed that leverage funds added 3,252 to their long and also added 11,189 to their short positions. As of the July 18 tabulation date, leverage funds were short the yen by a ratio of 3.17:1, up from the previous week of 2.65:1 and almost double the ratio weeks ago of 1.83:1.
The large short position is likely to provide fuel for a continued upside move in the yen. The average gain during the month of August has been 1.0% while in September the advance has averaged 0.9%. We have no recommendation
Dow Jones Transportation Index: On July 21, the Dow Jones transportation index generated a short term sell signal, but remains on an intermediate term buy signal.