WTI crude oil:
December WTI crude oil advanced by a strong $2.49 on substantial volume of 1,475,141 contracts. Though the price advance was strong, total open interest action was not. On November 15, total open interest declined by a hefty 37,192 contracts, which relative to volume is average. The December contract lost 63,535 of open interest and there were not enough open interest increases in the forward months to offset the decline in December. Yesterday’s action was unimpressive.
As this report is being compiled on November 16, the December contract is trading nearly unchanged after making a daily high of 46.41, which is above yesterday’s print of 46.09. For the December contract generate a short term buy signal, it would have to make a daily low above OIA’s he pivot point for November 16 of $47.77. Stand aside.
The Energy Information Administration announced tha U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.3 million barrels from the previous week. At 490.3 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 0.7 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 0.3 million barrels last week and are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.2 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 7.1 million barrels last week.
Yesterday, the December dollar index advance 13 points on strong volume of 45,138 contracts. Total open interest increased by massive 1,723 contracts, which relative to volume is approximately 30% above average. As this report is being compiled on November 16 the December contract has made another new contract high of 100.60, which is the highest print of 2016 and 2015.
Additionally, looking at the dollar index cash quotation, today’s high of 100.57 is the highest print since 101.81 made during the month of April 2003.The key question at this juncture is whether the dollar index will decisively break out into new high ground. In order for a confirmed breakout to occur according to OIA’s methodology, the monthly LOW must be above the most current monthly HIGH.
For example if today’s high of 100.57 on the cash dollar index holds, a subsequent monthly low must be above the November high. In this scenario, we take the 12 month average true range on the monthly chart, which is 3.26 points and add it to 1 tick above 100.57 (100.58) and therefore project a price target of 103.84 (100.58 + 3.26 = 103.84) With interest rates firm and the Federal Reserve on a path to greater tightening, we think this is a realistic possibility, especially with talk of tax cuts and infrastructure spending. We have no recommendation.
S&P 500 E-mini: On November 15, the December 2016 and March 2017 S&P 500 E-mini contracts generated intermediate term buy signals after generating short term buy signals on November 10.
The December S&P 500 E-mini advanced 18.75 points on weak volume of 1,450,540 contracts. Volume declined substantially from November 14 when the December contract lost 1.00 point on volume of 1,821,898 contracts and total open interest declined by 3,002. Remarkably, volume on November 15 was the lowest since October 31 when the December contract lost 3.75 points on volume of 1,373,495 contracts and total open interest increased by 8,915.
On November 15, total open interest increased by 12,698 contracts, which relative to volume is approximately 55% below average. Yesterday’s action was ok, but considering that the E-mini made a high of 2179.75, just shy of the recent high for the move of 2180.00 made on November 10, the lack of volume and relatively low increase of open interest is something to be concerned about.
As this report is being compiled on November 16, the December contract is trading 8.25 points lower after making a new contract high of 2185.00 in the over night session. The S&P 500 cash index has not taken out the August 15 high of 2193.81 and this is a bit troubling. Also, the New York Composite Index which is comprised of approximately 2,200 shares traded on the New York stock change has not taken out the high made on September 8. The NASDAQ 100 has not taken out the high made on October 25.
We think there is a high likelihood that one year from now, the global economy will be in recession. Aside from Brexit and all the uncertainty that goes with that, the United States is facing an extended period of uncertainty due to the erratic Trump administration and the likelihood for a series of missteps, gaffes and major policy errors. Additionally, interest rates are rising and consumer spending, is likely to fall after Trump takes office. The reason: consumers are going to be facing the loss of their insurance and/or massively higher insurance premiums due to the elimination of the affordable health care subsidy.
As a consequence, we believe that consumers will begin to rein in their spending in anticipation of having to spend more on healthcare. Since consumers account for 70% of GDP, a significant reduction in consumer spending combined with higher interest rates, a strong dollar and the uncertainty concerning global trade, along with the ending of quantitative easing all point to a slowdown in the global economy at the very least. We have no recommendation.