Live cattle: February 2017 live cattle will generate an intermediate term buy signal on November 17 after generating a short term buy signal on October 24.
December live cattle advanced 2.725 cents on strong volume of 78,230 contracts. Total open interest increased by 3.104 contracts, which relative to volume is approximately 35% above average meaning aggressive new buyers were entering the market in large numbers and driving prices higher. The December 2016 contract lost 4,929 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in December and increase total open interest substantially.
As this report is being compiled on November 17, the February 2017 contract is trading 20 points below yesterday’s close. If considering bullish positions in live cattle. we recommend waiting for a pullback. The market has suffered massive losses during the past year, and we think live cattle prices should begin to work their way higher. On a seasonal basis, cattle prices strengthen into January and February.
WTI crude oil:
December WTI crude oil lost 24 cents on volume of 1,395,878 contracts. Total open interest declined by massive 54,757 contracts, which relative to volume is approximately 35% above average meaning liquidation was extremely heavy on yesterday’s modest decline. The December contract accounted for a loss of 85,225 contracts. Yesterday, the December contract made a high of 46.41, which is the highest print since 46.47 made on November 2.
As this report is being compiled on November 17, the December contract is trading 21 cents above yesterday’s close and has made a high of 46.58. For the December contract to generate a short term buy signal, the low of the day must be above OIA’s he pivot point for November 17 of 47.53, however the December contract will expire shortly. We see no reason to be involved in the crude oil market at this juncture.
The December dollar index advanced 18.8 points on strong volume of 44,259 contracts. Total open interest increased by massive 1,934 contracts, which relative to volume is approximately 65% above average indicating that new buyers continue to rush into the dollar index. On November 16 December made a contract high of 100.600. As this report is being compiled on November 17, the dollar index is trading sharply higher again, up 47 points and has made another new contract high of 100.910.
The dollar will have has broken out if and when the December contract makes a weekly low above the high of 100.600 made on the week of November 30, 2015 by the December 2015 contract and the high of 100.715 made by the June 2015 contract during the week of March 16, 2015. If The dollar index is able to make daily lows above the aforementioned highs, this would be the first indication that a breakout is in the offing. The big driver for the dollar index’s move has been the sharp decline in the euro and the Japanese yen. At current lofty levels, we recommend a stand aside posture.
10 Year Treasury Note:
The December 10 year treasury note gained 1.5 points on healthy volume of 1,921,566 contracts. Total open interest increased by 32,102 contracts, which relative to volume is approximately 35% below average. Yesterday, the December contract made a daily low of 125-285 and as this report is being compiled on November 17 the December contract has made a low of 126-010. The yield on the 10 year note on November 17 is trading it 2.26%, which is up from 1.33%, the 2016 low made during the week of July 4, 2016. At current levels, the interest rate yield (TNX) is trading at the highest level since the week of January 4, 2016.
The strong moves upward in the dollar index and interest rates is the result of the November 8 election and based on the belief that the newly elected president will initiate a massive infrastructure program and provide massive tax cuts to the individual and corporate sector. This massive deficit spending, which will blow a hole in government debt is very bullish for interest rates, but very bad for housing, construction and any interest rate sensitive instrument. A sustained rise in interest rates likely will increase interest rates charged by credit card companies.
All of you know that markets do not like uncertainty and the reason is quite simple: people don’t like uncertainty. Well, for the next two months until the inauguration, there is going to be massive amount of uncertainty with regard to the affordable care act, trade policies the sustainability of Medicare and a whole variety of issues, which in our view is negative for the consumer.
We believe strongly this will cause consumers to save more and spend less. With consumer spending activity the majority of US GDP, we think it is highly likely by the end of 2017, the US and global economies will be in recession. Additionally, it should be noted that dollar strength is negative for emerging markets and could exacerbate emerging market debt issues that are denominated in dollars.
From the November 15 research note on the S&P 500 E-mini
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.