On November 7, equity markets are trading sharply higher, precious metals trading sharply lower and the dollar index is skyrocketing caused by the new findings of the FBI clearing Hillary Clinton of any further wrongdoing. We will have a full report on today’s action tomorrow.
December live cattle lost 1.35 cents on strong volume of 61,994 contracts. Total open interest increased by a massive 4,125 contracts, which relative to volume is approximately 160% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices lower (101.675).
As this report is being compiled on November 7, the December contract is trading sharply lower, down 1.70 cents or -1.65% and has made a daily low of 100.975 which is getting close to the area of a short term sell signal. A short term sell signal will occur if the daily high is below OIA’s key pivot point for November 7 of 100.745. On October 24, December live cattle generated a short term buy signal, and we reiterated to clients at the time the rally was technical in nature and that the contract lows would be tested.
The COT report released on Friday revealed that managed money added 436 contracts to their long positions and liquidated 8,935 of their short positions. Commercial interests added 370 to their long positions and also added 5,994 to their short positions. As of the latest report, managed money is long live cattle by a ratio of 1.95:1, up from the previous week of 1.59:1 and the ratio two weeks ago of 1.37:1. It should be noted that the increase in this week’s ratio was due almost exclusively to the liquidation of short positions rather than the substantial addition of new long positions. Remarkably, managed money remains net long live cattle despite the December contract being near at multi-year lows. Stand aside.
From the October 24 research note on live cattle:
“We tend to think the current rally is technical in nature and that the October 14 contract low of 96.100 will be tested. Our recommendation is to stand aside.”
WTI crude oil:
December WTI crude oil lost 59 cents on strong volume of 1,253,739 contracts. Volume jumped from the previous day, November 3 when the December contract lost 68 cents on volume of 868,333 contracts and total open interest increased by a massive 31,904. On November 4, total open interest increased by 18,961 contracts, which relative to volume is approximately 40% below average. The December contract gained 3,571 of open interest.
For the past three days beginning on November 2 through November 4, December crude oil has declined every day while total open interest increased on each of those days. As of November 4, the cumulative three day increase is 61,563 while the December contract lost $2.60 in this time frame.
The COT report released on Friday revealed that managed money liquidated 20,754 contracts of their long positions and added 12,462 to their short positions. Commercial interests added 19,388 to their long positions and liquidated 8,864 of their short positions. As of the latest report, managed money is long WTI crude oil by a ratio of 3.68:1, down sharply from the previous week of 4.68:1 and the ratio two weeks ago of 5.22:1, which has been one of the highest ratios of the year.
As this report is being compiled on November 7, the December contract is trading 28 cents higher after making a daily high of 44.99, which is slightly above Friday’s print of 44.87. The massive rally in the equity markets have done little to boost crude oil’s prospects. On October 31, OIA announced that December WTI generated a short term sell signal and an intermediate term sell signal on November 2. Stand aside.
S&P 500 E-mini:
The December S&P 500 E-mini lost 3.50 points on volume of 2,083,196 contracts. Total open interest declined by substantial 32,419 contracts, which relative to volume is approximately 40% below average. From October 31 through November 4, the December contract has fallen every day and total open interest during this period has declined by 45,283 contracts. This is constructive open interest action relative to price declines: open interest declines accompanying losses is healthy market action. It would have been extremely negative if during the October 31-November 4 time frame total open interest increased.
The COT report released on Friday revealed that leverage funds added 816 contracts to their long positions and liquidated 479 of their short positions. As of the latest report, leverage funds are long the S&P 500 contract (250 x) by a ratio of 1.88:1, up from the previous week of 1.54:1, but down from the ratio two weeks ago of 2.89:1.
As this report is being compiled on November 7 approximately two hours before the cash US equity market closes, the December E-mini is trading 43.00 points above Friday’s close and has made a daily high of 2124.50, which is the highest print since 2129.50 made on November 1. It Is likely that the December E-mini bottomed on November 4 (2078.75), which was the lowest print since 2079.00 made on July 8. Today’s explosive rally likely signals a test of the all-time high on the monthly continuation chart of 2191.50 made on August 23.
Currently, the December contract remains on short and intermediate term sell signals, but we expect this to change in the next day or two. For the December contract to generate a short term buy signal, the low of the day must be above OIA’s key pivot point for November 7 of 2135.10.
Tomorrow, is the US presidential election, and it is difficult to determine how much of today’s rally is discounting a Clinton victory. Regardless, we see higher prices ahead at least until mid-December when the Federal Reserve makes their decision on interest rates. We think a quarter-point increase is in the cards. Setbacks should be bought even though a short term buy signal has not yet occurred. We recommend the use of options for risk mitigation.