December live cattle lost 95 points on volume of 55,858 contracts. Total open interest increased by 817 contracts, which relative to volume is approximately 40% below average, but an open interest increase on yesterday’s decline confirms the bearish set up for the market. The October 2016 and June 2017 contracts lost a total of 1,665 open interest, which means there were sufficient open interest increases in the forward months to offset the decline in the two delivery months and increase total open interest.
As this report is being compiled on October 12 the December contract is trading 20 points above yesterday’s close and has made a new contract low of 97.325. The October 2016 contract has made a new contract low of 95.675, which is the lowest print on the monthly continuation chart since 94.500 made during October 2010. Stand aside.
WTI crude oil: Due to the Columbus day holiday, the EIA crude oil storage stats will be released tomorrow.
November WTI crude oil lost 56 cents on extremely heavy volume of 1,692,255 contracts. It appears that volume traded yesterday was record-setting and took out the September 28 print of 1,678,371 contracts when the November contract gained $2.38 and total open interest increased by 39,706. On October 11, total open interest declined by 37,757 contracts, which relative to volume is approximately 10% below average, but a total open interest decline on yesterday’s loss is bullishly consistent. The November contract lost 77,045 of open interest.
As this report is being compiled on October 12 the November contract is trading 65 cents below yesterday’s close and has made a daily low of 49.89, which takes out yesterday’s print of 50.39 and is the lowest price is 49.15 made on October 10. The market looks very firm and we think the path of least resistance is higher for now. Do not short crude.
December gold lost $4.50 on light volume of 154,617 contracts. Total open interest declined by a sizable 5,517 contracts, which relative to volume is approximately 20% above average. From September 27 through October 11, total open interest has declined by 99,645 contracts while the December contract has lost $86.00 in this time frame. During this period there has been just two days in which total open interest increased.
As this report is being compiled on October 12 the December contract is trading 1.60 lower and has made a daily low of 1251.20, which takes out yesterday’s print of 1254.30 and is the lowest since 1243.20, the low of for the move made on October 7. December gold remains on short and intermediate term sell signals. Stand aside.
The December dollar index rocketed higher by 75.9 points on strong volume of 30,145 contracts. Total open interest increased massively, this time by 2,756 contracts, which relative to volume is approximately 250% above average. The total open interest increases for the past three sessions have been nothing short of astounding. Yesterday, total open interest increased by 4,149 when the December contract gained 27.9 points and on October 6 when the December contract advanced 65.8 points, total open interest increased by 2,622. Leverage funds are massively short the dollar index and these short-sellers, many of whom are undoubtedly in distress will be forced to cover as prices continue their upward trajectory. We have no recommendation at this juncture.
Yesterday, the December British pound lost 2.14 cents on strong volume of 211,115 contracts. Volume increased substantially from the previous day (October 10) when the December contract lost 84 pips on volume of 76,993 and total open interest declined by 1,139. However, volume declined from October 7 when the December contract lost 1.72 cents on volume of 273,957 contracts and total open interest declined by 10,109.
On October 11, total open interest increased only 910 contracts, which relative to volume is approximately 75% below average, a surprising development considering the magnitude of the decline. From October 6 through October 11, the December pound his lost an astounding 6.17 cents, and total open interest has declined by 8,099. This tells us that longs are getting blown out of the market, but short-sellers are reluctant to enter new positions even as the pound continues to plumb multi-decade lows. Yesterday, the December contract fell to a low of 1.2102.
Previously, we warned about a potential short covering rally due to the fact that short-sellers have been reluctant to enter new positions and that longs are liquidating en masse. This sets the stage for a good-sized rally. The reason: large numbers of longs who have been exerting selling pressure are out of the pound and new short-sellers are not willing to press the market further. Stand aside.
From the October 10 research note on the pound:
“For the past two days, the pound has fallen precipitously, yet total open interest has not increased. On October 7, the December contract lost 1.72 cents on volume of 273,957 and total open interest declined by 10,109. This indicates to us that would be market participants are reluctant to initiate bearish positions at the low end of the recent trading range.”
“In yesterday’s report, we stated that a test of Friday’s low was likely, but we also caution that the pound may be setting up speculators for a substantial short covering rally. Stand aside.”
S&P 500 E-mini: The December S&P 500 E-mini will likely generate an intermediate term sell signal on October 12. For this to occur the daily high must remain below OIA’s key pivot point for October 12 of 2146.05.
This report is being composed prior to the release of the minutes of the Federal Reserve, and conceivably the market could rally above the pivot point after the minutes have been released.
The December S&P 500 E-mini lost 24.50 points on strong volume of 2,247,838 contracts. Volume was the strongest since October 4 when the December contract lost 8.50 points on volume of 2,148,055 contracts and total open interest increased by 36,012 contracts. On October 11, total open interest declined by 13,815 contracts, which relative to volume is approximately 70% below average.
As this report is being compiled on October 12 prior to the release of the Federal Reserve minutes, the December contract is trading unchanged and has made a daily low of 2126.25, which is above yesterday’s print of 2121.75. We have no recommendation.