December live cattle lost 1.10 cents on strong volume of 67,897 contracts. Volume was the highest since October 3 when the December contract lost 15 points on volume of 69,972 and total open interest declined by 1,227 as the December contract fell to a contract low (98.900) on that date.
On October 12, total open interest increased by 1,884 contracts, which relative to volume is average. The October 2016 and December 2016 contracts lost a total of 1,957 of 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 substantially.
From October 7 through October 12, the December contract has lost 5.62 cents while total open interest has increased each day for cumulative total of 5,007 contracts. As this report is being compiled on October 13 the December contract is trading 45 points lower and has made another contract low of 96.500 and the October 2016 contract has made a new contract low of 95.050, which is above the October 2010 low of 94.500 made on the monthly continuation chart. As we have said in previous research notes, we want to see managed money assume a net short position before calling a bottom. As of the latest COT report, managed money is long live cattle by ratio of 1.56:1. Stand aside.
WTI crude oil:
November WTI crude oil lost 61 cents on volume of 1,125,993 contracts. Total open interest declined by 11,922 contracts, which relative to volume is approximately 50% below average. The November contract lost 45,702 of open interest. As this report is being compiled after the release of the EIA storage report the November contract is trading 14 cents higher on the day after making a daily low of 49.36, which is above the October 10 print of 49.15.
What makes today’s performance impressive is that the stocks increased by a massive 4.9 million barrels, crude had its set back and now has rebounded to trade higher. WTI has been trading in a very firm manner for the past several days, and a test of 51.60, the high for the move made on November October 10 is in the offing. We have no recommendation except that clients should NOT short crude.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.9 million barrels from the previous week. At 474.0 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.9 million barrels last week, but are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 3.7 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 0.1 million barrels last week but are above the upper limit of the average range. Total commercial petroleum inventories decreased by 5.1 million barrels last week.
November natural gas lost 2.7 cents on volume of 467,047 contracts. Total open interest declined by 4,858 contracts, which relative to volume is approximately 50% below average. The November contract lost 25,332 of open interest. As this report is being compiled after the release of the EIA storage report, November natural gas is trading 14.2 cents or +4.42% higher on the day and has made a daily high of 3.366, which slightly takes out the high of 3.352 made the week of January 12, 2015.
There is a gap on the weekly chart that is likely to filled between 3.351 and 3.444. Clients should be aware that natural gas has a seasonal tendency to top in October. As we have said in previous reports the real fireworks may occur this winter, especially if temperatures dip below seasonal norms.
The Energy Information Administration announced that working gas in storage was 3,759 Bcf as of Friday, October 7, 2016, according to EIA estimates. This represents a net increase of 79 Bcf from the previous week. Stocks were 56 Bcf higher than last year at this time and 192 Bcf above the five-year average of 3,567 Bcf. At 3,759 Bcf, total working gas is above the five-year historical range.
The December dollar index gained 27 points on healthy volume of 32,245 contracts. Total open interest increased by an astounding 5,633 contracts, which relative to volume is an off the charts number. As this report is being compiled on October 13 the dollar index is trading 25 points lower on the day and remains on short and intermediate term buy signals. We have no recommendation.
From the October 11 research note on the Dollar Index:
“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.”
S&P 500 E-mini: On October 12 the December S&P 500 E-mini generated an intermediate term sell signal after generating a short term sell signal on September 12.
The December S&P 500 E-mini lost 3.00 points on volume of 1,484,460 contracts. Total open interest increased only 1,202 contracts. As this report is being compiled on October 13, the December contract is trading 10.00 points lower after making a daily low of 2107.75, which is the lowest print since 2107.75 made on September 15. We think the market has hit a soft patch and may continue to experience weakness during the current earnings reporting season, which for the most part will conclude by the end of October.
At that juncture, the next big event of course is going to be the US presidential election and with the anticipation that Hillary Clinton is going to be the next president, the market will begin to rally strongly in the November and December time frame, which is its usual period of seasonal strength. Also, the market is discounting the impending interest rate increase, which appears likely at the December meeting of the FOMC. For now, stand aside.