Live cattle: On October 24, December live cattle generated a short term buy signal, but remains on an intermediate term sell signal.
December live cattle advanced 2.375 cents on strong volume of 65,564 contracts. Total open interest skyrocketed by 3,893 contracts, which relative to volume is approximately 140% above average. The October contract lost 1,325 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in October and increase total open interest substantially. Yesterday’s action was extremely positive.
As this report is being compiled on October 25, the December contract is trading 40 points higher and has made a daily high of 104.850, which is slightly above yesterday’s high of 104.750 and is the highest print since 104.600 made on September 29. As is usually the case after the generation of a short term buy signal, markets typically experience a pullback lasting 1-3 days and this is the opportunity to initiate bullish positions if you are so inclined. 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.
Soybeans: On October 24, January 2017 soybeans generated an intermediate term buy signal after generating a short term buy signal on October 18.
January soybeans advanced 10.00 cents on heavy volume of 383,308 contracts. Total open interest declined by 1,774 contracts, which relative to volume is approximately 75% below average, but the total open interest decline indicates there were insufficient open interest increases to offset the decline in the November contract which lost 33,705 of open interest as it approaches first notice.
As this report is being compiled on October 25, the January contract is trading 1.75 cents above yesterday’s close and has not taken out yesterday’s print of 10.09. Though soybeans are rallied strongly on October 24, and remains on short and intermediate term buy signals, the fact is soybean oil is driving the complex which is due to the strong fundamentals for palm oil. It is difficult to determine the length of the current rally and typically soybeans get a post harvest bounce, but we do not think the market has the wherewithal for a major move at this juncture. We recommend a stand aside posture.
WTI crude oil:
December WTI crude oil lost 33 cents on volume of 1,047,748 contracts. Total open interest increased by 19,375 contracts, which relative to volume is approximately 25% below average. As this report is being compiled on October 25 the December contract is trading 62 cents lower and has made a daily low of 49.78, which is above yesterday’s print of 49.62. Although we think prices can rally and test the October 19 print of 52.16, we do not see a compelling reason to be involved in the market. December WTI remains on short and intermediate term buy signals. Stand aside.
Yesterday, November natural gas lost 16.2 cents and the December contract lost 4.2 cents on total volume of 472,963 contracts. Total open interest declined only 2,609 contracts, which relative to volume is approximately 75% below average. As this report is being compiled on October 25, the December contract is trading 14.3 cents lower on the day or -4.31% and has made a daily low of 3.155, which is the lowest print since $3.148 made on October 5.
It appears the December natural gas contract is headed toward a short term sell signal and this will occur if the daily high is below OIA’s key pivot point for October 25 of $3.286. As we pointed out in the October 13 research note on natural gas, we thought that natural gas was likely to top out in the October time frame and head lower into early winter. The other problem with natural gas is that the net long position held by managed money is substantial and this group will add a significant amount of selling pressure as prices move lower. Stand aside.
From the October 13 research note on natural gas:
“Yesterday, November contract made a new contract high of 3.366, which slightly takes out the high of 3.352 made the week of January 12, 2015. The massive open interest increase at the contract high in yesterday’s trading in our view is a sign of danger. Typically near market tops, it is common to see volume expand and/or a substantial increase of open interest.”
“The massive increase of open interest indicates that Johnny-come-lately’s are entering the market because they fear they are missing the move. As this report is being compiled on October 14, the November contract is trading 6.3 cents lower on the day or -1.89%. As we mentioned in yesterday’s report there is a gap on the weekly chart between 3.351 and 3.444 which could be filled before the market heads south.”