December live cattle advanced 2.70 on light volume of 44,576 contracts. Volume was the lowest since September 29 when the December contract lost 50 points on volume of 44,458 contracts and total open interest declined by 1,311. On October 4, total open interest increased by 603 contracts, which relative to volume is approximately 45% below average, but an open interest increase on yesterday’s strong advance is positive. Additionally, the October contract lost 2,208 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in October and increase total open interest. As this report is being compiled on October 5, the December contract is trading nearly unchanged on the day. Stand aside.
WTI crude oil:
November WTI crude oil lost 12 cents on volume of 929,944 contracts. Total open interest declined by 2,735 contracts, substantially below average. The November contract accounted for a loss of 15,536 of open interest. As this report is being compiled on October 5 after the release of the EIA storage report, which showed a stock draw (see below), the November contract is trading $1.13 higher on the day and has made a new high for the move of 49.95, which is the highest print since 50.10 made on July 7.
On September 29, November WTI generated short and intermediate term buy signals and since then the market has not had its usual pullback, which can last from 1-3 days. We continue to recommend a stand aside posture because the fundamentals remain negative and the market can correct at any time.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.0 million barrels from the previous week. At 499.7 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 0.2 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased slightly while blending components inventories increased last week. Distillate fuel inventories decreased by 2.4 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.7 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories decreased by 11.2 million barrels last week.
December gold fell by a massive $43.00 on very heavy volume of 382,860 contracts. Volume was the strongest since July 27 when 422,623 contracts were traded and the December contract closed at 1334.50. On October 4, total open interest declined only 10,523 contracts, which relative to volume is approximately 5% above average. This is a disappointing number considering the magnitude of the decline and according to last week’s COT report, managed money was long gold by ratio of 10.43:1.
From September 27 through October 4, total open interest has declined by 55,149 contracts while the December contract has lost $ 74.40 in this time frame. This week’s COT report, which will be released on Friday will be calculated through yesterday’s activity. Once the report is released, we will have a fix on the extent to which managed money has liquidated their long positions.
Based upon yesterday’s relatively low open interest number (compared to the decline), we suspect there are many longs hanging on. Yesterday, there was an article in a well-known online publication discussing the massive long position held by a major European hedge fund in December gold. That this was made public conveys to the market there may be substantially more liquidation ahead.
As this report is being compiled on October 5, the December contract is trading $5.00 lower and has made a new low for the move of 1264.10, which is the lowest print since 1259.10 made on June 24. Currently, December gold is trading above its 200 day moving average of 1256.90 and slightly below the year to date moving average of 1266.70.
On October 3, December gold generated short and intermediate term sell signals and based upon the current set up, we think there is more liquidation ahead. A stand aside posture is the best position at this juncture.
Silver: On October 4, December silver generated a short term sell signal after generating and intermediate term sell signal on October 3.
December silver lost $1.093 on heavy volume of 111,341 contracts. Volume was the strongest since August 26 when 131,231 contracts were traded and the December 2016 contract closed at $18.745. On October 4, total open interest declined by 3,230 contracts, which relative to volume is approximately 10% above average, which like gold is a disappointment considering the magnitude decline of almost 6%.
As this report is being compiled on October 5, the December contract is trading 8 cents below yesterday’s close and has made a new low for the move of $17.585, which is the lowest print since 17.250 made on June 24. Like gold, we recommend a stand aside posture. Much damage has been done to the silver chart and from the high of $21.225 made on July 5, through today’s low, December silver has fallen $3.64.
Yen: December Yen will generate short and intermediate term sell signals on October 5.
December yen lost 119 pips on volume of 157,543 contracts. Total open interest increased by 7,445 contracts, which relative to volume is approximately 75% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices lower.
According to last week’s COT report, leverage funds were long the yen by a stratospheric 3.30:1, which is up from the previous week of 2.85:1 and the ratio two weeks ago of 2.98:1. Now that the yen is on short and intermediate term sell signals, there is much more liquidation ahead because of the substantial net long position. Stand aside.
Dollar index: On September 19, the December dollar index generated a short term buy signal and will not generate an intermediate term buy signal on October 5 because the low of the day is below OIA’s key pivot point for October 5 of 95.991.
The December dollar index advanced 53.8 points on heavy volume of 42,510 contracts. Total open interest exploded higher, up 2,649 contracts, which relative to volume is approximately 140% above average meaning aggressive new buyers were entering the market in large numbers and driving prices to a new high for the move of 96.390. Yesterday’s volume and open interest action is the best that we have seen on a price advance in quite some time. The path of least resistance for the dollar index is higher and an intermediate term buy signal is imminent. We have no recommendation at this juncture.