WTI crude oil:
November WTI crude oil lost 63 cents on volume of 1,226,749 contracts. Volume increased from October 6 when the November contract gained 61 cents on volume of 1,146,431 contracts and total open interest increased by 31,514. On October 7, total open interest declined by 38,999 contracts, which relative to volume is approximately 15% above average. The November contract accounted for a loss of 70,518 of open interest.
The COT report revealed that managed money added 19,050 contracts to their long positions and liquidated 48,842 of their short positions. Commercial interests liquidated 4,101 of their long positions and added 9,422 to their short positions. As of the latest report, managed money is now long crude oil by a ratio of 3.14:1, up substantially from the previous week of 2.01:1 and almost double the ratio two weeks ago of 1.79:1. It should be noted that much of the increase in this week’s ratio was due to the liquidation of short positions rather than the addition of new long positions.
As this report is being compiled on October 10 the November contract is rocketing higher, up $1.35 and has made a daily high of 51.60, which is the highest print on the weekly continuation chart since $51.67 made by the July contract during the week of June 6, 2016. Also, the November contract is trading at the level last seen during the week of October 5, 2015 ($50.92). The highs on the weekly continuation chart of June 6, 2016 and October 5, 2015 represent the neck line of a reverse head and shoulder pattern on the weekly chart. This should provide substantial resistance and a decisive move above this could portend a move to the low $60.00 area, which on the weekly chart represents substantial resistance and occurred during May-June 2015.
On September 29, OIA announced that November WTI crude oil generated short and intermediate term buy signals and since then, the pullback on October 7 has been the extent of the correction, which usually occurs after the generation of buy signals. Additionally, open interest action relative to price advances have been very positive. The market move has solidly bullish even as the dollar climbs to multi-month highs. However, fundamentals for crude are negative, which is why we have recommended a stand aside posture for long positions, but also strongly advise against initiating short positions.
November natural gas advanced strongly, up 14.4 cents on very heavy volume of 772,162 contracts. Volume was the strongest since June 9, 2016 when 802,192 contracts were traded and the July 2016 contract closed at $2.617. On October 7, total open interest increased by 7,120 contracts, which relative to volume is approximately 50% below average. The November contract accounted for a loss of 16,936 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in November and increase total open interest.
The COT report released on Friday showed that managed money liquidated 8,331 of their long positions and added 16,516 to their short positions. Commercial interests added 13,989 to their long positions and also added 1,139 to their short positions. As of the latest report, managed money is long natural gas by a ratio of 1.57:1, down from the previous week of 1.79:1 and the ratio two weeks ago up 1.69:1.
As this report is being compiled on October 10 the November contract is trading higher, up 5.6 cents and has made a new high for the move of $3.289, which is the highest print since 3.352 on the weekly continuation chart made during the week of January 12, 2015. The impetus for the strong move higher has been hurricane Matthew, and on a seasonal basis, prices tend to strengthen in the September and October period. Although this seasonal trend has diminished ever since the Henry Hub in Louisiana has lessened in its importance as a transmission facility. We think the real fireworks will be this winter, especially if temperatures become unseasonably cold. Do not chase this market higher.
December gold lost $1.10 on heavy volume of 289,313 contracts. Volume was the strongest since October 4 when the December contract lost $43.00 volume of 382,868 contracts and total open interest declined by 10,523. On October 7, total open interest declined again, this time by 7,617 contracts, which relative to volume is average. On October 7, the December contract made a new low for the move of 1243.20, which is the lowest print since 1242.70 made on June 7. This has penetrated the 200 day moving average of 1259.90 and the year to date moving average of 1266.60.
From September 27 through October 7, total open interest has declined by 96,250 contracts while the December contract has lost $ 90.00 in this time frame. This week’s COT report, revealed that managed money liquidated 37,386 of their long positions and added 17,675 to their short positions. Commercial interests added 923 to their long positions and liquidated 20,735 of their short positions. As of the latest report, managed money is long gold by a ratio of 5.48:1, a ratio that was cut almost in half from the previous week of 10.46:1 and a substantial reduction from the ratio two weeks ago a 7.46:1.
As this report is being compiled on October 10, the December contract is trading $8.30 higher and has made a daily high of 1266.80, which is below Friday’s print of 1267.60. Tomorrow is the cut off date for the tabulation of the COT report to be released this coming Friday and we expect to see a further decline in the net long position of managed money due to the substantial liquidation cycle now in force.
On October 3, OIA announced that December gold generated short and intermediate term sell signals. The damage done to the chart means that gold will undergo a process of repair before it can resume its rally. The next area of major support is the May 31 low of 1207.00. We continue to recommend a stand aside posture.
The December British pound lost 1.72 cents on heavy volume of 273,957 contracts. Volume was the strongest since the day of the vote in the United Kingdom on Brexit (June 23) when the December pound lost 11.50 cents on volume of 506,100 contracts and closed at 1.3672.
On October 7, total open interest declined by a substantial 10,109 contracts, which relative to volume is approximately 25% above average. The pound had what is referred to as a “flash crash” and sunk to a low of 1.2034, which takes the currency back to the level last seen in the mid-1980s. As this report is being compiled on October 10, the pound is trading lower again, down 70 pips and has made a daily low of 1.2367. A test of Friday’s low appears to be inevitable and we expect to see more new short-sellers piling into the market. however, Friday’s low may represent some solid support, at least temporarily.
The COT report revealed that leverage funds added 2,700 contracts to their long positions and also added a massive 19,722 to their short positions. As of the latest report, leverage funds are short the pound by a ratio of 2.82:1, up from 2.53:1 made the previous week and almost double the ratio two weeks ago of 1.54:1. In the coming weeks, we expect the net short position to increase, and this will set the stage for a massive short covering rally. Stand aside.