December live cattle lost 72.5 points on light volume of 35,192 contracts. Volume was the weakest since August 23 when volume traded was 31,510 contracts and December cattle closed at 110.975. On September 26, total open interest increased by a massive 2,293 contracts, which relative to volume is approximately 160% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices lower (104.950). As this report is being compiled on September 27, the December contract is trading close to limit down, down 2.625 or -2.47%. Stand aside
From the September 22 research note on live cattle:
“Although December cattle has been rallying in recent days, we have cautioned clients that it had to generate a short term buy signal before there was any chance of our recommending bullish positions. The market is headed for a test of its contract low of 101.275 made on September 6 and the multi-year low on the continuation chart of 99.375. Continue to stand aside.”
WTI crude oil:
November WTI crude oil advanced $1.45 on light volume of 851,388 contracts. Volume was the weakest since August 30 when 790,086 contracts were traded and the November contract closed at $46.99. On September 26, total open interest increased by 12,686 contracts, which relative to volume is approximately 45% below average. The November contract gained 445 of open interest. The reason for yesterday’s rally was another rumor about a Saudi Arabian accord on restricting oil production and as this report is being compiled on September 27, all hopes have been dashed and the November contract is trading $1.62 lower or -3.53%. Continue to stand aside.
November natural gas advanced 4.2 cents on light volume of 280,538 contracts. However, total open interest increased substantially, up 8,568 contracts, which relative to volume is approximately 10% above average. The October contract accounted for a loss of 5,112 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 above average.
While we are bullish natural gas, the November contract is trading at the upper end of its range going back to mid-May 2015. Although there is a seasonal tendency for prices to rise in the September and October time frame, we think the strong action in natgas will be this winter, especially if temperatures fall to lower than anticipated levels. Natural gas remains on short and intermediate term buy signals and we advise any client long the market to have appropriate exit points in place in the event of an extended pullback.
December gold advanced $2.40 on light volume of 145,345 contracts. Total open interest increased by a substantial 6,138 contracts, which relative to volume is approximately 60% above average. As this report is being compiled on September 27, the December contract is trading lower, down $13.50 on light volume. On September 22, December gold generated a short term buy signal and ever since its performance has been disappointing. In previous reports we have suggested that clients begin to position themselves on the bullish side of the market, but we are rethinking this strategy. It appears that gold is in an extended consolidation pattern and it is difficult to ascertain when this changes.
Our concern is there has not been a catalyst to move gold prices higher. During the past couple of days there has been heightened anxiety over the potential financial troubles at Deutsche Bank and its potential contagion effect on global financial markets. Yet during this time, gold has barely rallied and has traded in a sideways to lower pattern. One way to trade the gold market in a conservative manner would be to initiate a bull put ratio spread in the February 2017 contract.
In this trade an out of the money put is shorted and two further out of the money puts are purchased. In this way, if gold continues to decline, the nearby short put will lose money, but the out of the money long puts will gain to partially offset any loss in the short put. The benefit of this strategy is that if the gold market continues to trade in a sideways to lower pattern the risk is low and yet the trade benefits from the consolidation due to time decay of the options.
When gold rallies, the one short put becomes profitable and the two long further out of the money puts lose, but the gain in the one short put offsets the loss in the two long puts. Call if you have any question.
British pound: On September 26, the December British pound generated a short term sell signal, and remains on an intermediate term sell signal. Stand aside.