December live cattle lost 50 points on volume of 44,458 contracts. Total open interest declined by 1,311 contracts, which relative to volume is approximately 10% above average. As this report is being compiled on September 30, the December contract is trading nearly limit down and has made a new contract low of 100.125. Today’s low takes out the previous print made on September 6.The October contract also has made a new contract low of 98.900, which on the monthly continuation chart breaks below the June 2011 low of 100.750 and the November 2010 low of 100.875. The next low on the monthly continuation chart is 97.100 made during the month of November 2010.
The low in the October contract far surpasses the support that we anticipated when we wrote our research note on live cattle during April of this year. In the report, we anticipated that live cattle would find support in the 100.750-101.625 area and live cattle has decisively pierced through this. Although, at the time, many speculators, producers and hedgers thought the projection made in the report was too bearish. As it turned out, we were insufficiently bearish.
Although there are some positives looking ahead to next year, namely the possibility of Chinese importation of American beef, the liquidation cycle must run its course. As we have said in previous reports, we want to see managed money assume a net short position and consider this to be a precondition for a bottom. According to last week’s COT report managed money was long by a ratio of 1.44:1. Stand aside.
From Live Cattle: A Technical Analysis (April 25, 2016):
“On Friday, April 22, June live cattle made a new contract low of 113.900 and closed at 114.650 down 2.25. [Interestingly, the June 2015 contract bottomed on April 22, 2015 (145.175) then rallied to a high of 154.975 on May 14, 2015.] The low made Friday was slightly above the April 2012 and May 2012 prints of 112.300 and 112.225 respectively.We think these will be penetrated and the next area of major support is the May and June 2011 lows of 101.625 and 100.750 respectively.We tend to think that May and June 2011 support will likely hold for the following reason: When commodities break through their former all-time highs, those highs become areas of support.”
WTI crude oil: On September 29, November and December WTI crude oil generated short and intermediate term buy signals.
November WTI crude oil advanced 78 cents on volume of 1,270,531 contracts. Volume declined considerably from the previous day when the November contract gained $2.38 on volume of 1,678,371 contracts and total open interest increased by 39,706 contracts, slightly below average. On September 29 total open interest increased by 10,432 contracts, which relative to volume is approximately 60% below average. The November contract accounted for a loss of 7,440 of open interest.
As this report is being compiled on September 30, the November contract is trading 25 cents above yesterday’s close and has made a daily high of 48.28, which is below yesterday’s print of 48.32. As we said in yesterday’s report now that WTI is on short and intermediate term buy signals, clients should wait for a pullback that could last from 1-3 days before considering bullish positions. Do not chase the market higher, wait for the pullback.
Brent crude oil: On September 29, December 2016 and January 2017 Brent crude oil generated short and intermediate term buy signals.
Gasoline: On September 29, November and December gasoline generated short and intermediate term buy signals.
Heating oil: On September 29, November and December heating oil generated short and intermediate term buy signals.
December gold advanced $2.30 on volume of 168,664 contracts. Total open interest declined by massive 8,647 contracts, which relative to volume is approximately 110% above average meaning liquidation was extremely heavy. Yesterday was the third consecutive day when total open interest declined by a massive number. During the past three days total open interest has declined by 34,214 contracts while December gold has lost $18.10 in this time frame.
As this report is being compiled on September 30, the December contract is trading 5.90 lower and has made a daily low of 1319.00, which is above yesterday’s print of 1318.60. It looks increasingly likely that December gold will generate another short term sell signal and this will occur if the daily high is below OIA’s key pivot point for September 30 of $1322.40. The rally will resume if the December contract makes a daily low above OIA’s key pivot point for September 30 of 1337.00.
For out right bullish positions, we recommend a stand aside posture and for those who want to participate in relatively low risk slightly bullish trade, an out of the money bull put spread can be initiated once the market has found some stability.