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Coffee: March NY coffee will generate a short-term buy signal on December 31 provided the daily low remains above OIA’s key pivot point for December 31 of 1.2305. The March contract remains on an intermediate term sell signal.

March coffee advanced 2.20 cents on volume of 15,462 contracts. Total open interest declined by 580 contracts, which relative to volume is approximately 25% above average. As this report is being compiled on December 31, the March contract is trading 2.60 cents higher on light pre-holiday volume.

The coffee market has consistently generated short-term buy signals during 2015 only to see these reversed with in a week or two. We want to see a structural change in the market before getting bullish on coffee. In summary, we want contango to move into backwardation indicating that near-term demand is in evidence. Managed money is substantially net short coffee, which explains open interest declines when prices advance. The coffee market needs to experience open interest increases on price advances for a sustained advance. We have no recommendation.

Copper: On December 30, March copper generated a short-term buy signal, but remains on an intermediate term sell signal.

March copper advanced 1.00 cent on light holiday volume of 31,126 contracts. However, total open interest declined by a substantial 1,704 contracts, which relative to volume is approximately 120% above average meaning liquidation was substantial on the minor advance.

As this report is being compiled on December 31, the March contract is trading down fractionally -0.20% and has made a daily low of 2.1170 and a high of 2.1480, which is testing previous highs made on December 29 and 30. The fundamentals for copper are abysmal, but with managed money substantially net short, a rally that blows out short-sellers is more than likely. Stand aside.

WTI crude oil:

February WTI crude oil lost $1.27 on light pre-holiday volume of 411,177 contracts. Total open interest increased by 996 contracts, which is minuscule and dramatically below average. The February contract lost 6,650 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on December 31, the February contract has reversed course and is rallying 3.03% above yesterday’s close or + $1.11. February WTI remains on short and intermediate term sell signals. We have no recommendation.

Natural gas:

Summary natural gas lost 15.6 cents on volume of 286,526 contracts. Total open interest declined by a massive 23,361 contracts, which relative to volume is approximately 230% above average meaning liquidation was massive on the hefty decline. The January contract accounted for a loss of 140 of open interest.

For the past three days beginning on December 28, February natural gas has advanced 13.5 cents and total open interest has declined each day for a cumulative loss of 48,880 contracts. In summary, the market is blowing out huge numbers of speculators and as this report is being compiled on December 31, the February contract has reversed course from yesterday’s action, trading 6.23% above yesterday’s close and has made a daily high of $2.378, which is slightly below December 29’s high print of 2.386.

On December 29, OIA announced that February natural gas generated a short-term buy signal and yesterday was the first day of the pullback and now the market has resumed its uptrend. We have cautioned clients that the fundamentals are terrible, but managed money is substantially net short and this can cause a technical induced blow-off. Do not attempt to short the market and do not buy it.

The Energy Information Administration announced that working gas in storage was 3,756 Bcf as of Friday, December 25, 2015, according to EIA estimates. This represents a net decline of 58 Bcf from the previous week. Stocks were 532 Bcf higher than last year at this time and 448 Bcf above the five-year average of 3,308 Bcf. At 3,756 Bcf, total working gas is above the five-year historical range.

Dollar index:

The March dollar index advanced 18.1 points on light holiday volume of 10,000 contracts. Total open interest increased by 290 contracts, which relative to volume is average. As this report is being compiled on December 31, the March contract is trading 41.1 points higher on the day and has made a daily high of 98.845.

Ever since the dollar index generated a short-term sell signal on December 28, the market has conformed to the usual 1-3 day counter trend rally and this is the second day of the rally. For the March dollar index to generate a short-term buy signal, which would reverse the December 28 short-term sell signal, the daily low must be above OIA’s key pivot point for December 31 of 98.798. We have no recommendation.

Euro:

The March euro lost 17 pips on volume of 97,272 contracts. Total open interest declined by 1,296 contracts, which relative to volume is approximately 45% below average. As this report is being compiled on December 31, the March contract is trading 57 pips lower and has made a daily low of 1.0871.

On December 28, the March euro generated a short-term buy signal, and since then has experienced two days of corrective activity. However, the euro is getting close to the area where a signal reversal could occur. For the March euro to generate a short term sell signal, the high of the day must be below OIA’s key pivot point for December 31 of 1.0885. We have no recommendation.

Yen: On December 30 the JPY/EUR cross generated a short-term buy signal and remains on an intermediate term buy signal.

The March yen lost 12 pips on volume of 51,155 contracts. Total open interest increased by 1,408 contracts, which relative to volume is average. As this report is being compiled on December 31, the March contract is trading 25 pips above yesterday’s close and has made a new high for the move of .8346, which is the highest print since .8354 made on October 28.

On December 21, OIA announced the March yen generated a short-term buy signal and an intermediate term buy signal on December 29. That the yen generated a short-term buy signal against the euro on December 30 is additional confirmation the yen is now the strongest currency against the euro, pound, Swiss franc, Canadian dollar, Australian dollar and US dollar.

As we pointed out in prior reports, we want to see the 50 day moving average cross above the 100 and 200 day moving averages for spot yen and expect the March contract to undergo some corrective activity before resuming its uptrend next year. At this juncture, we recommend a stand aside posture.

S&P 500 E-mini:

The March S&P 500 E-mini lost 18.25 points on volume of 721,581 contracts. Total open interest declined by 9,654 contracts, which relative to volume is approximately 45% below average. Yesterday, the March contract made a high of 2075.00, which was only fractionally above the December 29 print of 2074.50 and then it proceeded to sell off for most of the day.

In yesterday’s report, we mentioned that the March contract was trading on the borderline of the pivot point for a short-term buy signal. We further commented that we wanted to see a definitive break of the pivot point (2061.30) to confirm the continuation of the sell signal. Approximately 45 minutes after we published the December 29 report, the market broke sharply lower to make a daily low of 2053.50, considerably below the pivot point.

In summary, the March contract remains on a short-term sell signal and as this report is being compiled on December 31, the March contract is trading 7.00 points lower and has made a daily low of 2037.00, which is the lowest print since 2035.25 made on December 28. The March contract has made a daily high of 2057.75, which was made in the early evening hours December 30, and though there have been a couple of attempts at rallies, but the high has not been taken out as of this writing with approximately 2 1/2 hours left ago in the session.

The market looks weak, and this is an opportune time to consider shorting out of the money calls in the January contract. We recommend initiating the position toward the end of the session to get the benefit of a rally, which is typical on the last trading day of the year. Strikes selected should be based upon your risk tolerance.The March S&P 500 E-mini remains on a short-term sell signal, but an intermediate term buy signal.

From the December 29 report on the S&P 500 E-mini:

“As this report is being compiled on December 30, the March contract is trading 9.50 points lower and has made a daily low of 2061.25. This is right on the cusp of OIA’s key pivot point of 2061.30 for the generation of a short-term buy signal. With 2 1/2 hours remaining in the session, the market could definitively penetrate the pivot point, which would mean that the March contract would remain on a short-term sell signal.”