Price, volume and open interest analysis for January 11, 2016

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Soybean oil: On January 11, March soybean oil generated short and intermediate term sell signals.

March soybean oil lost 39 points on volume of 91,320 contracts. Total open interest increased by 2,808 contracts, which relative to volume is approximately 10% above average meaning that new short-sellers were entering the market in above average numbers and driving prices to a new low for the move (29.20). As this report is being compiled on January 12, the March contract is trading 20 points above yesterday’s close and has made another new low for the move of 29.00. We have no recommendation.

WTI crude oil:

February WTI crude oil lost $1.75 on heavy volume of 1,237,186 contracts. Total open interest increased by only 3,659 contracts, however, the February contract lost 54,372 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in February and slightly increase total open interest. This is bearish.

As this report is being compiled, the February contract is trading lower again, down $1.22 and has made a another new contract low of 30.10 while February heating oil also has made a new contract low of 98.43 and February gasoline, a contract low of 1.0884. We have no idea where this market eventually finds support, but according to the most recent COT report, managed money is still long by a ratio of 1.27:1, which was down from the previous week of 1.45:1 and the ratio two weeks ago of 1.36:1.

Perhaps, when managed money assumes a net short position will a low or temporary low be in place. It is remarkable that managed money has remained long throughout some of the worst carnage in the oil market of the last 30 years. To reiterate our position on crude oil: do not buy it and do not sell it.

Natural gas:

February natural gas lost 7.4 cents on volume of 356,857 contracts. Total open interest declined by 10,844 contracts, which relative to volume is approximately 5% above average. The February contract accounted for loss of 19,894 of open interest. Yesterday’s action follows that of January 8 when December contract gained 9.00 cents on volume of 386,747 contracts and total open interest declined by 15,735. Trading in natural gas has been characterized by total open interest losses on price advances and declines.

As this report is being compiled on January 12, the February contract is trading 11.3 cents lower and on the lows of the day. On December 29, February natural gas generated a short-term buy signal and has never been able to generate an intermediate term buy signal. For the buy signal to reverse and a new short-term sell signal to occur, the high of the day must be below OIA’s key pivot point for January 12 of $2.151. We have no recommendation.

Dollar index:

The March dollar index advanced 18.5 points on volume of 32,746 contracts. Total open interest declined by 112 contracts, a number which is substantially below average. However, January 11 was the second day in a row in which prices advanced and total open interest declined.

On January 8 the March contract gained 32.7 points on volume of 40,415 contracts and total open interest declined by a very large 2,566. Despite this, the March contract remains on short and intermediate term buy signals. For a sell signal to occur, the high of the day must be below OIA’s key pivot point for January 12 of 98.140. We have no recommendation.

Euro:

The March euro lost 30 pips on light volume of 164,375 contracts. Total open interest declined by 2,479 contracts, which relative to volume is approximately 40% below average. As this report is being compiled on January 12, the March contract is trading 40 pips lower and has made a daily low of 1.0836, which is below yesterday’s print of 1.0865 and is the lowest since 1.0812 made on January 8. As clients know, we have been reluctant to recommend bearish positions due to our concern that an equity market meltdown could boost the euro substantially higher, if only temporarily. We continue to recommend a stand aside posture.

Yen:

The March yen advanced 11 pips on volume of 150,969 contracts. Total open interest declined by 937 contracts, which relative to volume is approximately 70% below average. As this report is being compiled on January 12, the March contract is trading 17 pips lower and has made a daily low of .8479, which is the lowest print since .8422 made on January 8. On December 21, the March contract generated a short-term buy signal and an intermediate term buy signal on December 29.

We have cautioned clients to remain on the sidelines for new positions until we see a sharp correction due to the fact that huge numbers of new buyers have entered the market and this group will exert selling pressure when the market pulls back further. On the other hand, if there is an equity market meltdown, we could see the March contract move to new high territory, which means that yesterday’s high of .8573 would be taken out.

S&P 500 E-mini:

The March S&P 500 E-mini advanced 2.75 points on volume of 2,495,009 contracts. Total open interest increased by 39,972 contracts, which relative to volume is approximately 35% below average, and since the E-mini was trading on the downside for most of the session, we attribute the open interest increase more to new short-sellers than to new buying. Short covering likely lifted the market higher into the close.

As this report is being compiled on January 12, the March contract is trading 2.25 points above yesterday’s close and has made a daily low of 1899.00, which is above yesterday’s low of 1892.50, the low for the move. On December 30, OIA recommended the initiation of short call positions in the January contract and the trade has been profitable from the start. Continue to hold short calls into January 15 expiration.