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WTI crude oil:

February WTI crude oil lost 28 cents on volume of 724,704 contracts. Total open interest increased by a sizable 15,871 contracts, which relative to volume is approximately 10% below average. The February contract accounted for gain of 398 of open interest.

Yesterday, the market rallied to a high of 38.39 on news of the tensions between Saudi Arabia and Iran, but drifted lower throughout the session to close lower. In yesterday’s report, we commented that the breaking of diplomatic relations between the two countries was bearish for crude oil because it would increase Saudi Arabia’s determination to pump oil at lower prices in order to attempt to hurt the Iranian and Russian economies.

As this report is being compiled on January 5, the February contract is trading 58 cents lower and has made a daily low of 36.05, which is only 70 cents above the contract low of 35.35 made on December 21. At this juncture, it appears likely the contract low will be taken out and crude oil is in its period of seasonal weakness, which lasts through February. The February contract remains on short and intermediate term sell signals. We have no recommendation.

Dollar index: It appears likely the March dollar index will generate a short-term buy signal on January 5. It remains on an intermediate term buy signal.

The March dollar index advanced 22.3 points on volume of 39,196 contracts. Total open interest increased by 618 contracts, which relative to volume is approximately 40% below average, but this is the second open interest increase in a row on a price advance. On December 31 the March contract gained 39.1 points and total open interest increased by 4,519 contracts on volume of 19,182. As this report is being compiled on January 5, the March contract is advancing again, up 55.2 points and has made a daily high of 99.730, which takes out yesterday’s print of 99.300. We have no recommendation.

Euro: It appears likely the March euro will generate a short-term sell signal on January 5. It remains on an intermediate term sell signal

The March euro lost 40 pips on volume of 257,993 contracts. Total open interest increased by 6,014 contracts, which relative to volume is approximately 10% below average, but an open interest increase on yesterday’s price decline is bearish. This follows the open interest increase of 1,008 contracts on December 31 when the March contract lost 58 pips on volume of 85,799.

As this report is being compiled on January 5, the March contract is trading 86 pips lower and has made a new low for the move of 1.0728, which is the lowest print since the contract low of 1.0540 made on December 3. There is no support for the March contract until the contract low. Perhaps, euro parity will become a reality during the first quarter of 2016.

Swiss franc: it appears likely the March Swiss franc will generate a short-term sell signal on January 5. It remains on an intermediate term sell signal.

The March Swiss franc lost 24 pips on volume of 22,267 contracts. Total open interest declined just 68 contracts. As this report is being compiled on January 5, the Swiss franc is trading 75 pips lower and has made a new low for the move of 99.05. We have no recommendation.

Yen:

The March yen advanced 61 pips on heavy volume of 193,663 contracts. Total open interest exploded higher, up 11,628 contracts, which relative to volume is approximately 130% above average meaning huge numbers of new buyers were entering the market in large numbers and driving prices to a new high for the move of .8436.

As this report is being compiled on January 5, the March contract is trading 22 pips higher while the major european currencies are trading lower against the dollar. On December 21, OIA announced the March yen generated a short-term buy signal and announced on December 29 that it generated an intermediate term buy signal.

The market has more work to do on the downside, and soon the yen will be entering its period of seasonal weakness, which may provide an opportunity to initiate bullish positions. The market is trading in a very firm manner, and ever since generating a short-term buy signal the action has been impressive.

S&P 500 E-mini:

The March S&P 500 E-mini lost 26.50 points on volume of 2,224,892 contracts. Total open interest increased by a sizable 78,098 contracts, which relative to volume is approximately 20% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices to a new low for the move of 1980.25.

After making its low, the market rallied strongly in the last half an hour on rumors of a very large market on close order (Moc). As this report is being compiled on January 5, the March contract is trading 9.00 points lower after making a daily high of 2017.00. This is below OIA’s key pivot point of 2019.05, which means if the daily high remains in place, an intermediate term sell signal will be generated on January 5. On December 11, OIA announced the March contract generated a short-term sell signal.

In the December 30 report, we recommended shorting out of the money calls in the January contract and this trade continues to work well. Unless we indicate otherwise, continue to hold the trade with the target date of the January 15, the expiration for the January contract.

From the December 30 report on the S&P 500 E-mini:

“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.”