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Sugar: On January 6, March sugar generated a short-term sell signal, but remains on an intermediate term buy signal.

March sugar lost 15 points on volume of 134,616 contracts. Total open interest declined by 8,492 contracts, which relative to volume is approximately 140% above average meaning liquidation was extremely heavy on the modest decline. As this report is being compiled on January 7, the March contract is trading 32 points higher and has made a daily low of 14.33, which is below yesterday’s print of 14.40, but above the low of December 14 (14.23).

Usually, after the generation of a short-term sell signal, markets tend to undergo a counter trend rally lasting 1-3 days and this is the opportunity to initiate bearish positions. We expect at least another day of rally activity before sugar resumes its downtrend. An intermediate term sell signal will be generated if the daily high is below OIA’s key pivot point for January 7 of 14.43. At this juncture, stand aside.

Lean hogs: On January 6, February lean hogs generated an intermediate term buy signal after generating a short-term buy signal on January 5.

February hogs lost 27.5 points on volume of 29,541 contracts. Total open interest increased just 34 contracts. As this report is being compiled on January 7, the February contract is trading 47.5 points lower on the day. We see no compelling reason to be involved in the lean hog market

WTI crude oil:

February WTI crude oil lost $2.00 on heavy volume of 1,004,350 contracts. Total open interest increased by a massive 50,601 contracts, which relative to volume is approximately 100% above average meaning huge numbers of new short-sellers were entering the market and driving prices to a new contract low of 33.77 which is slightly below the December 2008 low of 32.80 made at the height of the financial crisis.

As this report is being compiled on January 7, the February contract is trading 47 cents lower and has made a new contract low of 32.10, which decisively takes out the 2008 low made in December of that year. There are numerous crosscurrents driving prices lower, one of which is the massive supply coming onto the market, turmoil in global markets and the potential slowing of the Chinese and global economies. Stand aside in this market: do not buy it and do not short it.

Dollar index:

The March dollar index lost 23 points on volume of 29,874 contracts. Total open interest increased by a massive 2,506 contracts, which relative to volume is approximately 220% above average meaning there was a battle between buyers and sellers and sellers were able to edge the market lower.

As this report is being compiled on January 7, the March contract is trading sharply lower, down 48.6 points or -0.49%. Global equity markets are swooning on January 7 and clearly the dollar is not the flight to currency safety net that many people would have expected. The yen and euro are benefiting the most from global risk off environment on January 7 and the yen has been the leading currency in the global risk off environment. 

The March contract remains on short and intermediate term buy signals. For over a month, the dollar index has generated both buy and sell signals, which have been quickly reversed. Conceivably, this may occur once again, and for the March contract to generate a short-term sell signal, the daily high must be below OIA’s key pivot point for January 7 of 98.128.  We have no recommendation.

Euro:

The March euro advanced 43 pips on volume of 190,671 contracts. Total open interest declined by 1,905 contracts, which relative to volume is approximately 50% below average. For the past four sessions beginning on December 31, through January 6  total open interest action has been acting a bearishly relative to price advances and declines: total open interest declines when prices advance and increases when prices decline.

As this report is being compiled on January 7, the March contract is trading 98 pips above yesterday’s close and has made a daily high of 1.0907, which is the highest print since 1.0966 made on January 4. On January 5, the March euro generated a short-term sell signal and continues to be on an intermediate term sell signal. Usually, after the generation of a sell signal, markets tend to rally from 1-3 days and this is the opportunity to initiate bearish positions.

In the case of the euro, clearly it is acting as a flight to safety currency and with markets roiling around the globe, we could see further gains in the euro. For the sell signal to reverse and a new short-term buy signal to occur, the low of the day must be above OIA’s key pivot point for January 7 of 1.0978. Like the dollar index, the euro has generated both buy and sell signals during the past month, which have been quickly reversed.

Another reversal cannot be ruled out in the current environment. For today’s rally, we will be looking to see whether open interest declines or whether new buyers are stepping in and moving prices higher. Keep in mind that according to the latest COT report, leverage funds are short the euro by ratio of 4.75:1 (futures only), which means there is plenty of fuel to fund a continued upside move. Stand aside.

Australian dollar: On January 6, the March Australian dollar generated a short-term sell signal, and based upon today’s trading on January 7 will generate an intermediate term sell signal.

The March Australian dollar lost 90 pips on volume of 110,264 contracts. Total open interest increased by a massive 7,662 contracts, which relative to volume is approximately 170% above average meaning aggressive new short-sellers were entering the market in large numbers and driving prices lower (70.25). The one consistent aspect of trading in the Australian dollar has been the bearish open interest action relative to price advances and declines: total open interest declines on advances and increases when prices decline. We have no recommendation at this juncture.

Yen:

The March yen advanced 43 pips on volume of 179,683 contracts. Total open interest increased by a massive 8433 contracts, which relative to volume is approximately 75% above average. For the past 5 sessions beginning on December 30, total open interest relative to price advances and declines has been acting in a consistent bullish fashion: total open interest increases on price advances and decreases when prices decline.

From December 31 through January 6 the March contract has advanced 150 pips and total open interest has increased each day for cumulative total increase of 30,907 contracts. Keep in mind that according to the latest COT report, leverage funds are short the yen (futures only) by ratio of 2.45:1, which means short-sellers should aid the market in its climb higher.

However, the yen is massively overbought relative to its 50 day and 100 day moving averages, and we still think the yen has more work to do on the downside before resuming its advance. Currently, the yen is the primary flight to safety currency and this is taking the yen to new highs for the move, which on January 7 is .8533, the highest print since .8608 made on August 24 when global markets melted down.

On December 21, OIA announced that the March contract generated a short-term buy signal and an intermediate term buy signal on December 29.Do not enter new bullish positions at current levels.

Gold: February gold will generate a short-term buy signal on January 7, but remains on an intermediate term sell signal.

February gold advanced $13.50 on heavy volume of 206,679 contracts. Total open interest increased by a substantial 8,318 contracts, which relative to volume is approximately 25% above average, which means that aggressive new buyers were entering the market in large numbers and driving prices to a new high for the move of 1094.90. The previous day, January 5 the February contract advanced 3.20 on light volume of 111,998 and total open interest increased by 3,860, which relative to volume is approximately 15% above average.

In summary, gold has experienced two days of positive price and open interest action. Here’s the rub: according to the latest COT report, which was tabulated on December 29, managed money is short gold (futures only) by ratio of 1.36:1. This is the highest short ratio in at least three weeks. This means that short sellers will provide additional fuel for the move higher.

Usually after the generation of a short-term buy signal, the markets have a tendency to pullback from 1-3 days and this is the opportunity to initiate bullish positions. Do not enter new bullish positions until the market has pulled back between the 50 day moving average of $1083.70 and the lower range of 1072.70, which is OIA’s pivot point.

10 Year Treasury note: On January 6, the March 10 year treasury note generated a short-term buy signal, but remains on an intermediate term sell signal.

The March treasury note advanced 19.5 points on volume of 1,165,236 contracts. Total open interest increased by 23,985 contracts, which relative to volume is approximately 20% below average, but an open interest increase on yesterday’s strong advance is positive. As this report is being compiled on January 7, the March note is trading 6 points higher on the day and has made a daily high of 127-100, which is below OIA’s key pivot point for January 7 for the generation of an intermediate term buy signal (127-170). We have no recommendation.

S&P 500 E-mini:

The March S&P 500 E-mini lost 25.75 points on volume of 2,244,635 contracts. Volume was close to the January 4 total when the March contract lost 26.50 points on volume of 2,224,892 contracts and total open interest increased by 78,098 contracts. On January 6, total open interest increased by 18,370 contracts, which relative to volume is approximately 55% below average, but an open interest increase on yesterday’s decline is bearish.

On December 11, OIA announced that the March contract generated a short-term sell signal and an intermediate term sell signal on January 5.

In the December 30 report, OIA recommended the initiation of short call positions in the January S&P 500 E-mini contract, and this trade continues to work well.  Hold until expiration on January 15.

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.”