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Coffee: On January 7, March coffee generated a short-term sell signal, which reversed the December 31 short-term buy signal. The March contract remains on an intermediate term sell signal.

WTI crude oil:

February WTI crude oil lost 70 cents on volume of 1,114,369 contracts. Total open interest declined just 4,753 contracts. However, the February contract lost 27,187 of open interest, which means there were sufficient open interest increases in the forward months to offset a good portion of the decline in the February contract.

As this report is being compiled on January 8, the February contract is trading 24 cents above yesterday’s close and has made a daily low of 32.64, which is above yesterday’s contract low of 32.10. Crude oil is in its period of seasonal weakness, and we expect further declines in the weeks ahead. We have no recommendation except to say that clients should avoid  both the long and short side of this market.

Natural gas:

February natural gas advanced 11.5 cents on volume of 457,038 contracts. Total open interest declined by 480 contracts. The February contract accounted for loss of 9,539 of open interest, which means there were substantial open interest increases in the forward months to offset most of the decline in February.

As this report is being compiled on January 8, the February contract is trading sharply higher, up 7.7 cents or+ 3.32%. On December 29, OIA announced that February natural gas generated a short-term buy signal, and it is getting close to generating an intermediate term buy signal. For this to occur, the low of the day must be above OIA’s key pivot point for January 8 of $2.396 and the low thus far on January 8 is 2.377, below the pivot point. However, it appears likely that February natural gas will generate an intermediate term buy signal sometime next week.

According to the latest COT report, manage money is heavily net short natural gas by a ratio of 1.92:1 and total open interest declines on advances has been consistent, indicating that short sellers covering positions are driving prices higher, not new buying. We have no idea when the move will exhaust itself, but recommend a stand aside posture at this juncture.

Gold: On January 7, February and April gold generated short-term buy signals, but remain on an intermediate term sell signal.

February gold advanced $15.90 on heavy volume of 242,179 contracts. Total open interest increased by 3,653 contracts, which relative to volume is approximately 40% below average, but yesterday’s open interest increase on the price advance was the third one in a row, and bodes well for gold going forward.

One caveat:, silver has not generated a short-term buy signal, and our thesis is for gold to have a sustained rally, silver must accompany it. As this report is being compiled on January 8, the February contract is in the corrective mode, down $6.60 and has made a daily low of 1091.80, which is below yesterday’s print of 1,091.10. We recommend a stand aside posture at this juncture and expect a further correction down to the 50 day moving average and OIA’s pivot point of 1072.70.

Dollar index:

The March dollar index lost 99.4 points on volume of 39,688 contracts. Total open interest declined by 1,108 contracts, which relative to volume is average. Yesterday’s open interest decline is perfectly normal considering the magnitude of the move and is in no way bearish. As this report is being compiled on January 8, the March contract is trading 43.3 points higher and has made a daily high of 99.295, which is considerably above OIA’s key pivot point for the generation of a short-term sell signal of 98.128. The March dollar index remains on short and intermediate term buy signals.

Euro:

The March euro advanced by a strong 1.46 cents on volume of 289,584 contracts. Total open interest increased just 46 contracts. This is bearish open interest action relative to yesterday’s the strong advance. This follows the consistent bearish open interest action relative to price advances and declines that the euro has experienced since December 31.

Our only reluctance about recommending bearish positions at this juncture is the euro has displayed the tendency to rally when equities trade sharply lower, and we continue to see further declines in equities. On January 5, the March euro generated a short-term sell signal and remains on an intermediate term sell signal.

The euro has experienced the typical countertrend rally since the January 5 sell signal, and looks to trend lower, but sharp rallies cannot be ruled out. Although we are bearish on the euro, risk management is of paramount importance in the current environment.

Australian dollar: On January 7, March Australian dollar generated an intermediate term sell signal after generating a short-term sell signal on January 6.

The March Australian dollar lost 64 pips on heavy volume of 138,011 contracts. Total open interest increased by 4,746 contracts, which relative to volume is approximately 20% above average, meaning that new short-sellers were entering the market in substantial numbers and driving prices to a new low for the move (69.58).

As this report is being compiled on January 8, the March contract is trading nearly unchanged on the day and has made a new low for the move of 69.41, which is approximately 100 pips from the contract low of 68.50 made on September 4. We have no recommendation.

Yen:

The March yen advanced by a strong 65 pips on heavy volume of 268,249 contracts. Total open interest increased by a substantial 10,641 contracts, which relative to volume is approximately 25% above average. From December 31 through January 6 the March contract has advanced 215 pips and total open interest has increased each day for cumulative total increase of 41,548 contracts. 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 occurred on January 7 is .8533, the highest print since .8608 made on August 24 when global markets melted down. The high on January 8 has been .8524, and the March contract is trading 19 pips lower on the day. We recommend a stand aside posture for anyone contemplating new positions. Do not short this market.

Copper: March copper will generate a short-term sell signal on January 8, which reverses the December 30 short-term buy signal. March copper remains on an intermediate term sell signal.

March copper lost 6.50 cents on heavy volume of 116,813 contracts. Total open interest increased by a massive 8,069 contracts, which relative to volume is approximately 175% above average meaning huge numbers of new short-sellers were entering the copper market and driving prices to a new low for the move of $1.9900.This is not only a new contract low, but the lowest print since May 2009 when the May 2009 copper contract made a low of $1.9850. We have no recommendation

From the December 30 report on copper when it generated a short term buy signal:

“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.”

S&P 500 E-mini:

The March S&P 500 E-mini lost 53.00 points on heavy volume of 2,979,804 contracts. Total open interest increased by 32,363 contracts, which relative to volume is approximately 50% below average. On January 6, the March contract lost 25.75 points and total open interest increased by 18,370 (which was substantially below average relative to volume) on volume of 2,244,635 contracts. In summary, though the open interest increases have been bearish, they have not been substantial open interest increases. This, in our view indicates that market participants are reluctant to get overly bearish at the lower end of the trading range.

As this report is being compiled on January 8, the March contract is trading 1.50 points above yesterday’s close, but has made a new low for the move of 1924.50, which takes out the low of 1937.25 made the week of October 5 and is the lowest print since 1861.00 made the week of September 28. In the December 30 report, OIA recommended the initiation of short call positions in the January contract and the substantial premium continues to shrink as the underlying futures decline and time decay works its magic. Continue to hold the short January call position into January 15 expiration.