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Dollar index:

The September dollar index advanced 57.9 points on volume of 60,122 contracts. Volume was the strongest since August 26 when the September contract gained 58.7 points on volume of 84,787 contracts and total open interest declined by 1,944. On September 3, total open interest increased just 68 contracts. The September contract lost 708 of open interest, which means there was barely enough open interest increases in the forward months to offset the decline in the September contract and increase total open interest.

For the past week and a half, the dollar index has been advancing, but total open interest has been declining on advances and has increased on price declines, which indicates a complete lack of enthusiasm for the upside. As this report is being compiled on September 4, the September contract is trading 15.8 points lower on the day and has made a daily high of 96.595, which is below OIA’s key pivot point.

For a short term buy signal to be generated, the low of the day must be above OIA’s key pivot point for September 4 of 96.697. The September and December dollar indices generated short-term sell signals on August 13 and intermediate term sell signals on August 21. We have no recommendation.

Euro:

The September euro lost 1.23 cents on heavy volume of 319,251 contracts. Volume was the strongest since August 26 when the September contract lost 77 pips on volume of 355,903 contracts and total open interest declined by 3,235. On September 3, total open interest increased by a strong 9,040 contracts, which relative to volume is average, but the open interest increase on September 3 is the second one in a row on a price decline. On September 2, the euro lost 56 pips on volume of 195,389 contracts and total open interest increased by 1,556. This indicates that short sellers are in control.

As this report is being compiled on September 4, the September contract is trading 23 pips above yesterday’s close and has made a daily high of 1.1200, which is below yesterday’s print of 1.1245. Additionally, the September contract has made a daily low of 1.1090 on September 4, which is slightly above yesterday’s print of 1.1088.

Although, the euro has lost much of its inverse correlation to US equities, a sharp decline in the equity market could temporarily send the euro higher. However, we think a short-term sell signal is inevitable, and this will occur if the daily high is below OIA’s key pivot point for September 4 of 1.1103.

In the unlikely scenario the euro is able to mount a sustainable rally, it must make a daily low above OIA’s pivot point of 1.1242, and has been unable to do this since August 26. On August 13, the September and December euro generated short-term buy signals and intermediate term buy signals on August 21.We have no recommendation.

British Pound:

The September British pound lost 44 pips on volume of 103,849 contracts. Total open interest increased by a massive 5,096 contracts, which relative to volume is approximately 100% above average. The September contract lost 1,270 of open interest, which means that there were sufficient open interest increases in the forward months to offset the decline in September and yet increase total open interest by a substantial number. The total open interest increase by on September 3 is the largest  since OIA announced the September and December pound generated short and intermediate term sell signals on August 27.

For the past three sessions beginning on September 1, the September pound has lost 92 pips and total open interest has increased by a sizable 13,020 contracts, which confirms short sellers are in control of the board. We are surprised, not so much by the decline, but since generating short and intermediate term sell signals, the market has been unable to mount a rally of any size. Remarkably, the September contract has declined every day since August 25 (8 days).

As this report is being compiled on September 4, the September contract is trading lower again, this time by 60 pips and has made a daily low of 1.5164, which is the lowest print since 1.5160 made on June 1. We have advised clients to wait for a counter trend rally before initiating bearish positions. We think it is dangerous to be initiating bearish positions down into a hole.

If it appears that the Federal Reserve is likely to raise interest rates, the Chancellor of the Exchequer will likely not be far behind. Any talk of a possible interest rate rise in the United Kingdom could cause the pound to rally 200-300 pips. The new short-sellers would provide plenty of fuel for the upside move. Continue to stand aside.

Yen:

The September yen advanced 16 pips on volume of 151,916 contracts. Total open interest increased by 3,983 contracts, which relative to volume is average. It appears that buyers and sellers engaged in a battle for dominance in yesterday’s trading and buyers were able to edge the market slightly higher.

Ever since the September and December contracts generated short and intermediate term buy signals on August 24, the yen has been trading in a very firm manner and setbacks quickly reverse. According to last week’s COT report, managed money is short the yen by a ratio of 3.95:1, which means there is plenty of fuel to fund the continued upside move as short sellers are forced to cover their positions.

As this report is being compiled on September 4, the September yen is trading 80 pips above yesterday’s close and has made a daily high of .8433, which is the highest print since .8440 made on August 26. Additionally, the yen is one of the strongest currencies against most other crosses. Do not attempt to pick a top in this market.

In order for the yen to generate a short term sell signal, the high of the day must be below OIA’s key pivot point for September 4 of .8155, which means the September contract is a long way from generating a short-term sell signal. We have no recommendation.

Swiss franc: On September 3, the September and December Swiss franc generated short and intermediate term sell signals.

The September Swiss franc lost 46 pips on volume of 19,452 contracts. Total open interest declined by 244 contracts, which relative to volume is approximately 45% below average. The September contract lost 592 of open interest. As this report is being compiled on September 4, the September Swiss franc is having a counter trend rally, trading 16 pips above yesterday’s close. We have no recommendation.

WTI crude oil: On September 3, October and November WTI crude oil generated short term buy signals, but remain on intermediate term sell signals.

October WTI crude oil advanced 50 cents on volume of 989,578 contracts. Although volume was relatively heavy, it was below that of the past several days, but volume was above August 27 when the October contract gained $3.96 on volume of 948,631 contracts and total open interest increased by 20,097. August 27 was the first day of the WTI rally.

On September 3, total open interest increased by 17,849 contracts, which relative to volume is approximately 25% below average, but yesterday’s open interest increase on the price advance is bullish.This follows a series of total open interest increases on price advances since the rally began on August 27. The October contract lost 9,522 of open interest, which means there were sufficient open interest increases in the forward most to offset the decline in October and increase total open interest. Additionally, there were strong open interest increases in the front months of November 2015 through March 2016.

As this report is being compiled on September 4, the October contract is trading 38 cents below yesterday’s close and has made a daily low of 45.71, which is above yesterday’s print of 45.65. Remarkably, prices have been very firm considering the magnitude of, the advance, which began on August 27 and which reached its apex on September 1 of $48.87.

Yesterday, the October contract made a high of 48.42 and sold off into the close. Now that the October and November contracts are on short-term buy signals, WTI should experience a 1-3 decline before resuming its uptrend.We recommend waiting for a further pullback before contemplating bullish positions.

Due to fundamentals, we cannot rule out that the buy signal of September 3 is false, especially since Brent crude oil is not confirming the strength in WTI. If this is the case, the October contract will need to make a daily high below OIA’s key pivot point for September 4 of $43.03 for a short term sell signal to be generated. Based upon the 21 day average true range for the October contract ($2.28), this would imply a move down to $40.74 (approximately) if a sell signal occurred. We recommend standing aside until the market has further corrected.

Brent crude oil:

October Brent crude oil advanced 18 cents on volume of 795,991 contracts. Total open interest increased by 18,913 contracts, which relative to volume is approximately 10% below average, but the total open interest increase on September 3 is the largest since Brent began its advance on August 27. The October contract lost 15,134 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in October and increase total open interest.

However, the minor price advance shows there were aggressive sellers in the market pushing prices down after the October contract made a high of 52.46, which is the highest print since 53.47 made on September 1. The October contract closed at 50.68. As this report is being compiled on September 4, the October contract is trading 56 cents lower compared to October WTI trading 28  cents below yesterday’s close.

As we have written before, the performance of Brent on a price and open interest basis has been a poor cousin to WTI, which has been the out performer in both respects. For the October contract to generate a short-term buy signal, the low of the day must be above OIA’s key pivot point for September 4 of $50.38 and the low on September 4 thus far has been 49.36. We have no recommendation.

From the August 31 report on Brent:

“The open interest action in Brent has been a shadow compared to WTI: From August 27 through August 31, the October contract has advanced $11.01 while total open interest has advanced only 3,722 contracts in this time frame. This contrasts with WTI which experienced a three-day open interest increase of 63,511 contracts in the identical period.”

Heating oil: On September 3, October and November heating oil generated short-term buy signals, but remain on intermediate term sell signals.

October heating oil advanced 96 ticks on volume of 126,276 contracts. Total open interest declined by a massive 6,934 contracts, which relative to volume is approximately 120% above average meaning liquidation was extremely heavy on the modest advance. The October contract lost 4984 of open interest.

Throughout the rally in heating oil, which began with the outsized move in crude oil, open interest action has been bearish meaning that as prices advanced, total open interest declined. However, this is not a surprise considering that managed money is massively short heating oil and according to the COT report of last week they were short by a ratio of 1.94:1, which is one of the highest readings recorded during the course of the bear market, which began last year.We have no recommendation.

Sugar:

October sugar advanced 61 points on very heavy volume of 286,466 contracts.Volume was the strongest since June 11 when 288,602 contracts were traded and the October contract closed at 12.04.On September 3, total open interest declined by 5,912 contracts, which relative to volume is approximately 20% below average. The October contract lost 11,522 of open interest and March 2016 -1,400, which means there were sufficient open interest increases in the forward months to cut the loss of October and March in half.

In order for the October contract to generate a short-term buy signal, it must make a daily low above OIA’s key pivot point for September 4 of 11.23.

We discourage trading sugar at this juncture because it is being battered on the upside and downside by currency woes in Brazil, lousy fundamentals and the approach of first notice day in a couple of weeks. Managed money has been massively short sugar for months and when the October contract gained 53 points on August 27, total open interest declined by a massive 18,393 contracts on volume of 196,664. Stand aside.

S&P 500 E mini:

The September S&P 500 E mini lost 1.00 point on volume of 2,087,944 contracts.Total open interest declined just 1,424 contracts. Yesterday, the September contract made a high of 1973.50, which is the highest print since 1987.75 made on August 31. Although the market rallied in the early going, it was unable hold  the gain and closed lower on the day. This continues a pattern of tepid rallies followed by severe declines.On July 27, the September and December S&P 500 E mini’s generated short-term sell signals and intermediate term sell signals on August 20.

As this report is being compiled on September 4, the September S&P 500 E mini is trading 32.75 points lower on the day and has made a daily low of 1907.75, which is the lowest print since 1907.25 made on September 2. After recommending the liquidation last week of the lucrative long straddle/strangle option position originally recommended on July 27, we have advised a sideline stance. At this juncture, we think the market can go either way, and therefore we have no conviction about a position at this time. Stand aside.