Cotton: On August 11, December 2016 New York cotton generated a short term sell signal and remains on and intermediate term buy signal. We have no recommendation.
October live cattle lost 37.5 points on volume of 46,818 contracts.Total open interest increased by 1,163 contracts, which relative to volume is average. The August contract accounted for a loss of 1,947 of open interest. As this report is being compiled on August 12 the October contract is trading 30 points higher after making a daily low of 113.300, which is slightly above yesterday’s print of 113.050, the lowest print since August 1.
It appears likely that yesterday’s low will hold, but as we’ve said before, we need to see positive open interest action relative to price advances and declines. Yesterday’s open interest increase on the price decline was negative. The 20 day moving average stands at 112.534 and the 50 day at 112.965. We want to see the 20 day cross above the 50 day and positive open interest action before recommending bullish positions.
WTI crude oil:
September WTI crude oil advanced strongly by $1.78 on strong volume of 1,275,974 contracts. Total open interest increased by massive 74,112 contracts, which relative to volume is approximately 140% above average. Yesterday’s open interest increase was one of the largest that we’ve seen on a rally in a considerable period of time. The September contract accounted for a loss of 12,296 of open interest, which makes the total open interest increased even more impressive.
As this report is being compiled on August 12 the September contract is rocketing higher, up 96 cents and has made a new high for the move of 44.57, which is the highest print since 44.37 made on July 25. The September contract will generate a short term buy signal provided the daily low is above OIA key pivot point for August 12 of $43.74 and the low thus far on August 12 has been 43.31. Stand aside.
From the August 3 research note on WTI:
“In yesterday’s report, we commented on the massive increase of open interest on the decline for the past several days and said this is a sign that market participants are getting increasingly bearish, which is usually a bad sign for a continued move lower.”
“Yesterday, the September contract made a low of 39.19, which is the lowest print since 38.67 made on April 5. We think it is highly likely the April 5 low will hold and that the bearish trade has been played out for now. This is not to say that a test of yesterday’s low will not occur, rather that the easy money has been made. The trade we recommended on June 21 has proven to be lucrative with very low risk.”
Brent crude oil: October Brent crude oil will generate a short term buy signal provided the daily low is above OIA’s key pivot point for August 12 of $45.65 and the low thus far on August 12 has been 45.74. Unless Brent reverses course, a short term buy signal will be generated today.
September natural gas lost 1.00 cent on heavy volume of 504,372 contracts. Volume was the highest since August 9 when the September contract lost 13.3 cents on volume of 555,983 contracts and total open interest increased by 17,874. On August 11, total open interest increased by a massive 25,475 contracts, which relative to volume is approximately 100% above average meaning that aggressive new short-sellers were entering the market in large numbers and driving prices to a new low for the move of $2. 529, which is the lowest print since 2.518 made on June 6.
As this report is being compiled on August 12, the September contract is trading 4.2 cents above yesterday’s close and has made a daily low of 2.523, which is fractionally below yesterday’s print of 2.529. Managed money will continue to pour into the short side of natural gas and this will set up a terrific opportunity on the long side a couple of weeks from now when the seasonal trend begins to favor the upside. On August 10, September and October natural gas generated short term sell signals and remain on intermediate term buy signals. For now stand aside.
December gold lost $1.90 on light volume of 174,065 contracts. Total open interest increased by 1,535 contracts, which relative to volume is approximately 55% below average, but a total open interest increase on yesterday’s decline is negative. In The August 10 research note, which we have reprinted below, discussed the negative open interest action during the prior two days and this continued on August 11. The COT report will be released this afternoon and we will have a better idea of the extent to which managed money has reduced their net long positions.
As this report is being compiled on August 12, the December contract is trading $6.10 lower after making a daily high of 1362.50, which is above yesterday’s print of 1359.40, but below the August 10 print of 1363.60. As we said in yesterday’s report, we expect December gold to trade in the consolidation pattern between the 30 day low and high.
For the December contract to generate a short term sell signal, the high of the day musty below OIA’s key pivot point for August 12 of $1336.10. The rally will resume if the daily low is above OIA’s pivot point for August 12 of 1353.40. Continue to stand aside.
From the August 10 research note on gold:
“Yesterday’s dismal open interest action follows that of August 9 when December gold gained 5.40 on volume of 142,652 contracts and total open interest increased only 605 contracts, which is dramatically below average. In summary, December gold has gained $10.60 during the past two days, yet open interest during the two day period has declined by 446 contracts. This is atypically negative for gold and in our review increases the likelihood that gold will continue to correct either through absolute price declines or consolidate in the 30 day trading range of 1318.50-1384.40.”
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