Bloomberg Access:{OIAR<GO>}

Live Cattle:

February live cattle advanced 2.425 cents on volume 71,978 contracts. Total open interest increased by 2,845 contracts, which relative to volume is approximately 40% above average, which indicates that new buyers continue to move into live cattle futures and send prices to a multi-month high of 113.450. The December contract lost 2,681 of open interest, which means there were more than enough open interest increases in the forward months to offset the decline in December and increase total open interest substantially above average.

The COT report released on Friday revealed that managed money added 1,551 to their long positions and liquidated 3,040 of their short positions. Commercial interests liquidated 562 of their long positions and added 6,225 to their short positions. As a result, managed money is long live cattle by ratio of 5.86:1, up from the previous week of 4.74:1 and the ratio two weeks ago of 3.09:1. The current ratio is the highest seen during the past several months.

As this report is being compiled on December 13, the February 2017 contract is trading 95 points above yesterday’s close and has made a new high for the move of 114.225, which is the highest print since 114.875 made on August 16, 2016. On October 24, OIA announced that live cattle generated a short term buy signal and an intermediate term buy signal on November 17. We have no recommendation.

WTI crude oil:

January WTI crude oil advanced $1.33 on heavy volume of 2,033,624 contracts. Total open interest increased by only 27,889 contracts, which relative to volume is approximately 45% below average. The January contract accounted for a loss of 42,513 contracts, which means there were more than enough open interest increases in the forward months to offset the decline in January and increase total open interest.

Yesterday’s performance was impressive and in the early evening session the January contract rallied to a new contract high of $54.51 and then sold off through the remainder of the session to make a low of 52.18. As this report is being compiled on December 13, the January contract is trading 37 cents above yesterday’s close and has made a daily high of 53.41 and a low of 52.35. On December 1, OIA announced that January WTI crude oil generated short and intermediate term buy signals.

Natural gas:

January natural gas lost 23.9 cents on strong volume of 659,196 contracts. Volume was the highest since December 7 when the January contract lost 3.2 cents on volume of 720,427 contracts and total open interest increased by 7,015. On December 12, total open interest increased by 8,884 contracts, which relative to volume is approximately 45% below average, but a total open interest increase on yesterday’s strong decline is negative. The January contract accounted for a loss of 23,409, which means there were more than enough open interest increases in the forward months to offset the decline in January and increase total open interest.

Surprisingly, with the COT ratio showing a strong net long position of managed money, total open interest did not decline on yesterday’s very steep decline. This suggest that longs are digging in and refusing to liquidate. This sets up a potential greater decline as speculators may be forced to liquidate at the lower end of the 20 day trading range. As this report is being compiled on December 13 the January contract is trading unchanged and has made a daily low of $3.462, which is below yesterday’s print of 3.472 and a daily high of 3.577, which is below yesterday’s print of 3.601. As indicated in yesterday’s report, we expect a correction to the 20 day moving average of 3.293. Stand aside.

Dollar index:

The dollar index lost 57.1 points on volume of 50,911 contracts. Total open interest increased by 140 contracts, and though this was approximately 85% below average, a total open interest increase on yesterday’s decline is bearish. As we pointed out in previous notes, the dollar index from a price and open interest point of view has been acting bearishly. The December contract lost 6,411 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in December and increase total open interest.

Tomorrow, at 2:15 p.m. the Federal Reserve will release its decision on the interest rate hike and the main event will be the conference after the release of the decision. This promises to be a major mover for the dollar index, and the March contract will either resume the uptrend, which requires it to make a daily low above OIA’s pivot point for December 13 of 101.299, or it can generate a short term sell signal, which would occur if the daily high is below OIA’s he pivot point for December 13 of 100.740. We recommend a sideline stance for the dollar index and all currencies prior to tomorrow’s conference.