Because of reduced market activity due to the holidays, reports will be truncated. We will resume regular coverage after January 1.
February 2017 live cattle advanced 2.07 cents on volume of 54,033 contracts. Total open interest increased by a sizable 3,026 contracts, which relative to volume is approximately 120% above average and this means that new buyers were entering the market in substantial numbers and pushing prices to a multi-month high of 115.650, which is the highest print since 115.675 made on August 11. The December 2016 and April 2017 contracts lost a total of 898 of open interest, which means there was more than enough open interest increases in the forward months to offset the decline in the two delivery months and increase total open interest substantially.
The COT report released on Friday revealed that managed money added 3,242 to their long positions and liquidated 1,145 of their short positions. Commercial interests liquidated 2,200 of their long positions and added 7,298 to their short positions. As a consequence, managed money is now long live cattle by a substantial 6.61:1, up from the previous week of 5.86:1 and a large increase from the ratio two weeks ago of 4.74:1.
As this report is being compiled on December 19, the February contract continues its rally, up 30 points and has made a new high for the move of 115.850. On October 24, OIA announced that live cattle generated a short term buy signal and on November 17 an intermediate term buy signal. Although we think the market can continue its advance, especially as it enters its very strong seasonal period, which usually ends around February, the market is substantially overbought with the huge net long position held by managed money. Do not short live cattle and do not enter new longs at current levels.
WTI crude oil:
January WTI crude oil gained $1.00 on light pre-holiday volume of 934,023 contracts. Total open interest declined by 5,429 contracts, which relative to volume is approximately 75% below average. The January contract accounted for a loss of 39,413, and this means there were insufficient open interest increases in the forward months to offset the decline in January. Friday’s action was distinctly negative.
The COT report released on Friday revealed that managed money added 14,775 contracts to their long positions and liquidated 17,457 of their short positions. Commercial interests added 12,821 to their long positions and also added 12,362 to their short positions. As a consequence, managed money is long WTI by ratio of 4.00:1, up sharply from the previous week of 3.23:1 and the ratio two weeks ago of 1.98:1.
In summary, the net long position of managed money has doubled during the past couple of weeks and for prices to continue their advance, buyers: new longs or short-sellers covering positions need to enter buy orders in order to move prices higher. As this report is being compiled on December 19, the February contract is trading 21 cents above Friday’s close and has made a daily high of 53.59, which is the highest print since 53.80 made on December 14. We think the market is headed for a test of 54.44, its contract high made on December 12. Crude oil generated short and intermediate buy signals on December 1. For recommendations on how to trade crude oil, please email or call.
Copper: On December 19, March 2017 New York copper will generate a short term sell signal and it remains on an intermediate term buy signal.
March New York copper lost 3.60 cents on volume of 65,737 contracts. Total open interest declined only 182 contracts, which is dramatically below average. The March contract accounted for a loss of 2,271 of open interest, which means there were not enough open interest increases in the forward months to offset the decline in March. The light decline of total open interest even though prices are approximately 25 cents below the high of $2.753 made on November 28 indicates that longs are holding firm.
The COT report released on Friday confirmed this and managed money added 3,880 to their long positions and liquidated 354 of their short positions. Commercial interests liquidated 264 their long positions and added 991 to their short positions. As a consequence, managed money is now long New York copper by ratio of 5.14:1, up from the previous week of 4.88:1 and substantially above the ratio two weeks ago of 4.46:1.
The ratio is the highest in several months and is potentially a very dangerous set up for anyone long this market. As this report is being compiled on December 19, the March contract is trading 6.80 cents lower on the day or -2.65% and has made a daily low of 2.4775, which is the lowest print since 2.4765 made on November 21. This means there are substantial numbers of speculative longs in the copper market who are now showing losses and will be forced to liquidate as prices move lower.
Copper futures are extremely volatile to trade, which is why we recommend the copper ETF, ticker symbol JJC. Also, the copper options market is extremely illiquid and therefore does not make sense as a trading vehicle. Now that copper is on a short term sell signal, the market should experience a counter trend rally lasting 1-3 days and this would be the ideal opportunity to initiate bearish positions in the ETF.
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