Bloomberg Access:{OIAR<GO>}

WTI crude oil:

January WTI crude oil advanced 66 cents on volume of 1,511,052 contracts. Total open interest declined by 42,382 contracts, which relative to volume is average. The January contract accounted for a loss of 67,738 of open interest and there were insufficient open interest increases in the forward months to offset the decline in January. The longs that were liquidating in Friday’s trading must be kicking themselves on December 12 because the January contract has rocketed up to a new 18 month high of 54.51 and currently is trading $1.76 or +3.42% above Friday’s close. The reason given for the strong advances the confirmation of production cuts among the OPEC group.

The COT report released on Friday revealed that managed money added 30,343 contracts to their long positions and liquidated 53,502 of their short positions. Commercial interests added 32,473 to their long positions and also added 41,846 to their short positions. As a result, managed money is now long WTI crude oil by ratio of 3.23:1, up sharply from the previous week of 1.98:1 and the ratio two weeks ago of 1.87:1.

Keep in mind the tabulation date for the report was December 6 and from December 7 through December 9, total open interest declined. In summary, there is more potential firepower waiting to move into long positions. For recommendations on how to trade this market, please call or email.

From the December 8 research note on WTI crude:

“It appears that the path of least resistance is higher and as we said in yesterday’s report, prices were not likely to correct to the 20 day moving average of 47.59 any time soon. Please call for recommendations regarding crude oil.”

From the December 7 research note on WTI crude:

“The outstanding feature on December 8 is the very strong dollar index, and this is not dampening crude oil prices, which means that our scenario of the pullback to the 20 day moving average of 47.59 may be unrealistic. It should be noted that the S&P 500 E-mini is currently trading 10.75 points above yesterday’s close and this may be supporting crude oil prices. In summary, it appears that crude oil wants to go higher. Please call or email for our recommendations.”

Natural gas:

January natural gas advanced 5.1 cents on volume of 580,722 contracts. Volume declined from December 8 when the January contract gained 9.2 cents on volume of 647,731 contracts and total open interest increased by 15,140. On December 9, total open interest declined by 3,436 contracts, which relative to volume is approximately 65% below average, and a total open interest decline on Friday’s advance is negative. The January contract accounted for a loss of 29,579 of open interest, which means there were not enough open interest increases in the forward months to offset the decline in January. The January contract made a new 52 week high of $3.777 on Friday, which took out the previous 52 week high of 3.748 made on December 7.

The COT report released on Friday revealed that managed money added 9,708 to their long positions and liquidated 37,844 of their short positions. Commercial interests added 32,500 to their long positions and also added 33,247 to their short positions. As a result, managed money is long natural gas by ratio of 1.73:1, up sharply from the previous week of 1.30:1 and substantially above the ratio two weeks ago of 1.11:1.

It should be noted that the massive increase in the ratio was due primarily to the liquidation of short positions, rather than the addition of new longs. As this report is being compiled on December 12, the January contract is trading sharply lower, down 21.7 cents or -5.79% and has made a daily low of 3.472, which is the lowest print since 3.450 made on December 5. The correction can continue to at least the 20 day moving average $3.293. We continue to recommend a stand aside position for new bullish positions.

From the December 8 research note on natural gas:

“The market is massively overbought, and if long from lower levels, clients should be booking profits and not pressing the long side. Do NOT enter new long positions at current levels and do NOT short this market.”

Dollar index:

The March dollar index advanced 49.5 points on volume of 35,042 contracts. Total open interest declined by 374 contracts, which relative to volume is approximately 50% below average. The December contract, which expires shortly lost 821 of open interest, which means there were insufficient open interest increases in the forward months to offset the decline in December. For the past several sessions, total open interest action has been negative and the direction for the index near term will depend upon the conference call of the Federal Reserve chair on Wednesday after 2:15 p.m.

The COT report revealed that leverage funds added 3,273 to their long positions and liquidated 329 of their short positions. As a result, leverage funds were long the dollar index by ratio of 1.29:1, up from the previous week of 1.17:1 and substantially above the ratio two weeks ago of 1.02:1. As this report is being compiled on December 12, the dollar index is trading 65 points lower. For the March contract to resume its rally, it must make a daily low above OIA’s key pivot point for December 12 of 101.255. We have no recommendation except to say that clients should be on the sidelines until after Chair Yellen’s conference.

S&P 500 E-mini:

The December S&P 500 E-mini gained 12.25 points on strong volume of 2,700,250 contracts. Total open interest increased by a sizable 85,545 contracts, which relative to volume is approximately 15% above average meaning that new buyers continue to flood into the S&P 500 E-mini to drive prices to a new all-time high of 2261.25. The COT report released on Friday revealed that leverage funds liquidated 1,379 of their long positions and also liquidated 371 of their short positions.

As a result, leverage funds are long the S&P 500 contract (250 x) by a ratio of 1.42:1, down from the previous week of 1.51:1 and the ratio two weeks ago of 1.74:1. As this report is being compiled on December 12, the December E-mini is trading 3.00 points lower on the day after making a new all-time high in the overnight session of 2270.25. The market is massively overbought and is well overdue for a correction. Conceivably the conference on Wednesday by the Federal Reserve Chairman will be the catalyst for further corrective activity. For recommendations on how to trade the E-mini, please call or email.