Live Cattle: August and October 2017 live cattle will generate short term buy signals July 13.
August live cattle gained 3.00 cents on heavy volume of 119,997 contracts. Total open interest declined on the limit move by 486 contracts, a number that is dramatically below average. The August contract accounted for a loss of 12,711 of open interest, which means there were insufficient open interest increases in the forward months to offset the decline in August.
We like the long side of live cattle with one caveat: The recent COT report revealed that managed money is long live cattle by a stratospheric ratio of 12.54:1, up from the previous week of 11.99:1 and the ratio two ago of 12.43:1. This means to move live cattle prices higher, new buyers must be willing to enter the market, which will expand the net long position, and make cattle vulnerable to sharp setbacks.
However, from the seasonal point of view, live cattle prices begin to strengthen from July through October. Now that both August and October live cattle are on short term buy signals, we recommend waiting for a pullback to enter bullish positions. The moving average set-up is bullish: 20 day 118.161, 50 day 122.999, 100 day 122.407, 200 day 116.110.
August natural gas lost 6.2 cents on volume of 464,759. Total open interest declined by 12,034 contracts, which relative to volume is average. The August contract accounted for a loss of 34,389 of open interest. As this report is being compiled on July 13 after the release of the EIA storage report, the August contract is trading fractionally higher on the day.
As we pointed out in previous reports, we think there could be some major fireworks once natural gas moves past its seasonal low, which occurs in July and August. From September through the rest of the year and into the deep winter months natural gas may be subjected to substantially higher prices if sub normal temperatures are experienced.
During the week of July 11, 2016 natural gas made its weekly low at 2.669 and this was taken out with the low for the season of 2.523 during the week of August 8, 2016. We cannot say with any degree of certainty that prices will not get to those levels, but it is important to keep in mind that current storage is 8.9% below last year’s storage at the same time.
In summary, the low of 2.847 made on July 7 may be close to the low for the season taking into account the reduced storage from year ago levels. August natural gas remains on short and intermediate term sell signals. We recommend a stand aside posture.
The Energy Information Administration announced that working gas in storage was 2,945 Bcf as of Friday, July 7, 2017, according to EIA estimates. This represents a net increase of 57 Bcf from the previous week. Stocks were 289 Bcf less than last year at this time and 172 Bcf above the five-year average of 2,773 Bcf. At 2,945 Bcf, total working gas is within the five-year historical range.
NASDAQ 100 E-mini: The NASDAQ 100 E-mini will generate a short term buy signal July 13, which reverses the June 16 short term sell signal.
The September NASDAQ E-mini gained 65.75 points on lackluster volume of 262,725 contracts. Total open interest declined by 2,006 contracts. During the past four sessions beginning on July 7 E-mini has rallied day through July 12 and yet total open interest has declined each day as well.
This is negative and though we think it is likely that the September contract will test its all-time high of 5907.50 made on June 9, this in fact may the top of the market, or close to it. We have no recommendation.
NASDAQ 100 index &-XLK: On July 12, the NASDAQ 100 and the technology ETF XLK generated short term buy signals, which reversed the June 12 short term sell signals. We have no recommendation.
S&P 500 index: The S&P 500 cash index will generate a short term buy signal on July 13. This reverses the July 6 short term sell signal. We have no recommendation.