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WTI crude oil: January and February 2017 WTI crude oil will generate short and intermediate term buy signals on December 1.

January WTI crude oil advanced by a massive $4.21 on exchange record volume of 2,530,530 contracts due to an agreement by OPEC to restrict production. Total open interest increased by a sizable 53,992 contracts, which relative to volume is approximately 20% below average. The January contract gained 14,782 of open interest. As this report is being compiled on December 1, the January contract continues to rocket higher up $2.04 or +4. 15% on heavy volume.

Now that January crude is on short and intermediate term buy signals, it should have a pullback lasting from 1-3 days and this would be the opportunity to initiate bullish positions if you are so inclined. The market has come very far very fast and clients should wait for the pullback before considering bullish positions. 

Brent crude oil: February and March 2017 Brent crude oil will generate short and intermediate term buy signals on December 1.

February Brent crude oil advanced $4.52 on very heavy volume of 1,963,147 contracts. Total open interest increased by a massive 86,513 contracts, which relative to volume is approximately 75% above average. Note that volume in Brent was substantially below that of WTI, but total open interest was substantially greater. The January 2017 contract lost 17,684 of open interest. As this report is being compiled on December 1, Brent crude oil is trading $2.10 higher on the day. Per the recommendation in WTI, now that Brent is on short and intermediate term buy signals, it should experience a pullback lasting 1-3 days and this is the opportunity to initiate bullish positions if you are so inclined.

Heating oil: January and February 2017 New York heating oil will generate intermediate term buy signals on December 1 after generating short term buy signals on November 22.

January heating oil advanced 9.85 cents on volume of 227,373 contracts. Total open interest increased by 3,555 contracts, which relative to volume is approximately 35% below average. The December contract lost 3,928 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. As this report is being compiled on December 1, the January contract is rocketing higher up 8.00 cents or +5.06%. We have no recommendation.

Gasoline: January and February 2017 New York gasoline will generate short and intermediate term buy signals on December 1.

January gasoline rocketed higher by 10.53 cents on volume of 182,413 contracts. Total open interest increased by 2,760 contracts, which relative to volume is approximately 40% below average. However, the December contract lost 5,316 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. As this report is being compiled on December 1, the January contract is skyrocketing higher, up 7.98 or +5.38%. We have no recommendation.

Natural gas:

January natural gas advanced 3.7 cents on volume of 430,222 contracts. Total open interest increased only 2,196 contracts, which relative to volume is approximately 75% below average. However, the January contract lost 7,723 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in January and increase total open interest.

As this report is being compiled on December 1, the January contract is trading sharply higher, up 16.5 cents or +4.92% and has made a daily high of 3.524, which is the highest print on the January chart since 3.564 made on October 21. In our report of November 28, we recommended a stand aside posture due to the belief that natural gas would stall at the October 13 high. This has proven to be incorrect and the very strong move in the petroleum complex is undoubtedly aiding natural gas prices on December 1. Again, we recommend a stand aside posture because the market is massively overbought and due to a sharp setback, which could occur if temperatures begin to warm.

From the November research note on natural gas:

“When adding the heavy volume along with the substantial increase of open interest and the fact that the January contract is at October 13 highs, we think the market is vulnerable to a sharp setback and recommend a stand aside posture. On November 25, January and February 2017 New York natural gas generated short term buy signals and are on intermediate term buy signals. Stand aside.”

10 Year Treasury Note:

The March 2017 10 year treasury note lost 19 points on volume of 2,627,514 contracts. Total open interest declined by 8,435 contracts, a number that is approximately 85% below average. The COT report, which was released on Monday due to the Thanksgiving day holiday revealed that leverage funds added 22,810 to their long positions and liquidated 42,117 of their short positions.

As a result of the increase in the net long position, leverage funds are long the 10 year note by a ratio of 1.40:1, which is up substantially from the previous week of 1.24:1 and a complete reversal from the ratio two weeks ago when leverage funds were short by ratio of 1.16:1. Clearly, professional money managers are on the wrong side of this trade.

As this report is being compiled on December 1, the March contract is trading sharply lower, down 19 points and has made a daily low of 123-190, which on the continuation chart is the lowest print since 124-125 made during the week of the September 29, 2014. Remarkably, the collapse of the 10 year note has been characterized by very few counter trend rallies, which is testament to the strong downtrend. Do not chase this market lower.  Stand aside for new bearish position and do NOT attempt to pick a bottom.

Dollar index:

The March dollar index advanced 59 points on heavy volume of 50,178 contracts. Total open interest increased by 736 contracts, which relative to volume is approximately 40% below average. However, the December contract lost 340 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.

The COT report released on Monday revealed that leverage funds added 5,764 to their long positions and surprisingly added 11,320 to their short positions. As a result of the massive increase in short positions, leverage funds were long the dollar index by ratio of 1.02:1, but this was down sharply from the previous week of 1.29:1 and only slightly lower than the ratio two weeks ago of 1.09:1. The fact that leverage funds are trying to pick a top in the dollar index leads us to believe that the dollar rally has further to go, though it is substantially overbought relative to its 20 day moving average of 100.141 and the 50 dma of 98.331 and due for a correction.

As this report is being compiled on December 1, the March contract is trading 15 points lower on the day. This weekend is the Italian referendum on Prime Minister Renzi ‘s administration and the outcome will have a substantial impact on the direction of the euro. If the euro breaks sharply lower,  the dollar index will move to new contract and multi-year highs. The March dollar index remains on short and intermediate term buy signals. Stand aside.