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Live cattle:

December live cattle fell the 3.00 cent limit on volume of 57,889 contracts. Total open interest increased by 1,935 contracts, which relative to volume is approximately 20% above average meaning aggressive new short-sellers were entering the market in substantial numbers and driving prices lower (100.050). The October contract accounted for a loss of 2,592 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in October and increase total open interest substantially.

As this report is being compiled on October 11, the December contract is trading unchanged on the day, but has made a new low for the move of 99.675, which is the lowest print since the contract low of 98.900 made on October 3. The October 2016 contract, which expires in a couple of days made a contract low of 97.350 on October 3. December live cattle remains on short and intermediate term sell signals and we recommend a stand aside posture.

WTI crude oil:

November WTI crude oil advanced $1.54 on heavy volume of 1,523,014 contracts. Volume was the strongest since the record-setting volume of September 28 when the November contract gained $2.38 on volume of 1,678,371 contracts and total open interest increased by 39,706. On October 10, total open interest increased by 16,095 contracts, which relative to volume is approximately 50% below average. However, the November contract lost 43,010 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in November and increase total open interest.

Yesterday’s action was impressive, especially because the dollar index rose to multi-month highs. As this report is being compiled on October 11, the November contract is having one of its rare corrections and currently is trading 66 cents lower on the day after making a daily high of 51.54, which is slightly below yesterday’s print of 51.60, the high for the move thus far. The market move has been solidly bullish even as the dollar rallies. However, fundamentals for crude are negative,  which is why we have recommended a stand aside posture for long positions, but also strongly advise against initiating short positions.

From the October 7 research note on WTI:

“The highs on the weekly continuation chart of June 6, 2016 and October 5, 2015 represent the neck line of a reverse head and shoulder pattern on the weekly chart. This should provide substantial resistance and a decisive move above this could portend a move to the low $60.00 area, which on the weekly chart represents substantial resistance and occurred during May-June 2015.”

Natural gas:

November natural gas advanced 8.2 cents on volume of 591,323 contracts. Total open interest increased by 6,077 contracts, which relative to volume is approximately 50% below average. However, the November contract lost 19,111 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in November and increase total open interest. The action for the past two days has been bullish, but as we have cautioned previously, the seasonal strength seen in natural gas during the month of October is likely to fade and we envision a pullback into the early winter season. Stand aside.

Gold:

December gold advanced $8.50 on light volume of 156,817 contracts. Volume was the lowest since October 3 when the December contract lost $4.40 on volume of 140,491 contracts and total open interest declined by 5,989. On October 10, gold had one of its rare days of an open interest increase on a price advance and it increased by 2,122, which relative to volume is approximately 45% below average. There is no reason to be involved in precious metals. As this report is being compiled on October 11, the December contract is trading 1.80 lower on the day.

Dollar index:

The December dollar index advanced 27.9 points on light volume of 16,841 contracts. However, total open interest skyrocketed higher, up 4,149 contracts, which relative to volume is an off the charts increase. As this report is being compiled on October 11, the December contract is rocketing higher, up 70.7 points and has made a new high for the move of 97.660 which takes out the previous high of 97.610 made on July 25.

The current high takes the dollar index to the highest level in more than six months. Additionally, on price advances, total open interest increases substantially indicating that buyers are flooding into the dollar index. However, according to the COT report leverage funds remain short the dollar index by a ratio of 2.86:1, though this is down from the previous week of 3.40:1 and the ratio two weeks ago of 2.98:1. We have no recommendation.

British pound:

The December British pound lost 84 pips on surprisingly volume of 76,993 contracts. Total open interest declined by 1,139 contracts, which relative to volume is approximately 40% below average. For the past two days, the pound has fallen precipitously, yet total open interest has not increased. On October 7, the December contract lost 1.72 cents on volume of 273,957 and total open interest declined by 10,109. This indicates to us that would be market participants are reluctant to initiate bearish positions at the low end of the recent trading range.

As this report is being compiled on October 11 the December contract is trading sharply lower, down 2.24 cents and has made a daily low of 1.2118, which is not far from the contract low of 1.2034 made on Friday, October 7. In yesterday’s report, we stated that a test of Friday’s low was likely, but we also caution that the pound may be setting up speculators for a substantial short covering rally. Stand aside.

From the October 7 research note on the pound:

“As this report is being compiled on October 10, the pound is trading lower again, down 70 pips and has made a daily low of 1.2367. A test of Friday’s low appears to be inevitable and we expect to see more new short-sellers piling into the market. however, Friday’s low may represent some solid support, at least temporarily.”

S&P 500 E-mini:

On September 12, the December S&P 500 E-mini generated a short term sell signal and it is getting perilously close to generating an intermediate term sell signal, which could come as early as tomorrow. For this to occur, the high of the day must be below OIA’s key pivot point for October 11 of 2146.05.