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Live cattle:

October live cattle lost 1.975 cents on very heavy volume of 81,865 contracts. Total open interest increased only 1,383 contracts, which relative to volume is approximately 35% below average. The October contract accounted for a loss of 820 of open interest. On Friday, October cattle made a new contract low of 101.375 and as this report is being compiled on September 6 the October contract has made another new contract low of 100.650.

The COT report released on Friday showed that managed money added 806 contracts to their long positions and added a substantial 14,536 contracts to their short positions. Commercial interests added 3,528 to their long positions and liquidated 9,656 of their short positions. This brought down the ratio of longs in the market to 1.59:1, down sharply from the previous week of 2.30:1 and the ratio two weeks ago of 2.52:1. See the two research notes below.

From the September 1 research note on live cattle:

“As we wrote in our analysis of the cattle market on April 25, the October 2016 contract is entering its long-term value zone and we expect cattle to begin a bottoming process, but first the substantial long position held by managed money must be liquidated and ideally managed money will assume a net short position.”

“This would set up the recovery move and the generation of a short term buy signal. According to the latest COT report released last Friday, managed money was long by a ratio of 2.30:1, which means there are more than two long positions being held by managed money for every one short position.  Continue to stand aside.”

From Live Cattle: a Technical Analysis Published on April 25, 2016

“The low made Friday was slightly above the April 2012 and May 2012 prints of 112.300 and 112.225 respectively.We think these will be penetrated and the next area of major support is the May and June 2011 lows of 101.625 and 100.750 respectively.We tend to think that May and June 2011 support will likely hold for the following reason: When commodities break through their former all-time highs, those highs become areas of support.”

“For live cattle, the all time highs made early this century first occurred during October 2003 at 102.925. During March 2007, cattle made a run at the October 2003 high and printed 102.925, the exact high made 3 1/2 years earlier.” 

“During 2008, the all-time highs of October 2003 and March 2007 were broken when live cattle made the high of 104.500 in June 2008. During the subsequent three months, live cattle continued to make all-time highs until the final 2008 high (107.050) was made in September. This held until December 2010 when the September 2008 print was taken out with a new all-time high of 108.700.”

“The lows of May and June 2011 (101.625 and 100.750 respectively) dovetail closely with the previous all-time highs of 102.925 made during October 2003 and March 2007. We think there is a high likelihood the October 2003 and March 2007 highs and the May and June 2011 lows will provide support to live cattle (100.750 – 102.925).” 

Heating oil: On September 2, October and November heating oil generated short and intermediate term sell signals.

Brent Crude: On September 2 November and December Brent crude oil generated short term sell signals after generating intermediate term sell signals on September 1.

WTI crude oil: On September 2, October and November WTI crude oil generated short term sell signals after generating intermediate term sell signals on September 1.

October WTI crude oil advanced $1.28 on unimpressive volume of 924,280 contracts. Total open interest increased by 9,413 contracts, which relative to volume is approximately 50% below average, a major disappointment considering the magnitude of the advance. The October contract accounted for a loss of 2,785 of open interest.

The COT report revealed that managed money liquidated 20,113 of their long positions and added 4,277 to their short positions. Commercial interests on the other hand added 38,620 to their long positions and also added 22,851 to their short positions. As of the latest report, managed money remains along WTI crude oil by ratio of  2.87:1, down from the previous week of 3.19:1, but up substantially from the ratio two weeks ago of 1.76:1.

In yesterday’s holiday shortened session, the October contract had a strong rally to 45.62 on news of a possible Saudi Arabian-Russia accord on crude oil production, but apparently overnight this rumor fell apart and the October contract is trading 20 cents below Friday’s close and has made a daily low of 43.84, which is above Friday’s print of 43.16. The heavy long position of managed money longs will exert selling pressure as prices continue to move lower. The products: gasoline and heating oil  will not support higher prices because they are on short and intermediate term sell signals as well. Stand aside.

Gold: December gold is getting close to generating a short term buy signal and this will occur if the daily low is above OIA key pivot point for September 6 of $1345.80. December gold never generated an intermediate term sell signal and therefore continues on an intermediate term buy signal. Wait for the buy signal then a pullback before entering bullish positions.

December gold advanced $9.60 on heavy volume of 251,397 contracts. Total open interest increased by 5,064 contracts, which relative to volume is approximately 20% below average, but a total open interest increase on Friday’s advance is very positive. On Friday, the December contract made a high of 1334.00, and this has been taken out on September 6 (1351.50 and gold currently is trading up $24.10 on heavy volume.

The COT report revealed that managed money liquidated 17,870 of their long positions and added 4,222 to their short positions. Commercial interests liquidated 1,585 of their long positions and also liquidated 5,629 of their short positions. As of the latest report, managed money is now on gold by a ratio of 7.60:1, down sharply from the previous week of 9.22:1 and the ratio two weeks ago of 8.06:1. Three weeks ago, managed money was long gold by ratio of 7.77:1.

Silver: December silver will generate a short term buy signal if the daily low is above OIA’s key pivot point for September 6 of 19.585. The short term buy signal will likely occur in tomorrow’s trading. December silver never generated an intermediate term sell signal and therefore continues on an intermediate term buy signal. Wait for the buy signal to occur and then a pullback before entering bullish positions.

December silver advanced 42.3 cents on strong volume of 71,536 contracts. Total open interest exploded higher, up 4,094 contracts, which relative to volume is approximately 130% above average meaning aggressive new buyers were entering the silver market in large numbers and sending it to a new high for the move of 19.535. The September contract accounted for a loss of 180 of open interest.

The COT report revealed that managed money liquidated 3,836 of their long positions and added 53 contracts to their short positions. Commercial interests liquidated 276 of their long positions and also liquidated 663 of their short positions. As of the latest report, managed money is long silver by a ratio of 4.53:1, down slightly from the previous week of 4.73:1 and a substantial reduction from two weeks ago of 5.71:1. Three weeks ago, managed money was long silver by ratio of 6.82:1.

As this report is being compiled on September 6 the December silver contract is exploding higher, up 82.4 cents or +4.20% versus gold being up 2.18%. For a considerable period of time, silver was under performing gold and beginning with Friday’s trading, this trend has reversed.

British pound: On September 2, the September and December British pound generated a short term buy signals, but remain on intermediate term sell signals.

The September British pound advanced 24 pips on volume of 106,960 contracts. Total open interest declined by 2,504 contracts, which relative to volume is average. The COT report revealed that managed money added 3,746 to their long positions and also added 3,099 to their short positions. According to the latest report, managed money is short the pound by a ratio of 3.49:1, down from the previous week’s ratio of 3.89:1 and the ratio two weeks ago a 4.02:1.

As this report is being compiled on September 6 the pound is trading sharply higher, up 1.37 cents or +1.03% and has made a daily high of 1.3447, which is the highest print since July 15 (1.3488). As we pointed out in the September 1 report (extract below), there are huge numbers of short-sellers in this market and there is no telling how far blow-off can go. Do not short the British pound.

From the September 1 research note on the pound:

“While the facts are well-known pertaining to the UK exit from the European Union, the reality is the pound may experience a massive short covering rally that will blowout huge numbers of short-sellers. Looking at the chart, in early July the September pound made a major low of 1.2806 and the closest test occurred on August 15 at 1.2872 despite the huge numbers of short-sellers that were entering the market.”

“We strongly discourage anyone from entering short positions in the pound at this juncture, and advise covering existing shorts (OIA has never recommended short positions during the past two months). Although the pound will eventually head lower, it may climb substantially higher in the near term.”