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Live cattle:

December live cattle closed down the 3.00 cent limit on strong volume of 70,302 contracts. Total open interest increased by a massive 4,142 contracts, which relative to volume is approximately 140% above average indicating that aggressive new short-sellers were entering the market in large numbers and driving prices to a new contract and multi-year low of 100.125. The October contract accounted for a loss of 2,338 of open interest.

As this report is being compiled on October 3, the December contract is trading 60 points lower and has made another new contract low of 98.900, which matches Friday’s low for the October 2016 contract, which will expire shortly. The COT report released on Friday show that managed money added 2,536 contracts to their long positions and liquidated 3,130 of their short positions. Commercial interests added 1,198 to their long positions and also added 3,076 to their short positions. As a result, managed money remains long live cattle by ratio of 1.58:1, up from the previous week of 1.44:1 and the ratio two weeks ago of 1.36:1.

On October 3, the October 2016 contract has made another new contract low of 97.350, which is slightly above the monthly continuation low of 97.100 made during November 2010. Remarkably, managed money clings to their long positions despite live cattle making lows last seen several years ago. As stated in previous reports, we believe the market will not bottom until managed money assumes a net short position. Stand aside.

Lean hogs:

October lean hogs lost the 3.00 cent daily limit on volume of 43,051 contracts. Total open interest increased by 795 contracts, which relative to volume is approximately 25% below average. The October contract accounted for a loss of 1,393 of open interest. On Friday, the October contract made a low of 49.025 and this has been taken out with another new contract low on October 3 of 48.750, which is slightly below the October 2009 low on the monthly continuation chart of 48.775.

The COT report revealed that managed money added 2,466 to their long positions and also added 7,616 to their short positions. Commercial interests liquidated 2,312 of their long positions and also liquidated 3,191 of their short positions. As of the latest report, managed money is long lean hogs by ratio of 1.42:1, down from the previous week of 1.62:1 and the ratio two weeks ago of 2.01:1. Stand aside.

WTI crude oil:

November WTI crude oil advanced 41 cents on light volume of 855,915 contracts. Volume was the weakest since September 26 when the November contract gained $1.45 on volume of 851,388 contracts and total open interest increased by 12,686. On September 30, total open interest increased by a paltry 3,146 contracts, which relative to volume is approximately 80% below average. The November contract accounted for a loss of 15,725 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 slightly.

The COT report revealed that managed money added 17,432 to their long positions and liquidated 8,953 of their short positions. Commercial interests added 1,173 to their long positions and also added 11,494 to their short positions. As of the latest report, managed money is long crude oil by ratio of July 2.01:1, up from the previous week of 1.79:1, but down from the ratio two weeks ago of 2.39:1.

On September 29, OIA announced that November and December WTI crude oil generated short and intermediate term buy signals and ever since crude oil has continued to advance. Usually, after the generation of buy signals, markets tend to have a pullback that lasts from 1-3 days. Occasionally, in a very bullish situation markets will have an extended run to the upside and we are seeing this in crude oil. Do not chase this market higher. If you are inclined to buy WTI, wait for a pullback of 1-3 days duration.

Gold: December New York gold will generate short and intermediate term sell signals on October 3. The short term sell signal reverses the September 22 short term buy signal.

December gold lost $8.90 on volume of 225,213 contracts. Volume was the strongest since September 27 when the December contract lost $13.70 on volume of 217,693 and total open interest declined by a massive 16,812. On September 30, total open interest declined by 4,423 contracts, which relative to volume is approximately 20% below average, but Friday’s open interest decline was the fourth in a row. This reflects liquidation and we suspect much of this comes from the very large managed money position.

According to the latest COT report, managed money added a massive 36,032 contracts to their long positions and liquidated 5,998 of their short positions. Commercial interests added 1,640 want to their long positions and also added 12,952 to their short positions. As of the latest report, managed money is a long gold by a ratio of 10.46:1, up substantially from the previous week of 7.46:1 and the ratio two weeks ago of 9.48:1. The most recent high ratio occurred three weeks ago when managed money was long gold by ratio of 13.17:1.

As this report is being compiled on October 3, the December contract is trading $3.40 lower and has made a daily low of 1311.80, which is the lowest print since 1310.90 made on September 21. Looking at the chart, ever since December gold topped on July 5 it is clear that rallies have made a series lower highs. Currently, gold is trading at major support of 1300-1310. A break below this could spark massive liquidation and possibly send the December contract down in the range of its year to date and 200 day moving average of 1266.70 and 1256.90 respectively. We have encouraged clients to remain on the sidelines and though we think higher gold prices are likely in the months ahead, we would rather risk losing opportunity then risk losing money.

Silver: December New York silver will generate an intermediate term sell signal on October 3. Though it remains on a short term buy signal, the December contract will generate a short term sell signal if the daily high is below OIA’s key pivot point for October 3 of $19.131. Stand aside.