After Weak Start — Nov Firms

Weekly Continuous

When trading opened last week on a run and didn’t look back, rejecting the the $.369 decline of the week before and closing above the gap from last November. The market traded to the highest level since before the Nov ’19 highs but did not contain the technical indications supporting additional gains, instead they evidence shows that the rally was on short covering (more below) when prices eclipsed the 50 day SMA. Open interest in the prompt contract declined over 100,000 contracts (over 30% of total) which is significant this far before the expiration process and the fund rolling period.

Monthly Continuous

In previous discussions, there were four years when November commanded a large premium as October expired. Those four hears between ’04 and ’09 were afforded a premium between +/- $.62 and $1.47, this year’s was $.694. Each of these previous years there were some similarities to trade after the October expiration. 1) The expiration gap that resulted from the premium was reduced but the gap was not closed until the following year. The low, so far for Nov has not closed the gap from the Oct expiration; 2) the Q4/seasonal high had yet to be traded (the earliest was at the beginning of December’s tenure as prompt), this year’s has yet to be defined; and 3) November constructed a volatile trading range, The first two weeks have had above average true range.  Last week’s action left the Nov contract at a $.64 premium to October expiration where it started the month. The last week’s range continued the range expansion of the last four weeks ($.47+,$.525, $.769 and $.375) supporting the concept of entering a volatile trading range environment.

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