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Open Interest Analyst

Open Interest Analyst

Garry SternGarry is the founder of openinterestanalyst.com (OIA), a website dedicated to analysing the interaction between price, volume, and open interest (P-V-OI). After consistently applying…

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Commodities Update - 6th April 2013

Soybeans:

May soybeans lost 8.50 cents on volume of 179,164 contracts. Open interest increased by 6,378 contracts, which in relation to volume is approximately 40% above average, meaning that new shorts were aggressively entering the market and driving prices lower. This is the second day in a row when soybean prices have declined and open interest has increased. This behavior is a new pattern and it indicates increased bearishness on the part of market participants. As this report is being compiled, soybeans are trading 14.25 cents lower and have made a new low for the move at $13.56. Areas of support for May soybeans are $13.44, which was the January 11, 2013 low, 13.37 3/4, the November 16, 2012 low and 13.23 3/4, the low for June 28, 2012. Soybeans remain on a short and intermediate term sell signal, but we recommend clients remain on the sidelines until a bear market rally occurs.

From the April 3 report:

"Prior to March 12, the last increase of open interest on a price decline occurred on February 8 when May soybeans lost 34.25 cents and open interest increased by 2,308 contracts on volume of 319,712 contracts. On February 7, May soybeans lost 0.75 cents on volume of 267,908 contracts and open interest increased by 8,997 contracts.

Until April 3, the open interest increase of 8,997 when soybeans lost 0.75 cents was the largest open interest increase on a price decline for of 2013. In short, the open interest increase on April 3 is anomalous and the largest for 2013. This represents a major shift in the way soybeans have traded for the past 3 months. April 3 marked the first time that a large number of new shorts aggressively entered soybeans to drive prices lower. Additionally, this occurred at the lower end of the trading range which makes this either a courageous move, or one that is foolhardy. Although the market is weak and is trading in a very negative fashion, we prefer to wait for rallies before implementing bearish positions. As time passes, the loading of soybean cargoes in Brazil will eventually begin increasing, which will provide surplus product."

Corn:

May corn lost 11.50 cents on heavier than normal volume of 379,822 contracts. Volume increased nearly 21,000 contracts from April 3 when May corn advanced 1 cent and open interest declined 12,249 contracts.

On April 4, open interest increased by 390 contracts, which is minuscule and dramatically below average. The May contract lost 14,607 of open interest, and open interest increased in the July 2013 through March 2015 contracts. New shorts were entering the market at a much heavier rate than indicated by total open interest and driving prices lower. On March 28, May corn lost 40 cents on heavy volume of 655,122 contracts and open interest increased by 16,834 contracts.

For the past 5 trading sessions, corn has fallen a total of $1.05.1/4, and open interest has declined by a total of 38,788 contracts. The minor decline of open interest combined with a large number of speculative longs point to more selling ahead. The market looks extremely weak, and any rally will be met by major selling from longs with large losses. Therefore, it is likely that rallies will be shallow and short-lived until the bulk of speculative longs have liquidated.

Wheat:

May wheat lost 2.50 cents on heavy volume of 188,636 contracts. Volume fell by approximately 30,000 contracts from April 3 when May wheat advanced 25.75 cents and open interest increased 4,099 contracts. On April 4, open interest declined 1,396 contracts, which in relation to volume is approximately 75% less than average.

The large numbers of managed money shorts, combined with two days of heavy volume and a net open interest increase of 2,703, is an indication the bottom is in for wheat, and that higher prices may be in the offing. Wheat remains on a short and intermediate term sell signal, and needs to advance beyond $7.16 1/2, before a short-term buy signal could be generated. Additionally, May wheat needs to close over $7.00 3/4 in order to maintain its upward momentum. Stand aside.

Crude oil:

May WTI crude oil lost $1.19 on heavy volume of 782,882 contracts.

Open interest increased by a staggering 33,497 contracts, which in relation to volume is approximately 65% above average, meaning that new shorts were heavily entering the market and driving prices lower.

On April 4, May Brent crude oil declined 77 cents on volume of 938,475 contracts. Volume declined by 177,216 contracts from April 3 when Brent crude oil fell $3.58 and open interest increased by 26,422 contracts. On April 4, Open interest declined 4329 contracts, which in relation to volume is minuscule and dramatically below average.




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