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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: Open Interest Analysis for April 11 2013

Crude oil:

May WTI lost $1.13 on fairly light volume of 498,076 contracts. Volume was the lowest since April 8 when 471,677 contracts were traded and open interest declined 1,386 contracts while May WTI advanced 66 cents. On April 11, open interest increased by 6,133 contracts, which in relation to volume is approximately 45% less than average. The May contract accounted for loss of 14,932 of open interest, which makes the total open interest increase that much more impressive. The previous time that WTI declined and open interest increased occurred on April 4 when May WTI declined $1.19 on volume of 782,882 contracts and open interest increased by 33,497. We have been very negative on the entire petroleum complex. As this report is being compiled on April 12, May WTI is trading $2.45 lower and has made a new low for the move at $90.27. A test of $89.33 on the WTI continuation chart seems inevitable. On April 5, May crude oil generated a short and intermediate term sell signal. Stand aside.

May Brent crude oil lost $1.52 on light volume of 714,361 contracts.

Volume was the lowest since April 2 when 659,719 contracts were traded. On April 11, open interest increased by a massive 30,965 contracts, which in relation to volume is approximately 70% above average, meaning that new shorts were entering the market aggressively and driving prices lower. The pattern of Brent crude being the week sister to WTI continues, and it will be imperative for Brent to show consistent relative strength before the entire complex can recover.
Brent remains on a short and intermediate term sell signal. Stand aside.

Heating oil:

May heating oil lost 4.88 cents on volume of 180,675 contracts. Volume increased approximately 62,000 contracts from April 10 when heating oil lost 1.34 cents and open interest declined 152 contracts. On April 11, open interest declined by a massive 8,478 contracts, which in relation to volume is approximately 80% above average, meaning that liquidation was extraordinarily heavy. The May contract accounted for loss of 4,710 of open interest, and there was selling in the June 2013 forward contracts, which increased the decline of total open interest.

As this report is being compiled on April 12, June heating oil is trading 4.20 cents lower, and has made a new low for the move at $2.8303. Heating oil remains on a short and intermediate term sell signal. Stand aside.

Gasoline:

May gasoline lost 3.41 cents on heavy volume of 215,428 contracts.

Open interest increased by 3,854 contracts, which in relation to volume is approximately 25% less than average. As this report is being compiled on April 12, June gasoline is trading 3.88 cents lower and has made a new low for the move at $2.7721. In the upcoming Weekend Wrap, we will publish the long to short ratio in gasoline, and it will be interesting to see whether managed money has liquidated their massive long position. Regardless, we think that gasoline is headed to the $2.68 level. Currently, gasoline is trading at the lowest level since late December. Gasoline remains on a short and intermediate term sell signal. Stand aside.

Natural gas:

May natural gas advanced 5.2 cents on heavy volume of 661,297 contracts. Open interest increased by 13,132 contracts, which in relation to volume is approximately 20% less than average. The May contract accounted for loss of 12,353 of open interest, which makes the total open interest increase that much more impressive. As this report is being compiled, May natural gas is trading 8.8 cents higher and has made a new high for the move at $4.249 on low volume. Much to our surprise, natural gas continues to grind higher, despite the aggressive selling, most likely by commercial interests. In our view, the low volume on April 12 is indicative of a market that is massively overbought and new longs are likely to be reluctant to make new commitments at current stratospheric levels. Although the fundamentals of natural gas continue to improve, we think the market has gotten ahead of itself. For those who have remained long, we have advised writing out of the money calls, to mitigate any potential losses on long positions. This trade has worked out well, and we continue to recommend this course of action. Natural gas remains on a short and intermediate term buy signal.

Copper:

May copper gained 1.55 cents on heavy volume of 87,480 contracts.

Volume increased approximately 9,000 contracts from April 10 when open interest increased 2,049 contracts and May copper declined 2.35 cents.

On April 11, open interest increased by 3,226 contracts, which in relation to volume is approximately 45% above average. The May contract accounted for loss of 6,365 of open interest, which makes the total open interest increase that much more impressive. The new buying was pushing copper prices higher. However, on April 12, copper is trading 8.35 cents lower and has made a low of $3.3270. As we said in the April 10 report: "With the S&P 500 making new highs, it is likely that copper may make one or two more attempts on the upside. However, we do not envision copper trading much beyond $3.50. Copper remains on a short and intermediate term sell signal."

Gold:

June gold gained $6.10 on light volume of 153,313 contracts. Open interest declined by 3,698 contracts, which in relation to volume is average. On April 12, the gold market collapsed and is currently trading $62.50 lower and has made a new low for the move at $1491.40.

This is the lowest price for gold on the continuation chart since July 2011. The market should find support at the $1470.00 area, which was the low during May-July 2011.

Soybeans:

May soybeans gained 9.25 cents on volume of 265,491 contracts. Volume increased approximately 43,000 from April 10 when soybeans lost 2.75 cents and open interest declined 6,867 contracts. On April 11, open interest declined by 4,958 contracts, which in relation to volume is approximately 25% less than average. For the past 3 trading sessions beginning on April 9, open interest has declined by 24,313 contracts while May soybeans have advanced 24 cents. This is bearish open interest action relative to the price advance, and it indicates that both longs and shorts were liquidating as the market moved higher. On the other hand, the May-July spread widened to 33.75 cents premium to May, which took out the high made on September 3, 2012 of 33.50 cents premium to May. We examined the spread going back to April 2012, and the close on April 11 is the highest close for the spread during the past year. As this report is being compiled on April 12, the May-July spread continues to widen. This is bullish. Soybeans remain on a short and intermediate term sell signal. Stand aside.

Corn:

May corn advanced 2.25 cents on volume of 332,624 contracts. Open interest increased by 3,971 contracts, which in relation to volume is approximately 50% below average. Clients who wrote out of the money calls prior to March 28 should continue to hold these positions, otherwise, stand aside. Corn remains on a short and intermediate term sell signal.

Wheat:

May wheat gained 1 cent on volume of 150,735 contracts. Open interest increased by a whopping 8,192 contracts, which in relation to volume is approximately 120% above average, meaning that although the open interest increase was very heavy, neither longs, nor shorts were able to move the market significantly in either direction. As this report is being compiled on April 12, May wheat is trading 18.25 cents higher and has made a high of $7.16, which is the high made on April 8.

Although the move down to $6.88 on April 10 was very negative, wheat has been able to recover to challenge its most recent high. If wheat can advance so that the low of the day is above $7.15 1/4, then a short-term buy signal will be generated. Wheat remains on a short and intermediate term sell signal. Stand aside.

From the April 10 report:

"A test of the April 4 low of $1539.40 appears inevitable, and if this is broken, we expect the next area of support to be $1523.90, which was the late December 2011 low for gold on the continuation chart.

Gold is trading in a manner that suggests the bear market is far from over."

Silver:

May silver gained 4.4 cents on volume of 51,958 contracts. Open interest declined by 2,228 contracts, which in relation to volume is approximately 70% above average, meaning there was heavy liquidation on the very modest advance. The May contract accounted for a loss of 4487 of open interest. On April 12, May silver has collapsed with the rest of the precious metals complex and is currently trading $1.327 lower and has made a new low for the move at $25.965. This is the lowest price for silver on the continuation chart since November 15, 2010 when it made a low of $25.50. We have been bearish on silver, but cautioned our readers about getting overly bearish at the mid-$26 range. Since major support has been broken going back a couple of years, speculators will become increasingly bearish. Managed money is net short as of last week's COT report, and we expect new short sellers to enter the market en masse. On December 21, 2012 silver generated an intermediate term sell signal, and on February 12 generated a short-term sell signal.




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