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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 12, 2013

Crude oil:

May WTI crude lost $2.22 on huge volume of 861,748 contracts. Volume was the highest since January 23, 2013 when 950,328 contracts were traded and May crude oil closed at $96.21. Surprisingly, open interest increased only 8,105 contracts, which relative  to volume is approximately 50% below average. The May contract accounted for loss of 11,926 of open interest, which means there was sufficient new commitments to bring total open interest to a positive number. The COT report, which will be tabulated on April 16 covers the period of April 10-April 16. From April 10 through April 12, crude oil has declined $2.91, but open interest has increased by 13,413 contracts, which is bearish open interest action relative to the price decline.

As we pointed out in the April 14 Weekend Wrap, crude oil has a high long to short ratio when taking into account its closing price on April 9 (COT tabulation date). However, since then, open interest has been building, when it would have been  healthy to see liquidation. In the April 14 Weekend Wrap, we suggested that crude would have a bounce to the $93.50 level. This analysis was based upon the closing price for crude oil on Friday of $91.29. However, on April 15, May WTI is trading $2.50 lower, and has made a new low for the move at 87.86.

This broke major support at 89.65, which goes back to December 21, 2012. In tomorrow's report, we will have new resistance areas based upon the sharply lower move on April 15. On April 5, Open Interest Analyst announced that crude oil generated a short and intermediate term sell signal. Prior to this, we warned clients to take a stand aside position in WTI due to Brent, heating oil and gasoline being on short and intermediate term sell signals. Stand aside.

Heating oil:

June heating oil lost 3.23 cents on volume of 171,520 contracts. Open interest declined by 5,805 contracts, which in relation to volume is approximately 40% above average, meaning that liquidation was fairly heavy. The May contract accounted for loss of 6,832 of open interest.
For the past 3 days beginning on April 10, heating oil has declined 9.45 cents, while open interest has declined 14,435 contracts. This is bullish open interest action relative to the price decline, but heating oil remains on a short and intermediate term sell signal.

Heating oil is currently trading at levels last seen in July of 2012.

Gasoline:

May gasoline lost 3.01 cents on light volume of 131,458 contracts.

Volume declined approximately 84,000 contracts from April 11 when gasoline lost 3.41 cents and open interest increased 3,854 contracts.

On April 12, open interest declined by a minor 265 contracts, which is minuscule and dramatically below average. The May contract accounted for loss of 427 of open interest. It is somewhat surprising that volume was low considering that gasoline made a new low for the move at $2.7721, and that the range for the day was 8.41 cents versus the range on April 11 of 6.41 cents when volume was dramatically higher.

As this report is being compiled, June gasoline is trading 4.81 cents lower and has made a new low for the move at $2.7525. Gasoline remains on a short and intermediate term sell signal. Stand aside.

Natural gas:

May natural gas gained 8.3 cents on healthy volume of 520,740 contracts. Open interest increased by 11,438 contracts, which relative to volume is approximately 10% below average. The May contract accounted for loss of 16,756 of open interest, which makes the total open interest increase that much more impressive. Although the current long to short ratio in natural gas is far below that of gasoline and crude oil, the market has had a major rally without a meaningful correction. We see a correction to at least the $4.02 level. Natural gas remains on a short and intermediate term buy signal.

Soybeans:

May soybeans gained 11 cents on light volume of 216,636 contracts.

Total open interest increased by a minuscule 684 contracts, which relative to volume is dramatically below average. The May contract accounted for loss of 10,323 of open interest. The open interest increase is disappointing considering that the May contract reached its highest level since March 28. For the past 2 days beginning on April 11, soybeans advanced 20.25 cents while open interest declined by 4,274 contracts. This is bearish open interest action relative to the price advance. The spread between May and the July contract continue to widen, which reflects the tightness in old crop soybeans.

Therefore, it is likely that May soybeans will  move sporadically higher as first notice day approaches on April 30. Despite the advance, May soybeans remain on a short and intermediate term sell signal. Stand aside.

Corn:

May corn gained 7.25 cents on volume of 216,636 contracts. Open interest declined by 1,539 contracts, which relative to volume is 60% less than average. The May contract accounted for loss of 16,883 of open interest. For the past 5 trading sessions beginning on April 8, corn has advanced 29.50 cents while open interest has declined 2,919 contracts. This is bearish open interest action relative to the price advance. As this report is being compiled on April 15, May corn is trading 9.75 cents lower. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat:

May wheat gained 17 cents on volume of 121,769 contracts. Open interest declined by 3,076 contracts, which relative to volume is average. For a time, it looked like wheat was possibly breaking out of its trading range, but the price action on April 15 negated this. As we stated in the April 11 report: "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 never got close to generating a short-term buy signal, and as it stands, wheat has considerable resistance at $7.16, which was the high on April 8 and April 12. Wheat remains on a short and intermediate term sell signal. Stand aside.

Gold:

 June gold lost $63.50 on heavy volume of 391,973 contracts. Volume was the highest since November 28, 2012 when 486,308 contracts were traded and June gold closed at $1722.90. On April 12, open interest increased by 13,864 contracts, which relative to volume is approximately 40% above average, meaning that new shorts were aggressively entering the market and driving prices lower. As this report is being compiled on April 15, June gold is trading $130.50 lower and has made a new low for the move at $1348.50.

The problem with precious metals is they have clearly fallen out of favor with the investing public, and as a result, is vulnerable to further downside action. The reason: precious metal ETF's hold large stockpiles of gold and silver bullion that must be sold as the public redeems its shares. Additionally, there are a number of hedge funds that hold large amounts of futures contracts, physical bullion and gold mining shares. Margin calls in futures will force more selling.

As the disillusionment with this sector begins to snowball, redemptions will increase, which will further pressure silver and gold, and to a much lesser degree platinum and palladium. Gold, silver, platinum and palladium remain on short and intermediate term sell signals.

Silver:

May silver lost $1.366 on heavy volume of 121,195 contracts. Volume was the highest since February 20, 2013 when 137,829 contracts were traded and May silver closed at $28.681. On April 12, open interest declined by 1,062 contracts, which relative to volume is approximately 50% less than average. As this report is being compiled on April 15, May silver is trading down $2.936 or - 11.15% and has made a new low for the move at $22.92. Silver has been on a short-term sell signal since February 12, 2013 and an intermediate term sell signal from December 21, 2012. Stand aside.

Australian dollar:

The June Australian dollar lost 46 points on volume of 90,978 contracts. Open interest increased by 2,485 contracts, which relative to volume is average. From the April 11 report: "We remain bullish on the Australian dollar, but if the yen has a major collapse, the Australian dollar could trade down to the 1.0300 level, possibly lower."As this report is being compiled on April 15, the June Australian dollar is trading 1.51 cents lower and has made a new low for the move at 1.0280. We got the direction right on the Australian dollar, but not the scenario. The Japanese yen is rallying strongly, and other currency markets are trading lower to sharply lower. It will be important that open interest has a hefty decline on April 15, which will be reported on April 16.

Euro:

The June euro lost 33 points on volume of 243,383 contracts. Open interest increased by 2,027 contracts, which relative to volume is approximately 50% less than average. It is possible the June dollar index will generate a short-term sell signal on April 15. Stand aside.

S&P 500 E mini:

The S&P 500 E mini lost 5.75 points on volume of 1,822,740 contracts.

Open interest declined by 23,889 contracts, which relative to volume is approximately 45% less than average. For the past 2 days beginning on April 11 open interest has been acting in an uncharacteristic manner. For example, on April 11 when the E mini advanced 5.00 point open interest declined 968 contracts, and we continued to see liquidation on April 12.

In previous reports we have discussed our reasons for being concerned about a continued advance in the S&P 500 E mini. One reason is  the number of stocks trading above their 50 day moving average on the New York Stock Exchange has been steadily moving down ever since January 2. Although there have been attempts to retest the January 2 high, all have failed. The last time the number of stocks trading above their 50 day moving average closed above their 50 day moving average occurred on February 19 when 1,854 stocks met this criteria. From February 19 through April 12, the S&P 500 cash index has increased 3.78%,DJIA +5.91% Russell 2000+1.18%, NASDAQ 100+2.65%, and the New York Composite Index +2.04%. However, in this time frame, the number of stocks trading above their 50 day moving average went from a high of 1,854 on February 19 to 1,550 on April 12. We posit that the inability of stocks to trade above the 50 day moving average when major indices are rallying to new highs is a sign of internal weakness in the broad market.

By. Gary Stern




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