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Commodity Market Open Interest Analysis for 9th April 2013

By Open Interest Analyst | Wed, 10 April 2013 21:34 | 0

Crude oil:

May WTI gained 84 cents on volume of 577,232 contracts. Volume increased approximately 105,500 contracts from April 8 when May WTI advanced 66 cents and open interest declined 1,386 contracts. On April 9, open interest increased by 9,983 contracts, which in relation to volume is approximately 25% less than average. However, it is important to keep in mind the May contract lost 24,996 of open interest, indicating there was sufficient buying in the June 2013 forward contracts to offset the loss of open interest in the May contract.

Although WTI continues to be the best performer in the petroleum complex, ultimately the bearish performance of Brent crude, heating oil and gasoline will continue to weigh on WTI prices. We think WTI will retest the low of $91.91 made on April 5. However, with equities roaring to new highs, we cannot discount a move to the $95.00 level.
On April 10, the S&P 500 E mini is trading 20 points higher, but May WTI is 21 cents lower. During the past 2 days, May WTI has advanced $1.50 while open interest has increased a total of 8,597 contracts In short, the rally of the S&P 500 during the past 3 days has done little to move WTI prices significantly higher. May WTI remains on a short and intermediate term sell signal. Stand aside.

On April 9, Brent crude advanced $1.57 on fairly light volume of 775,948 contracts. Volume was the lowest since April 2 when 659,719 contracts were traded. On April 9, open interest declined by 13,362 contracts, which in relation to volume is approximately 25% less than average. For the past 2 days, Brent crude has advanced $2.11 while open interest has declined 20,204 contracts. The price and open action of the past 2 days confirm the bearish situation in Brent. This will continue to weigh on WTI prices. The price and open interest performance during the past several days in WTI and Brent show that the two are trading on two different tracks.During the past two days, Brent, open interest declined on the advance, while WTI saw an open interest increase on the advance. Brent remains on a short and intermediate term sell signal. Stand aside.

Heating oil:

May heating oil gained .0076 cents on light volume of 136,781 contracts. Volume declined approximately 33,000 contracts from April 8 when May heating oil gained 4.39 cents and open interest increased by 855 contracts. On April 9, open interest increased 3,458 contracts, which in relation to volume is average. The May contract accounted for loss of 2,561 of open interest. The high on April 9 was $2.9688, which was only fractionally higher than the April 8 high of 2.9634, but new participants made fairly strong commitments on the 9th. The end result was a relatively small advance, which indicates that neither side was able to move the market significantly in one direction or the other.
As this report is being compiled on April 10, heating oil is trading 1.57 cents lower. Heating oil remains on a short and intermediate term sell signal. Stand aside.

Gasoline:

May gasoline gained 3.31 cents on volume of 189,820 contracts. Open interest increased by 2,740 contracts, which in relation to volume is approximately 35% less than average. The May contract accounted for loss of 10,698 contracts, and there was sufficient buying in the June 2013 forward contracts to offset the decline in May. On April 9, gasoline made a new high for the move of 2.9491, which is the highest price since April 3 of $3.0495. From April 3 through April 8, which is the tabulation period for the COT report, open interest has increased by 3776 contracts while May gasoline has lost 9 cents or -2.97%. This is bearish price and open interest action. As this report is being compiled on April 10, May gasoline is down 7.98 cents and is near to the April 5 low of $2.8502. Gasoline remains on a short and intermediate term sell signal. Stand aside.

Natural gas:

May natural gas lost 6.5 cents on volume of 402,625 contracts. Open interest declined by 4,669 contracts, which in relation to volume is approximately 45% less than average. Remarkably, April 9 was the first day that open interest declined since OIA announced that natural gas generated a short-term buy signal on March 1. In short, open interest increased for 26 consecutive days, which must be close to a record.
The May contract accounted for loss of 38,416 contracts, which means there were not enough new participants entering the market to offset the loss in the May contract.

For the past 16 trading sessions beginning on March 18 through April 9, open interest has increased 201,075 contracts while natural gas has advanced 12.3 cents. The massive open interest increase combined with a small advance shows the bulls are in control, but barely so. If natural gas is unable to forge new highs shortly, it is likely that disillusioned longs will begin to  take profits, which is likely to result in a pullback to the $3.86 level.

As this report is being compiled on April 10, natural gas has advanced 10.9 cents and has made a high of $4.161, which is short of the April 8 high of $4.18. Whis is highest price since early August 2011. We have advised clients who remain long, to write out of the money calls in order to mitigate downside risk. We think it is perfectly reasonable to expect a pullback to at least the $3.86 area.

Copper:

May copper advanced 7.05 cents on heavy volume of 96,382 contracts.
Volume was the highest since February 26 when 112,265 contracts were traded and May copper closed at $3.5830. On April 9, open interest declined by 3,497 contracts, which in relation to volume is approximately 40% above average, which means that liquidation was fairly heavy on the advance. The May contract lost 9,854 of open interest, and the May contract accounts for approximately 2/3 of the total open interest in copper.

From the April 5 report:

"We continue to advise clients to wait for a rally before implementing bearish positions. We want to see copper rally to at least the $3.45 level before considering bearish positions. The short to long ratio by managed money is at major highs, which makes copper vulnerable to short covering rallies. Stand aside."

On April 9, May copper made a high of $3.4525, and on April 10 is trading 1.25 cents lower. 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 trading much beyond $3.50.
Copper remains on a short and intermediate term sell signal.

Gold:

June gold advanced $14.20 on light volume of 143,406 contracts. Open interest increased by a massive 6,375 contracts, which in relation to volume is approximately 75% above average, meaning that new longs were aggressively entering the market and moving prices higher. On April 5, June gold advanced $23.50 on volume of 215,999 contracts, but in this case, open interest increased only 1,199 contracts. In short, volume was higher on April 5, on the $23.50 advance, but the open interest increase was dramatically less than April 9 when gold advanced $14.20 on volume of 143,406. On April 9, gold made a new high for the move at $1590.10, which was the highest price for June gold since April 2 when it reached $1604.30. As this report is being compiled on April 10, June gold is trading $23.70 lower and has made a low at $1556.40. As we said in the report of April 8, we wanted to see gold rally to the 50 day moving average of $1612.62 on the gold continuation chart before contemplating bearish positions. Our preferred trade is to write out of the money calls rather than short futures or purchase long puts.

Silver:

May silver gained 74.3 cents on volume of 67,160 contracts. Volume was the heaviest since April 3 when 75,010 contracts were traded and May silver lost 45.1 cents while open interest declined 1,423 contracts.
On April 9, open interest increased by a very minor 667 contracts, which in relation to volume is approximately 50% less than average. In short, silver advanced by the largest amount since January 30 when May silver advanced 99.4 cents, yet the open interest increase was 50% less than average. Although volume was greater on April 9 than June 30
(64,173 contracts), the open interest increase on January 30 (3154 contracts) was significantly greater than the increase on April 9. The market's action on April 9 left much to be desired, and only confirms the bearish condition of silver. Despite this, when silver gets into the mid-$26 area, it has strong support going back to September of 2011. Silver remains on a short and intermediate term sell signal.
Stand aside.

Soybeans:

May soybeans gained 17.50 cents on volume of 241,558 contracts. Volume increased by approximately 41,000 contracts from April 8 when May soybeans gained 16.25 cents and open interest increased 3,533 contracts. On April 9, open interest declined by a massive 12,488 contracts, which in relation to volume is slightly over 100% above average, meaning that liquidation was very heavy. The May contract accounted for loss of 16,913 of open interest. The USDA has released its April 10 report, and after rallying to a new high for the move at $14.09 3/4, May soybeans are now trading 8.75 cents lower on the day and has made a low of $13.85 1/2. Soybeans remain on a short and intermediate term sell signal. Stand aside.

Corn:

May corn gained 10.75 cents on volume of 350,465 contracts. Volume increased approximately 66,000 contracts from April 8 when May corn gained 4.50 cents and open interest declined 3,929 contracts. On April 9, open interest declined by 4,415 contracts, which in relation to volume is approximately 60% below above average. The May contract accounted for loss of 25,632 of open interest. During the past 2 days, May corn has advanced 15.25 cents while open interest declined 8,344 contracts. The USDA has released its April 10 report and May corn made a high of $6.66 3/4 uo 22.50 cents in reaction to it and then reversed. Corn remains on a short and intermediate term sell signal.
Those clients who wrote out of the money calls per our recommendation prior to the March 28, should continue to hold these positions.

Wheat:

May wheat lost 3.75 cents on volume of 134,327 contracts. Total open interest declined 976 contracts, which in relation to volume is approximately 45% less than average. The May contract accounted for loss of 12,580 contracts. For the past 5 trading sessions beginning on April 3, May wheat price and open interest had been acting in a bullish congruent fashion. However, as this report is being compiled on April 10, May wheat is trading 11.25 cents lower and has made a new low for the move at $6.88. This is a very negative development for wheat. It now appears likely that May wheat will test the April 2 low of $6.64 1/4. Wheat remains on a short and intermediate term sell signal. Stand aside.

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