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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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Commodity Update: Open Interest Analysis for June 10th, 2013

Crude oil:

July WTI crude lost 26 cents on volume of 593,163 contracts. Open interest increased by 12,075 contracts, which relative to volume is approximately 20% below average. The July contract, which is about to expire lost 32,143 of open interest, which makes the total open interest increase much more impressive.

During the past 5 trading sessions beginning on June 4, open interest has increased 4 out of 5 days for total of 76,840 contracts. During this time, crude oil has advanced $2.28. This is a large open interest increase considering the minor size of advance. Although we take the 4 day increase of open interest seriously, the fact remains, it is disproportionate to the relatively tepid five-day advance. As we have said before, we think crude has the ability to rally to the $97.00 level, but remain wary of advance beyond this. Additionally, WTI has to deal with the real possibility of a sharp broad market decline in equities, which will most likely send all commodities lower. Also, Brent crude is performing dismally as is heating oil and gasoline. Crude oil remains on a short and intermediate term buy signal, but we are skeptical of its ability to maintain this status.

Brent crude oil:

July Brent crude lost 61 cents on volume of 610,287 contracts. Open interest declined by 17,932 contracts, which relative to volume is approximately 20% above average meaning that liquidation was heavier than usual. Although we have been waiting for Brent to generate a short-term buy signal, and it has gotten close, Brent does not seem to have the momentum despite the decisive close above the 50 day moving average on June 7. As this report is being compiled on June 11, August Brent is trading $1.49 lower.

Heating oil:

July heating oil lost .0093 cents on low volume of 100,102 contracts. Open interest increased by 932 contracts, which relative to volume is approximately 50% less than average. The July contract accounted for loss of 7,567 of open interest. As this report is being compiled on June 11, July heating oil is trading 3.36 cents lower and has made a daily low of $2.8379. Like Brent crude, heating oil has been close to generating a short-term buy signal, but does not have upward momentum to accomplish it.

Gasoline:

July gasoline lost 2.34 cents on light volume of 127,583 contracts. Open interest declined by 509 contracts, which relative to volume is approximately 75% less than average. The July contract accounted for loss of 8,090 of open interest. From June 4 through June 7, open interest increased every day while gasoline advanced 8.64 cents. Although the four-day performance was healthy, the important point is that gasoline has not had the momentum to test the May 17 high of $2.9054, which is the day that gasoline generated a short-term buy signal. The performance of gasoline during the beginning of the summer driving season has been disappointing, and it appears to be on the verge of generating a short-term sell signal. As this report is being compiled on June 11, July gasoline is trading 4.31 cents lower.

Natural gas:

July natural gas lost 2.8 cents on volume of 348,669 contracts. Open interest declined by 9,338 contracts, which relative to volume is average. On June 10, natural gas made a new low for the move at $3.779, and on June 11 is trading 5.4 cents lower and has made a new low for the move at $3.744. Although the decline has been a slow grinding move lower, we have only seen one day where open interest increased. Additionally, declines has been accompanied by decreases in open interest, which is positive. The natural gas market is going to be influenced heavily by the movement of equities and the petroleum complex. On May 31 (July close $3.984), OIA announced that natural gas had generated a short-term sell signal. Since then, natural gas has fallen approximately 25 cents.

The World Agriculture Supply Demand report (WASDE) will be released by the USDA on June 12.

Do not enter new positions in the grains prior to the June 12 report. If positions have substantial profits, make sure that sell stops are in place. If positions have losses or near breakeven, do not gamble on the USDA report. Liquidate on June 11.

Soybeans:

July soybeans lost 16.50 cents on volume of 197,915 contracts. Volume declined approximately 31,000 contracts from June 7 when soybeans gained 1 cent and open interest increased by 5,089 contracts. On June 10, open interest declined by 3,226 contracts, which relative to volume is approximately 35% less than average. The July contract accounted for loss of 17,092 contracts. The relatively small decrease of open interest on the price decline is very positive. As this report is being compiled on June 11, July soybeans are trading 23.75 cents higher and have made a daily high of $15.41 1/4. For the rally to continue, July soybeans must break above $15.50, which we think is imminent. However, if the equity market has a disastrous decline, we think all commodities will follow suit. The 50 day moving average on the July chart crossed above the 150 day moving average.

From the June 9 Weekend Wrap:

"With soybeans trading at their highest level in several months, we examined the COT report of November 6, 2012 when soybeans were trading at approximately the same level as they are today. The November 6 COT report showed that managed money was long by a ratio of 13.66:1. On November 6, 2012, November soybeans closed at $15.16 3/4 and the range of soybean prices during the COT reporting period was from 15.70 1/4  to 15.05 3/4 . As we have said before, managed money is not buying into this rally, which in our view heightens the likelihood of a continued advance. There is no resistance on the continuation chart until soybeans reach $15.72, which was the high made on October 9 and 24 2012. After this, the next resistance is $16.15. We expect that soybeans will continue to advance, and the catalyst for this may be the WASDE report to be released by the USDA on June 12. It is certainly possible, that the current USDA projection of ending stocks of 125 million could be reduced. Within the next week or two, the 50 day moving average in July soybeans will cross above the 200 day moving average. The 50 day moving average of $14.16 1/2 will cross above the 150 day moving average of 14.17 during the next couple of days."

Soybean meal:

July soybean meal lost $4.20 on heavy volume of 112,581 contracts. Volume was the highest since May 23 when 122,274 contracts were traded and July meal closed at $437.00. The July contract accounted for loss of 8,551, and though soybean meal closed lower on the day, there was sufficient buying in the forward months to offset the decline. As this report is being compiled on June 11, soybean meal is trading $12.80 higher and has made a new high for the move at $464.70. The 50 day moving average crossed above the 150 day moving average on the July soybean meal chart.

From the June 9 Weekend Wrap:

"On June 5, July soybean meal reached $462.00, which is the highest price since December 17, 2012 when it reached 460.80. On December 18, 2012, the COT report showed that managed money was long soybean meal by a ratio of 4.89:1. Interestingly, this is about the same as the current ratio of 4.98:1. We think soybean meal has the wherewithal to advance by a greater percentage than soybeans. Soybeans are being crushed for meal and meal demand has been extraordinary. If current ending stocks of soybeans are reduced, there could be a major scramble for supplies of meal. Within the next week or two, the 50 day moving average in July soybean meal will cross above the 200 day moving average. The 50 day moving average of $414.10 will cross above the 150 day moving average of 414.30 during the next day or so."

Corn:

July corn lost 16.25 cents on volume of 278,435 contracts. Volume declined approximately 18,000 contracts from June 7 when July corn advanced 3 cents and open interest increased by 14,434 contracts. On June 10, open interest increased by a minuscule 599 contracts, which is dramatically below average. The July contract accounted for loss of 30,586 of open interest. As this report is being compiled on June 11, July corn is trading 8.25 cents higher and has made a high for the day of $6.61 1/4.We think corn will struggle to work its way above the gap left between March 28 and April 1. Do not short corn. It remains on a short-term buy signal, but an intermediate term sell signal.

Wheat:

July wheat lost 6.50 cents on heavy volume of 133,742 contracts. Volume was the highest since April 30 when 147,140 contracts were traded and July wheat closed at $7.31. On June 10, open interest increased by 3,595 contracts, which relative to volume is average. The July contract accounted for loss of 7,295 of open interest. The wheat market continues to trade in a lackluster pattern and remains on a short and intermediate term sell signal.

Cotton:

Any remaining bearish positions should have been liquidated on June 10 and speculators should be on the sidelines. We are suspending reporting on cotton until we see a trading opportunity.

Copper:

On June 10, July copper generated a short-term sell signal and remains on an intermediate term sell signal.

Platinum:

July platinum gained $4.60 on light volume of 9,851 contracts. Open interest declined by 222 contracts, which relative to volume is average. On June 5, July platinum generated a short-term buy signal, and through June 11 has pulled back from its high of $1539.20 made on June 7. On June 11, July platinum is trading $25.50 lower. In our report of June 7, we stated that an additional pullback for third day could occur. However, our concern is that the pullback on June 11 is significantly greater on a percentage basis than gold or silver, which have been the weak sisters. No positions have been recommended as yet because of the anticipated multi-day pullback. If the equity market continues to move lower, it will likely drag platinum and the precious metals lower as well.

Australian dollar:

We are suspending further reporting on the Australian dollar until we see a trading opportunity. The short call position that we recommended on April 29 and 30 should continue to be held.

Euro:

The June euro advanced 38 points on volume of 277,448 contracts.Open interest increased by 1,701 contracts, which relative to volume is approximately 65% less than average. As this report is being compiled on June 11, theJune euro has made a new high for the move at 1.3317.The market remains on a short and intermediate term buy signal. Do not chase the euro on the long side at current levels.

S&P 500 E mini:

The S&P 500 E mini gained 3.50 points on volume of 1,961,232 contracts. Open interest increased by 38,217 contracts, which relative to volume is approximately 20% below average. Maintain long put protection.

By. Garry Stern




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