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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 11th, 2013

Crude oil:

July WTI crude oil lost 39 cents on light volume of 582,901 contracts. Volume was the lowest since May 28 when 494,101 contracts were traded and July WTI advanced 86 cents while open interest increased by 3,110 contracts. On June 11, open interest increased by 4,662 contracts, which relative to volume is approximately 60% less than average. The July contract lost 25,387 of open interest. The Energy Information Administration released its stocks report and this showed that crude oil stocks increased by 2.523 million barrels from the previous week.

During the past 6 trading sessions beginning on June 4, open interest has increased 5 out of 6 days for total of 81,502 contracts. During this time, crude oil has advanced $1.89. This is a heavy open interest increase considering the relatively small advance, which tells us there is heavy short selling, probably by commercial interests. As we have said before, we think crude has the ability to rally to the $97.00 level, but remain wary of an advance beyond this. Additionally, the entire petroleum complex remains vulnerable to a massive decline in the equity market.

Brent crude oil:

August Brent crude lost 94 cents on fairly heavy volume of 714,570 contracts. Open interest increased by 805 contracts, which is minuscule and dramatically below average. Brent continues to struggle higher, and at times gains ground, then just as rapidly loses it. As this report is being compiled on June 12, August Brent is trading 71 cents higher. Brent remains on a short and intermediate term sell signal.

Heating oil:

July heating oil lost 2.63 cents on light volume of 112,324 contracts. Open interest increased by 1,097 contracts, which relative to volume is approximately 50% below average. The July contract lost 6,511 of open interest. The Energy Information Administration report showed that distillate stocks declined by 1.163 million barrels. As this report is being compiled on June 12, July heating oil is trading 3.89 cents higher, and has made a high that is 4 ticks higher than June 10 ($2.9036). Heating oil remains on a short and intermediate term sell signal.

Gasoline:

July gasoline lost 2.50 cents on volume of 137,987 contracts. Open interest increased by 3,769 contracts, which relative to volume is average. The July contract lost 2,700 of open interest. Although gasoline performed well during the period of June 4 through June 7, it has returned to its pattern of paltry gains and a downside bias. As this report is being compiled on June 12, gasoline is trading 70 points lower, even though WTI, Brent and heating oil are trading on the plus side. Gasoline will not generate a short-term sell signal on June 12.

Natural gas:

July natural gas lost 7.6 cents on heavy volume of 419,830 contracts. Volume exceeded that of June 6 when 412,905 contracts were traded and open interest increased by 8,497 contracts while July natural gas lost 17.4 cents. On June 11, total open interest declined by 1,250 contracts, which is 85% below average. The July contract accounted for loss of 22,172 of open interest, which means there was a significant number of new positions initiated, which brought down total open interest. As this report is being compiled on June 12, natural gas is trading 6.1 cents higher and the low for the day has been $3.710, which is a fraction below the June 11 trade of 3.716. We remain friendly to natural gas, and as stated in the report on June 10, the $3.71 area should provide support, which is the 150 day moving average on the natural gas continuation chart. We will feel much more confident about support at the 3.71 level, once the market has tested this low and bounced back. On May 31, July natural gas generated a short-term sell signal, but remains on an intermediate term buy signal.

The USDA has released its World Agriculture Supply Demand Report and we will provide an analysis of this in the June 12 report.

Soybeans:

July soybeans gained 28.75 cents on volume of 207,754 contracts. Volume increased only 10,000 contracts from June 10 when soybeans lost 16.50 cents and open interest declined 3,226 contracts. To put the volume on June 11 in perspective consider that the average daily volume during May 2013 was 160,132 and April's average daily volume was 205,294. Year to date average daily volume is 186,815. On June 3, soybeans advanced 22.50 cents on volume of 197,801 contracts and open interest increased 3,357 contracts. In short, soybeans tend to exhibit unimpressive volume on advances. This dovetails with our thesis that managed money is not buying into the soybean rally. The COT ratio derived from the most recent report shows that managed money is long soybeans by a ratio of 3.98:1, which is considerably less than the ratio when soybeans traded at nearly the same level in November 2012. The November 6, 2012 COT report showed that managed money was long by a ratio of 13.66:1 and on November 6, soybeans closed at $15.16 3/4. 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, there is a significant amount of money sitting on the sidelines that can be deployed in the soybean market. However, once managed money begins to pile in, it is probable that the rally will be near its end.

On June 11, open interest increased by 5,615 contracts, which relative to volume is average despite the significant advance into the upper end of the trading range. However, the July contract lost 11,963 of open interest, which makes the total open interest increase much more impressive. On June 3, when soybeans advanced 22.50 cents, the open interest increase was 35% below average, which again reinforces the skepticism of players sitting on the sidelines. We think soybeans are headed significantly higher possibly in a blow off type action. As this report is being compiled on June 12, July soybeans are trading since 12.50 cents higher and have made a new high of $15.58 3/4 which takes out the high of $15.49 made on June 5.  With soybeans breaking above $15.50, the next point of resistance is $15.72.

Soybean meal:

July soybean meal gained $15.10 on huge volume of 138,411 contracts. Remarkably, volume was the highest since July 19, 2012 when 165,533 contracts were traded and the July 2013 contract closed at $398.50. The August 2012 contract closed at 532.00 on July 19, 2012. On June 11, total open interest increased by a massive 8,823 contracts, which relative to volume is approximately 150% above average, which means that new longs were aggressively entering the market and pushing meal prices higher. The total open interest increase was made more impressive by the fact that the July contract lost 7,622 of open interest. As  stated before, soybean meal has higher relative strength compared to soybeans and physical meal demand has been extraordinarily high for the current crop year. As this report is being compiled, July soybean meal is trading $4.00 higher and has made a new high for the move at $469.90, which is the highest price on the continuation chart since November 8, 2012 when soybean meal reached $471.60. Although soybean meal should encounter resistance at the $490 level, we think the market will continue to move higher, perhaps significantly so.

Corn:

July corn gained 9.50 cents on volume of 263,828 contracts. Total open interest increased by 12,065 contracts, which relative to volume is approximately 80% above average meaning that new longs were aggressively entering the market and pushing corn prices higher. Making the total open interest increase more impressive, the July contract lost 17,179 of open interest. As this report is being compiled on June 12, corn is trading 7.25 cents lower and has made a low of $6.46 1/4, which is the lowest price since June 3 when July corn reached $6.43 3/4. Corn remains on a short-term buy signal, but an intermediate term sell signal.

Wheat:

July wheat gained 7 cents on heavy volume of 121,454 contracts. Volume declined by 12,000 contracts from June 10 when wheat lost 6.50 cents and open interest increased by 3,595 contracts. On June 11, open interest declined by a massive 7,810 contracts, which relative to volume is approximately 150% above average, meaning that liquidation was extraordinarily heavy as wheat prices advanced. This is bearish and the price and open interest action on June 10 is bearish as well. As this report is being compiled on June 12, July wheat is trading 12.75 cents lower and has made a new low for the move at $6.79, which is its lowest price since May 21 when July wheat made a low of $6.74. The market has been sluggish for quite a while, and looks to take out the $6.74 low, and eventually the April 1 low of 6.59 3/4. Wheat remains on a short and intermediate term sell signal.

Platinum:

July platinum lost $27.00 on volume of 14,118 contracts. Open interest increased by 477 contracts, which relative to volume is approximately 40% above average, which means that new shorts were entering the market in fairly substantial numbers and driving prices lower. July platinum generated a short-term buy signal on June 5, and the market has had a fairly substantial pullback since then. The market's performance has been disappointing, and this is highlighted by the action on June 12: gold is trading $11.80 higher and platinum is trading $1.80 lower. Even copper, which just generated a short-term sell signal is rallying, despite the sharply lower equity market. Having said this, platinum remains on a short-term buy signal, and a substantial setback from here would be required before it would reverse the buy signal.

Euro:

The June euro gained 46 points on fairly heavy volume of 383,709 contracts. Open interest increased by 10,662 contracts, which relative to volume is average. During the past 4 days, price and open interest has been acting in a bullish congruent fashion. As this report is being compiled on June 12, the euro is trading 21 points higher and has made a new high for the move at 1.3361, which is the highest price since February 20 when the euro reached 1.3437 on the continuation chart. It will be interesting to see whether managed money is liquidating its short positions when the COT report is released this Friday. Do not chase the rally.

S&P 500 E mini:

The S&P 500 E mini lost 15.00 points on volume of 2,793,587 contracts. Open interest increased by 27,974 contracts, which relative to volume is approximately 50% below average. The market continues to correct, and the long put protection that we have been advising should already be in place.

By. Garry Stern




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