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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 12th, 2013

Crude oil:

July crude oil gained 50 cents on volume of 557,125 contracts. Open interest increased by 6,888, which relative to volume is approximately 45% less than average. The July and August contracts accounted for loss of 14,049 of open interest, which makes the total open interest increase more impressive. As this report is being compiled on June 13, July crude is trading unchanged on the day.

During the past 7 trading sessions beginning on June 4, open interest has increased 6 out of 7 days for total of 88,390 contracts. During this time, crude oil has advanced $2.89. This is a heavy open interest increase considering the relatively small advance, which  indicates substantial short selling, probably by commercial interests. Although we think that crude has the ability to rally to the $97.00 level, we are skeptical of an advance beyond this. The entire petroleum complex remains vulnerable to a massive decline in the equity market.

Brent crude oil:

August Brent crude gained 59 cents on volume of 656,278 contracts. Open interest increased by 4,241 contracts, which relative to volume is approximately 60% less than average. As this report is being compiled on June 13, Brent has made a high of $105.13, which is significantly above yesterday's high. Brent is trading 1.32% higher while WTI is trading 0.72% higher. Brent remains on a short and intermediate term sell signal.

Heating oil:

July heating oil gained 3.77 cents on volume of 115,229 contracts. Open interest increased by 2,295 contracts, which relative to volume is approximately 20% less than average. The July contract lost 4,550 of open interest, which makes the total open interest increase more impressive. As this report is being compiled on June 13, it appears that heating oil may be breaking out and has made a high of $2.9493, which is its highest price since May 21 when heating oil traded at its high of $2.9484. Another interesting aspect of trading on June 13 is that both gasoline and heating oil are trading 1.78% and 1.42% higher while crude oil is trading 0.69% higher. With some exceptions, usually crude oil is the big mover. Perhaps we are seeing a major change in petrol complex price dynamic. Although heating oil will not generate a short-term buy signal on June 13, it is possible this will occur on June 14. As of June 13, heating oil remains on a short and intermediate term sell signal.

Gasoline:

July gasoline lost or 1.30 cents on heavier than normal volume of 158,195 contracts. Open interest declined by 94 contracts and the July contract accounted for loss of 5,288 of open interest. As this report is being compiled on June 13, July gasoline is trading 5.09 cents higher. Gasoline remains on a short-term buy signal, but an intermediate term sell signal.

Natural gas:

July natural gas advanced 5.3 cents on fairly heavy volume of 391,251 contracts. Open interest increased by 3,240 contracts, which relative to volume is approximately 55% below average, but the open interest increase along with an advancing price is positive. In yesterday's report, we said that we wanted to see a test of the $3.71 area and on June 13, the low the day has been $3.715, and July natural gas has made a high of $3.85. The Energy Information Administration released its natural gas stocks report and it showed an injection of 95 bcf, which was in line with expectations. As it stands, natural gas stocks are 20% below last year's level, and 2.4% below the five-year average for this time of year. We remain friendly to natural gas, but it remains on a short-term buy signal, which means that natural gas will have a tendency to trade in a sideways to lower pattern.

Soybeans:

July soybeans advanced 0.25 cents on volume of 246,617 contracts. Volume declined approximately 39,000 contracts from June 11 when soybeans advanced 28.75 cents and open interest increased by 5,615 contracts. On June 12, open interest increased by 1,445 contracts, which relative to volume is approximately 70% below average. The July contract accounted for loss of 12,113 contracts. The market made a new high for the move at $15.58 3/4, and then pulled back to close approximately unchanged on the day. This action is reminiscent of June 5 when soybeans made a high of $15.49 and the market closed 3.25 cents higher. It then proceeded to pull back until June 10 when it made a low of $15.0 2 1/2, and then subsequently rallied to the high made on June 12. As this report is being compiled on June 13, July soybeans are trading 30.25 cents lower and have made a low of $15.06 1/2. The market is correcting its overbought status, and we continue to think that prices higher prices are in the offing. Soybeans remain on a short and intermediate term buy signal.

The USDA released its supply and demand report and the result was they increased the crush by 25 million. Additionally, they lowered exports by 20 million bushels and left the carryout unchanged at 125 million. This was a surprise, and it is possible that this number will be revised downward in a later report. Additionally, the ending stocks for 2013-2014 were left unchanged at 265,000,000 bushels. Brazil's soybean production was decreased from 83.5 million metric tons to 82mmt. The USDA released its export sales report on June 13 and it showed total exports of 480,600 tons with 33,000 tons sold for the 2012 2013 season and the rest for next season. The bean export sales number was expected to range from 400-600,000 tons.

Soybean meal:
    
July soybean meal lost $2.00 on heavy volume of 128,960 contracts. Volume fell approximately 9,500 contracts from June 11 when soybean meal advanced $15.10 and open interest increased by 8,823 contracts. On June 12, open interest declined by 2,645 contracts, which relative to volume is approximately 20% below average. The July contract accounted for loss of 12,340 of open interest. On June 12, soybean meal made a new high for the move at $469.90, but the market could not hold its gains and closed lower on the day. As this report is being compiled on June 13, July soybean meal is trading $8.30 lower and has made a low of $451.00. We continue to think that meal prices are headed higher. Meal remains on a short and intermediate term buy signal.

The USDA supply demand report indicated that total supply was increased by 500,000 tons and total use was increased by 500,000 tons with the added use the result of exports of 500,000 tons. The USDA reported export sales for the most recent week at 144,800 tons and 97.7 thousand tons were for the 2012-2014 season with the remainder for the 2013-2014 season. Meal exports came within the expected range of 125,000 tons-300,000 tons.

Corn:

July lost 8.75 cents on heavy volume of 353,467 contracts. Volume was the highest since May 29 when 378,106 contracts were traded and July corn lost 1.50 cents while open interest increased by 3,661 contracts. On June 12, total open interest increased by 11,108 contracts, which relative to volume is approximately 20% above average, meaning that new shorts were entering the market at a heavier than usual rate and driving prices lower. The July contract accounted for loss of 15,686 of open interest. Corn made a low of $6.46 1/4 on June 12 and on June 13 corn is trading fractionally lower at $6.45 1/2. Corn remains on a short-term buy signal but an intermediate term sell signal.

USDA released its export sales report and it showed that exports totaled 149,500 tons, which is a disappointment considering that 200,000-400,000 tons were expected. The supply and demand report released on June 12 showed that total supply was increased by 25 million bushels and total use was increased by 15 million. The stocks use ratio increased from 6.8% in the May report to 6.9% in the June report. Stocks to usage is projected to increase by more than 100% for the 2013-2014 season.

Wheat:

July wheat lost 13.75 cents on heavy volume of 149,082 contracts. Volume was the heaviest since April 11 when 150,735 contracts were traded and July wheat closed at $7.03 1/4. On June 12, open interest increased by 3,589 contracts, which relative to volume is average. The July contract accounted for loss of 6,413 of open interest, which makes the total open interest increase much more impressive (bearish). The market made a new low for the move at $6.79 and on June 13 has made another new low at 6.75. The market looks terrible and is headed lower after making periodic rallies.

In the USDA's weekly export sales report, 427,200 thousand tons were sold against 400,000-650,000 expected. The only change in the supply and demand report released on June 12 was that exports were trimmed by 15 million bushels, which increased ending stocks by 15 million bushels.

Platinum:

July platinum gained $2.40 on light volume of 10,544 contracts. Open interest increased by 12 contracts. As this report is being compiled on June 13, July platinum is trading $30.80 lower and has made a new low for the move at $1444.40.We have been wary of the move in platinum after it did not conform to the usual pullback scenario. In the June 10 report (below), we expressed our trepidation about the trading of platinum. Platinum appears to be destined to reverse the short-term buy signal generated on June 5.

From the June 10 report:

 "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."

 Euro:

The June euro gained 22 points on heavy volume of 403,341 contracts. Open interest increased by a hefty 12,575 contracts, which relative to volume is approximately 20% above average, meaning that new longs were willing to initiate positions at an aggressive pace, which propelled the euro higher. The euro made a new high for the move at 1.3361, which is its highest price since February 20, 2013 and on June 13, has made another new high at 1.3391. June 12 was the 5th day in a row (beginning on June 6) that we have seen bullish open interest action relative to price. On the euro continuation chart, the 50 day moving average crossed above the 200 day moving average. The market is massively overbought and vulnerable to a very sharp setback. Do not chase the rally.

S&P 500 E mini:

The S&P 500 E mini lost 17.00 points on heavy volume of 3,024,308 contracts. Open interest increased by 92,568 contracts, which relative to volume is approximately 20% above average, but a large number nonetheless. Generally, as the E mini gets close to expiration, it is typical  to see large increases/decreases of open interest that are not seen when there are 1-3 months left before expiration. The distortion of open interest has to be taken into account when evaluating market action near expiration. As this report is being compiled on June 13, the June E mini is trading 18.00 points higher after making a low during the evening session of 1597.50,which was slightly above the low of 1596.50 made on June 6. We advise using the current rally to initiate long put protection if this has not been done already.

By. Garry Stern




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