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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 13th, 2013

Crude oil:

July WTI crude oil advanced 81 cents on fairly light volume of 564,743 contracts. Open interest increased by 9,727 contracts, which relative to volume is approximately 30% below average. During the past 2 days, crude oil has advanced $1.31, but volume has averaged only 560,934 contracts. To put this number in perspective consider that the average daily volume during May 2013 was 628,386, April 2013 606,998 and volume year to date of 589,049 contracts. Additionally, the open interest increases of the past 2 days have been significantly below average meaning that market participants are unwilling to make major commitments at the very high-end of the recent trading range.

As this report is being compiled on June 14, July WTI has advanced $1.31 and has made a new high for the move at $98.25. In previous reports, we have stated that we didn't think crude oil would move significantly beyond $97.00. However, the geopolitical situation in Syria is getting increasingly tense, and it appears that the United States and the Western world may be in a proxy war with Iran, and to a much lesser extent, Russia. The supply and demand fundamentals are abysmal, especially because emerging markets economies are slowing down, which is reflected in their sinking equity prices. The Shanghai Composite Index closed decisively under its 200 day moving average on June 13 for the first time since December 2012. We think it is much too hazardous to trade crude oil at this juncture.

Brent crude oil:

August Brent crude oil gained $1.39 on low volume of 528,483 contracts. Volume was the lowest since June 6 when 528,922 contracts were traded and Brent advanced 57 cents while open interest increased by 2,201 contracts. The previous lowest volume occurred on May 29 when 510,422 contracts were traded. On the advance, volume was tepid, and the open interest increase was slightly below average. It is a virtual certainty that Brent will generate a short-term buy signal on June 14, which means that a pullback for 1-2 and possibly 3 days is in the offing. Our sentiments about the geopolitical situation in the Middle East regarding WTI are applicable to Brent crude as well.

Heating oil:

July heating oil gained 4.43 cents on heavy volume of 180,484 contracts. Volume was the highest since April 11 when 180,675 contracts were traded and July heating oil closed at $2.9057. On June 13, July heating oil closed at 2.9395 and made a new high of 2.9493, which is the highest price April 11 when July heating oil made a high of 2.9489. Heating oil will generate a short-term buy signal on June 14, but remains on an intermediate term sell signal.

Gasoline:

July gasoline gained 5.12 cents on volume of 133,966 contracts. Volume declined approximately 25,000 contracts from June 12 when gasoline lost 1.30 cents and open interest declined 94 contracts. Although volume was disappointing on the advance, open interest increased by 4,670 contracts, which relative to volume is approximately 40% above average. In short participation was lacking but those that traded were willing to make commitments at a rate that was significantly above average. The strength of gasoline and heating oil on June 13 and 14 has served to provide both WTI and Brent with firm support. If the products begin to weaken, WTI and Brent will not be able to hold their gains.

Natural gas:

July natural gas gained 3.7 cents on heavy volume of 468,877 contracts. Volume was the highest since May 2 when 550,296 contracts were traded and July natural gas closed at $4.077. On June 13, open interest increased by 10,174 contracts, which relative to volume is approximately 10% below average. During the past 2 days when natural gas has advanced, open interest has increased. As we said in yesterday's report, until natural gas generates a short-term buy signal, we expect it to trade in its sideways to lower pattern. As this report is being compiled on June 14, July natural gas is trading 7.1 cents lower.

Soybeans:

July soybeans lost 30.50 on volume of 217,014 contracts. Volume declined by 29,000 contracts from June 12 when July soybeans closed 0.25 cents higher and open interest increased by 1,445 contracts. On June 13, open interest increased by 3,228 contracts, which relative to volume is approximately 40% below average. The July contract accounted for loss of 13 528 of open interest. Although we think that July soybeans are headed higher, the market is in a corrective mode and therefore speculators should watch for the penetration of $15.02 1/2, the low made on June 10 and 14.87, the low made on May 30. With the equity market vulnerable to a major swoon, it is not difficult to envision that all markets would follow suit.

Soybean meal:
    
July soybean meal lost $8.80 on heavy volume of 117,388 contracts. Total open interest increased by 8,351 contracts, which relative to volume is approximately 185% above average, meaning that new shorts were entering the market aggressively and driving prices lower. Making this open interest increase more impressive was the July contract, which lost 7,021 of open interest. The massive increase of open interest on the decline is troubling. We continue to think that soybean meal is headed higher, but should the equity market take a dive, soybean meal could break its June 10 low of $445.00. If long, sell stops should be placed slightly below the June 10 low.

Corn:

July corn lost 7.25 cents on fairly heavy volume of 318,416 contracts. Volume declined approximately 35,000 contracts from June 12 when corn lost 8.75 cents and open interest increased by 11,108 contracts. On June 13, total open interest increased by a massive 24,478 contracts, which relative to volume is approximately 210% above average meaning that massive numbers of new shorts entered the market and drove prices lower. Making the total open interest increase (which is bearish) much more impressive was the July contract, which lost 14,542 of open interest. During the past 2 days, beginning on June 12, open interest has increased 35,586 contracts, which relative to 2 days' volume is approximately 110% above average, meaning that participants have gotten very bearish during the past 2 days. This makes us wary of the short side, especially since corn remains on a short-term buy signal. As this report is being compiled on June 14, corn is trading 5.50 cents higher.

Wheat:

July wheat gained 2.50 cents on heavy volume of 141,290 contracts. Volume declined by approximately 8,000 contracts from the extremely heavy volume printed on June 12 when wheat declined 13.75 cents and open interest increased by 3,589 contracts. On June 13, open interest increased by a massive 11,127 contracts, which relative to volume is approximately 225% above average, meaning that market participants were aggressively initiating new long and short positions, but longs had a slight edge. As this report is being compiled on June 14, July wheat is trading 7 cents lower, but has not taken out the low of June 13 of $6.75. The market looks weak.

Cotton:

On July 13, December cotton generated a short-term buy signal, and remains on an intermediate term I signal.

December cotton gained 1.08 cents on extremely heavy volume of 74,525 contracts. Volume was the highest going back one year. On June 13, open interest declined by 4,403 contracts, which relative to volume is approximately 140% above average, meaning that both longs and shorts were liquidating as the market moved to its highest level since March 18. As is usually the case after a buy signal is generated, the market pulls back for 1-2 and sometimes 3 days. Cotton is massively overbought relative to its 50 day moving average of 84.60 on the cotton continuation chart and 85.27 on the December cotton chart. Also, the massive volume spike with open interest declining as the market climbed to new highs is another sign the market needs to correct. Do not enter new long positions at current levels.

Platinum:

July platinum lost $35.20 on heavy volume of 21,100 contracts. Volume was the highest since April 15 when 28,868 contracts were traded and July platinum closed at $1424.80. It is likely that platinum will generate a short-term sell signal on June 17. This would reverse the short-term buy signal generated on June 5.

Euro:

The June euro gained 16 points on heavy volume of 469,324 contracts. Open interest declined by 2,506 contracts, which relative to volume is approximately 70% below average. The euro made a new high for the move at 1.3391, which is its highest price in several months. We tend to think the euro is trading close to the high-end of its range, but much of this will depend upon the performance of the yen. The yen generated a short-term buy signal on June 7, and after a brief pull back has continued to rise.

S&P 500 E mini:

The S&P 500 E mini advanced 26.75 points on very heavy volume of 3,210,985 contracts. Volume was the highest since February 26 when 3,236,746 contracts were traded and the June S&P 500 E mini closed at 1486.50. On June 13, open interest declined by 2,502 contracts, which is remarkably small and dramatically below average. Considering the magnitude of the advance and the volume accompanying it, it was surprising to see that open interest was essentially unchanged. This tells us longs and shorts were being replaced by new longs and shorts. It is clear that market participants were unwilling to make new commitments on the rally. As we indicated in yesterday's report and have been advising consistently, long puts should be in place.

By Garry Stern




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