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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 19th, 2013

Crude oil:

August WTI crude oil lost 19 cents on volume of 673,450 contracts. Open interest declined by 22,522 contracts, which relative to volume is approximately 30% above average, meaning that liquidation was unusually heavy. Undoubtedly, much of this can be attributed to the July contract which lost 33,488 of open interest, which is more than the June 18 loss of 23,300 in the July contract. On June 19, WTI reached its highest level since September 2012 on the crude oil continuation chart. As this report is being compiled on June 20, August crude oil is trading $3.18 lower on heavy volume. On June 20, WTI remains on a short and intermediate term buy signal.
From the June 18 report:

"Crude oil remains on a short and intermediate term buy signal, but if the equity market takes a major dive, we could see crude oil prices follow. However the trend is higher, but we advise a stand aside posture."

Brent crude oil:

August Brent crude oil gained 10 cents on light volume of 470,309 contracts. Open interest declined by 1,476 contracts, which relative to volume is approximately 75% less than average. As this report is being compiled on June 20, August Brent crude is trading $3.61 lower. Despite the sharp move lower on June 20, Brent will not generate a short-term sell signal, which would reverse the short-term buy signal generated on June 14.

Heating oil:

August heating oil gained 1.04 cents on volume of 102,475 contracts. Open interest declined by 1,910 contracts, which relative to volume is approximately 25% less than average. The July contract accounted for loss of 5,261 of open interest. As this report is being compiled on June 20, August heating oil is trading 9.57 cents lower. However, heating oil will not generate a short-term sell signal on June 20, which would reverse the buy signal generated on June 14.

From the June 18 report:

"Heating oil generated a short-term buy signal on June 14, and since then has not had much of a setback. We expect the market to correct, especially since it is trading at its 150 day and 200 day moving averages of $2.98, and this should provide some temporary resistance."

Gasoline:

August gasoline gained 1.28 cents on volume of 110,003 contracts. Total open interest increased by 3,635 contracts, which relative to volume is approximately 30% above average. This was impressive behavior considering the July contract lost 5,220 of open interest. As this report is being compiled on June 20, August gasoline has collapsed by 10.55 cents. Of the members of the petroleum complex covered in this report, gasoline is the most likely to reverse the short-term buy signal generated on May 17.

From the June 17 report:

If rallies continue be stymied, eventually new short sellers will enter the market and likely drive prices lower. Since May 31, gasoline has been underperforming heating oil by a significant margin. For example from May 31 through June 17, heating oil has advanced 6.19% while gasoline has advanced 4.33%.

Natural gas:

August natural gas gained 5.8 cents on low volume of 245,174 contracts. Total open interest declined by 4,066 contracts, which relative to volume is approximately 35% less than average. The July contract accounted for loss of 14,809 contracts. The latest report by the Energy Information Administration shows that there was 91 bcf added to stocks. As this report is being compiled on June 20, August natural gas is trading 6.6 cents lower on fairly light volume. During the past 3 trading sessions beginning on June 17, natural gas has advanced 23 cents while total open interest has declined by 15,054 contracts. This is bearish open interest action relative to the price advance. In yesterday's report, we stated we wanted to see natural gas pullback to gauge the relative strength of the market at this juncture. We think natural gas is holding up well considering the carnage that is taking place across commodity markets. Natural gas remains on a short-term sell signal, but an intermediate term buy signal. We cannot recommend bullish positions for 2 reasons: 1) the price and open interest action is negative and 2) natural gas must reverse its short-term sell signal.

As this report is being compiled on June 20, all markets are trading sharply lower. We have been cautioning our clients to stand aside in the markets because of our concern about the impact of an equity market meltdown. On June 17, OIA announced that July platinum generated a short-term sell signal. Since then, July platinum has fallen from $1434.80 (June 17 closing price) to 1357.30, which is the low price on June 20 as of this writing. On June 10, OIA announced that July copper had generated a short-term sell signal. Since then, July copper has declined from its closing price of $3.2410 on June 10 to a low of $3.0405 on June 20.

Soybeans:

July soybeans gained 12.50 cents on volume of 192,743 contracts. Volume was the highest since June 13 when 217,014 contracts were traded and July soybeans lost 30.50 cents while open interest increased 3,228 contracts. On June 19, total open interest increased by 2,931 contracts, which relative to volume is approximately 40% less than average. Normally, this increase would be disappointing, however when taking into account the July contract lost 11,618 of open interest, the total increase is better than it appears.

As would be expected in the case of sharply lower markets across the board, July soybeans are trading 15.50 lower and the August contract is trading 19.75 lower. It is positive to see the spread between July and August widen on the decline. As we have indicated in previous reports, the penetration of $14.80 by the July contract would signal the end/temporary end of the recent bull move. The USDA released its export sales figures for the most recent reporting week and it showed that 52.61 thousand tons were sold, which was the highest in 5 weeks. Year to date for the season, which ends on August 31, show total commitments of 1348.8 million bushels versus USDA projected exports of 1330 mb. Thus far on June 20, the low for the day has been $15.05 1/2, which is one half cent above the low made on June 19 of 15.05 1/4. If this level is unable to hold, a move to 14.90 would be likely. Soybeans remain on a short and intermediate term buy signal.

Soybean meal:

July soybean meal advanced $1.80 on volume of 88,479 contracts. Total open interest increased by 4,248 contracts, which relative to volume is approximately 85% above average, meaning that new longs were entering the market and pushing prices higher. Making this hefty increase more impressive was the loss of open interest in the July contract of 3,810. Open interest increases in soybean meal on rallies have been consistently more impressive than soybeans. The USDA reported that soybean meal sales totaled 26.57 thousand tons, which is the lowest in 6 weeks. Total commitments stand at 9,324 thousand tons versus the USDA projection of 9,435 thousand tons. The pace of soybean meal sales at this juncture is the highest since the crop year 2007-2008. We continue to be favorably inclined toward soybean meal, however, the broad risk off environment, has negatively impacted the market. If July meal penetrates $427.00, a top or temporary top will have been made.

Corn:

July corn gained 9 cents on very heavy volume of 445,480 contracts. Volume was the highest since April 29 when 478,671 contracts were traded. On June 19, open interest increased by a mere 46 contracts as July corn made a new high for the move at $6.83 1/2. The July contract accounted for loss of 25,308 of open interest. The USDA reported that corn sales were 133.4 thousand tons, which is the highest in 5 weeks. As this report is being compiled on June 20, corn is trading 9 cents lower and has made a low for the day of $6.67 1/2. This is the highest low since March 28. In short, the market is showing terrific relative strength compared to the rest of the grain complex and  commodities in general. As we said in yesterday's report, the market is overdue for a pullback, and our concern was that once the gap between March 28 and April 1 was filled, corn would struggle to move higher.  Corn remains on a short-term buy signal and will not generate an intermediate term buy signal on June 20.

Cotton:

December cotton lost 72 points on very light volume of 21,235 contracts. Volume declined approximately 2,000 contracts from June 18 when cotton declined 1.67 cents and open interest declined by a massive 2,130 contracts. On June 19, open interest again declined by a massive 2625 contracts, which relative to volume is approximately 390% above average, meaning that liquidation was extraordinarily heavy. The reason for the massive liquidation was the July contract, which lost 3,554 of open interest while the December contract gained 748. The reason for extraordinarily large open interest percentages is due to very low volume on the price declines of the past 2 days. This is positive volume action and the open interest decrease is what should occur as prices decline, especially because cotton is on a short and intermediate term buy signal. As this report is being compiled on June 20, December cotton is trading 1.49 cents lower and has made a new low for the move at 84.37. This took out the low on June 19 of 85.80. If the buy signal generated on June 13 is not a false signal, June 20 should be the last day of declines. If cotton declines significantly on June 21, it is likely the buy signal would be reversed. Ideally, we want to see today's low hold, and if a new low is made on June 21, it should be only fractionally lower.

Euro:

The September euro lost 1.36 cents on volume of 224,402 contracts. Open interest declined by 69,526 contracts, which is a huge number and is the result of the June contract expiring on June 19. The June contract lost 70,328 of open interest. June 19 was the first setback since  the euro generated a short and intermediate term buy signal on June 6 and June 7 respectively. On June 20 , the euro continues to pullback and has made a low of 1.3167,which takes out the low made on June 19 of 1.3268. Despite the hefty pullback, the September euro remains on a short and intermediate term buy signal.

S&P 500 E mini:

The S&P 500 E mini lost 21.50 points on volume of 2,962,761 contracts. Open interest declined by 29,377 contracts, which relative to volume is approximately 50% below average.We have been advising long put protection before the indices moved lower, and thought this was especially important for those who hold long equity positions.With volatility increasing, initiating put protection at this juncture is going to be considerably more expensive. As this report is being compiled on June 20, the E mini is trading 34.50 lower on heavy volume.

By. Garry Stern




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