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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 24th, 2013

The USDA will release its acreage and stocks report on Friday, June 28.

Crude oil:

August WTI crude oil gained $1.49 on heavy volume of 723,734 contracts. Volume increased approximately 36,000 contracts from June 21 when crude oil lost $1.45 and open interest declined by 16,991 contracts. On June 24, open interest increased by 10,905 contracts, which relative to volume is approximately 40% less than average. For the past 3 days, we have been witnessing bullish congruent price and open interest action, meaning that open interest increases when the crude prices increase, and open interest declines when crude oil declines. There is no question that crude oil has been able to hold its own in the face of negative economic news out of China and the emerging markets. However, the central question is this: How much more upside is there in crude oil, when the fundamentals are terrible, and global economies are slowing. The moving averages seem to tell the story best: The 50 day moving average is 94.26, 150 94.23 and the 200 day moving average is 93.80. In short we have a market that is basically trading in a sideways pattern, which means that it is just as easy to make money as it is to lose money. There are some option strategies that work in this environment, and this can be discussed if you are a subscriber to OIA Direct.

Brent crude oil:

On June 24, August Brent crude oil generated a short-term sell signal and remains on an intermediate term sell signal.

August Brent crude oil gained 25 cents on volume of 619,264 contracts. Open interest declined by 56 contracts. With Brent on a short-term sell signal, WTI will struggle to move higher, and the only thing that may keep WTI aloft is the unwinding of the long Brent and short WTI spread. Wait for a rally before initiating bearish positions in Brent. As is usually the case after the generation of a sell signal, a rally lasting 1-2 and possibly 3 days takes place.

Heating oil:

August heating oil gained .0096 cents on volume of 166,697 contracts. Volume increased approximately 4,000 contracts from June 21 when heating oil lost 2.96 cents and open interest increased by 1,191 contracts. On June 24, total open interest declined by 6,090 contracts, which relative to volume is approximately 40% above average, meaning that liquidation was fairly heavy. The July contract, which will expire shortly, lost 8,838 of open interest. Although it came close, heating oil did not generate a short-term sell signal on June 24, nor will it on June 25. From May 31 through June 24, August heating oil has been significantly outperforming gasoline and during that time frame August heating oil advanced 2.18% while August gasoline declined by 0.15%. This explains why gasoline generated a short-term sell signal on June 24 and heating oil did not, although we think it's a matter of time before heating oil generates the sell signal.

Gasoline:

On June 24, August gasoline generated a short-term sell signal and remains on an intermediate term sell signal.

August gasoline lost 1.96 cents on heavy volume of 158,608 contracts. This was the highest volume since June 12 when 158,195 contracts were traded and gasoline lost 1.30 cents while open interest declined 94 contracts. On June 24, total open interest declined by 5,897 contracts, which relative to volume is approximately 45% above average, meaning that liquidation was unusually heavy. The July contract accounted for loss of 9,011 of open interest. August gasoline made a new low for the move at $2.7025, which is its lowest price since May 2 when it reached 2.6782. As is usually the case after the generation of a sell signal, we expect a rally lasting 1-2 and possibly 3 days.

Natural gas:

Natural gas generated an intermediate term sell signal on June 24. It generated a short-term sell signal on May 31.

August natural gas lost 3.3 cents on extremely light volume of 235,534 contracts. Volume was the lowest since June 5 when 195,452 contracts were traded and natural gas closed at $4.015. On June 24, open interest declined by 6,922 contracts, which relative to volume is approximately 20% above average. The July contract accounted for loss of 6,451 of open interest. In previous reports we indicated that we thought the 200 day moving average would keep natural gas prices in check. We were wrong about this and as this report is being compiled on June 25, August natural gas is trading 7.3 cents lower and has made a new low for the move at $3.668, which is its lowest price since March 7 when it reached $3.648. Ever since natural gas generated its short-term sell signal on May 31 we have been advising clients to stand aside. With the market returning to lows going back to the first quarter of 2013, and the generation of an intermediate term sell signal, we cannot determine where the market will find support at this juncture.

Soybeans:

August soybeans gained 7.50 cents on volume of 178,844 contracts. Volume increased approximately 20,000 contracts from June 21 when July soybeans lost 4.25 cents and open interest declined 33,845 contracts. On June 24, total open interest declined by 13,202 contracts, which relative to volume is approximately 190% above average, meaning that liquidation was extraordinarily heavy. Accounting for the total open interest decline was the loss of 18,120 in the July contract, which enters first notice day on June 28. As this report is being compiled on June 25, August soybeans are trading 7 cents higher while the July contract is trading 12.25 cents higher. Considering the disastrous performance of the Shanghai Composite Index, soybeans have held up fairly well. At this point, however, we see no compelling reason to be involved in soybeans. Soybeans remain on a short and intermediate term buy signal

Soybean meal:

August soybean meal advanced $3.00 on heavy volume of 93,109 contracts. Volume was the highest since June 13 when 117,388 contracts were traded and July soybean meal lost $8.80 while open interest increased 8,351 contracts. On June 24, total open interest increased by 3891 contracts, which relative to volume is approximately 60% above average, meaning that new longs were aggressively entering the market and pushing prices higher. The fact that the July contract lost 4,359 of open interest and that total open interest increased significantly above average is testament to the relative strength of soybean meal over soybeans. We are friendly to soybean meal, however we want to see how soybean meal trades on a day when all the markets are sharply lower. The deteriorating economic situation in China has to be taken into account when looking at the long side of any of the agricultural markets. We want to see a test of the low made on June 24 of $415.40, which was the lowest price for August soybean meal since May 29 when it reached 414.60. August soybean meal remains on a short and intermediate term buy signal.

Corn:

September corn lost 13 cents on volume of 220,719 contracts. Volume declined by approximately 46,000 contracts from June 21 when July corn declined 11.50 cents and open interest declined by 21,772 contracts. On June 24, total open interest declined by 23,847 contracts, which relative to volume is approximately 250% above average, meaning that liquidation was extremely heavy. The July contract accounted for loss of 18,398 of open interest. The market has looked weak for the past couple of days, and unless there is a catalyst in the June 28 report, we expect September corn prices to drift lower. Corn remains on a short-term buy signal, but an intermediate term sell signal.

Wheat:

September wheat lost 17.25 cents on extremely heavy volume of 190,017 contracts. Volume was the heaviest since April 3, 2013 when 219,206 contracts are traded and September wheat closed at $7.10 1/4. On June 24, open interest declined by 10,632 contracts, which relative to volume is approximately 120% above average meaning that liquidation was extremely heavy on the price decline. September wheat traded to its lowest level since June 17 when it reached a low of $6.82 1/4. Wheat remains on a short and intermediate term sell signal.

Cotton:

On June 24, December cotton generated a short-term sell signal, but remains on an intermediate term buy signal.

December cotton lost 1.46 cents on very light volume of 17,286 contracts. Volume was the lowest since May 17 when 16,670 contracts were traded. On June 24, total open interest declined by 1,553 contracts, which relative to volume is approximately 250% above average, meaning that liquidation was off the charts. The December contract accounted for loss of 1,306 of open interest and July lost 314. As we stated in the Weekend Wrap, the dismal open interest declines of June 19 and 20 on a price decline of 1.96 cents indicated to us that more liquidation was ahead. On June 21 and 24, open interest in the December contract declined by 3,614 contracts while December cotton lost 2.18 cents. After the generation of a sell signal, the market typically rallies 1-2 and possibly 3 days and on June 25, as this report is being compiled December cotton is trading 1.32 higher. Much of the direction of cotton prices will depend upon events out of China as they are the largest importer of cotton and the June 28 USDA report.

By. Garry Stern




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