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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 6th, 2013

Crude oil:

July WTI crude oil gained $1.02 on volume of 685,952 contracts. Open interest increased by a substantial 23,563 contracts, which relative to volume is approximately 40% above average, meaning that new longs were aggressively entering the market and pushing prices higher. The fact that the July contract lost 12,587 of open interest makes the total open interest increase that much more impressive. Additionally, the total open interest is the largest since April 30 when crude oil declined $1.04 and open interest increased by 26,186 contracts. We examined our records for April and couldn't find an example of crude oil prices advancing and open interest increasing at least as much as it did on June 6. In short, the open interest increase along with the price advance is something to be taken seriously. As we said in the pertinent part of the June 5 report (below) we think crude can rally to the $97.00 area, but believe it will struggle to move significantly beyond this level.

From the June 5 Report:

 We remain bearish crude oil despite it being on a short and intermediate term buy signal. However, we do not think it is wise to initiate long positions at current levels. It is possible that the current rally could take crude to the $97.00 area. We think the downtrend in equities has just begun, and believe this will ultimately take down crude oil prices as more people realize the economy in the United States is slowing down. As we mentioned in yesterday's report, the 50 day moving average in the July contract is about to move below the 200 day moving average.

Brent crude oil:

July Brent crude oil gained 57 cents on volume of 528,922 contracts. Open interest increased by 2,201 contracts, which relative to volume is approximately 80% below average. On June 3, 4, and 6, price and open interest have increased, which is an unusual pattern for Brent for the past couple of months. It appears that Brent could generate a short-term buy signal on June 9, but as we have noted in previous reports, Brent has been close to doing this on a number of occasions. Although, on a short-term basis we could see a rally, we lean toward the bearish side in both WTI and Brent. Aside from the slowing global economy, the global equity markets are in a corrective mode, which we think will weigh on oil prices.

Heating oil:

July heating oil gained 1.60 cents on volume of 112,124 contracts. Open interest increased by a very strong 5,886 contracts, which relative to volume is approximately 100% above average. The July contract accounted for loss of 3,448 of open interest which makes the total open interest increase that much more impressive. From a price and open interest point of view, June 6 was the most positive day in at least two weeks. On May 31, July heating oil generated a short-term sell signal. As is usually the case after the generation of a sell signal, a pullback lasting 1-2 and possibly 3 days occurs and the pullback is the most opportune time to initiate bearish positions. Heating oil had 3 days of a countertrend rallies, and true to form on the third day (June 5) heating oil closed lower. However, the pattern has broken down because heating oil rallied on June 6 and has continued to advance on June 7. As a result, it is possible that heating oil may generate a short-term buy signal on June 9. Heating oil and the rest of the petroleum complex remains vulnerable to the downside if equity prices continue to move lower as we expect.

Gasoline:

July gasoline gained 2.79 cents on very low volume of 100,040 contracts. Open interest increased by a hefty 4,743 contracts, which relative to volume is approximately 75% above average. We have been waiting for gasoline to move higher, but it has not had the momentum to do so. On June 7, as this report is being compiled, heating oil is outperforming gasoline even though the summer driving season is in full swing. To provide some perspective on the disappointing performance of gasoline consider this: On May 17, gasoline generated a short-term buy signal, and the high made on May 17 was $2.9054. Nearly 3 weeks later on June 7, the high in July gasoline is $2.8859. In short, ever since gasoline generated a short-term buy signal on May 17 through June 7, it has traded in a sideways pattern, despite relatively firm crude oil prices.

Natural gas:

July natural gas lost 17.4 cents on heavier than normal volume of 412,905 contracts. Volume was the heaviest since May 23 when July natural gas advanced 7.4 cents on volume of 415,429 contracts while open interest increased by 11,413. Year to date natural gas volume is 373,700 contracts. On June 6, open interest increased by 8,497 contracts, which relative to volume is approximately 25% below average. The July contract accounted for loss of 4,124 of open interest. The total open interest increase on June 6 is the first we have seen during the decline of natural gas PThis may be the first indication that natural gas prices are near a bottom. We will be discussing natural gas in the upcoming June 8 Weekend Wrap.

Soybeans:

July soybeans lost 4.75 cents on volume of 167,041 contracts. Volume shrank approximately 37,500 contracts from June 5 when soybeans advanced 3.25 cents and open interest increased by 2,509 contracts. On June 6, total open interest increased by 2,502 contracts, which relative to volume is approximately 40% less than average. The July contract lost 10,881 of open interest. As this report is being compiled on June 7, July soybeans are trading 3.75 cents higher and have made a high of $15.42. Soybeans generated a short-term buy signal on May 9 and an intermediate term buy signal on May 21. We think soybeans are headed higher and under no circumstances should short positions be considered.

Soybean meal:

July soybean meal lost $1.90 on volume of 63,516 contracts. Open interest increased by 1,771 contracts, which relative to volume is  average. The July contract accounted for loss of 2,735 of open interest. As this report is being compiled on June 7, July soybean meal is trading $1.60 higher. Like soybeans, we think soybean meal is headed significantly higher. On May 9 ,soybean meal generated a short-term buy signal and on May 21 soybean meal generated an intermediate term buy signal. Do not short this market.

Corn:

July corn gained 2.50 cents on volume of 171,680 contracts. Volume declined approximately 77,000 contracts from June 5 when July corn advanced 0.25 cents and open interest increased by 4,159 contracts. On June 6, open interest increased by 6,412 contracts, which relative to volume is approximately 50% above average meaning that new longs were heavily entering the market and driving prices higher. This is the 2nd day in a row that corn has exhibited strong increases of open interest as prices moved higher. On May 28, we recommended that the short corn call in the July option be liquidated and that speculators should move to the sidelines. Our reasoning: It was highly likely that corn would take out the highs made at the $6.69 level. As this report is being compiled on June 7, July corn has indeed taken out the old highs and has made a new high for the move at $6.74. This is a major breakout, and the highest price since March 28. There is a gap that is being filled between the low made on March 28 of $6.76 and the high made on April 1 of 6.57 1/4. There is a likelihood that the upside move could stall at 6.76, and conceivably head lower from there. Although exports are dismal, domestic supplies are tight, and as of the latest COT report, managed money was lightly net long. Do not pick a top in this market.

Wheat:

July wheat lost 3.75 cents on heavy volume of 117,107 contracts. Volume increased approximately 27,000 from June 5 when July wheat lost 7.50 cents and open interest declined 3620 contracts. On June 6, open interest increased by 450 contracts, which relative to volume is approximately 75% less than average. The July contract accounted for loss of 8138 contracts. During the past 5 sessions beginning on May 31, July wheat has declined 1 cent and the average daily volume for the five-day period  has been 113,781 contracts. This compares to the average daily volume in May 2013 of 85,123 contracts and average daily volume year to date of 109,815 contracts. Wheat remains on a short and intermediate term sell signal. Managed money is heavily net short, which could add fuel to a rally.

Cotton:

July cotton gained 1.02 cents on relatively heavy volume of 34,790 contracts. Open interest increased by 181 contracts, which relative to volume is approximately 50% less than average. From June 3 - June 6, July cotton has advanced 5.51 cents while open interest has declined 884 contracts. This is bearish open interest action relative to the price advance. We think cotton can work somewhat higher, but remains in a downtrend.

Platinum:

July platinum gained $18.70 on volume of 14,216 contracts. Open interest increased by 452 contracts, which relative to volume is approximately 20% above average. On June 5, July platinum generated a short-term buy signal, and is usually the case, a countertrend rally occurs lasting from 1-2 and possibly 3 days. As this report is being compiled, July platinum is trading $24.20 lower after making a new high in the overnight session of $1539.20. We should see at least one more day of a decline before contemplating bullish positions. Our reticence about platinum is that the equity market is in a corrective mode, and if the correction becomes severe, platinum will likely setback more than usual. Therefore, we advise caution on initiating new long positions.

In the upcoming Weekend Wrap, we will discuss the trading activity of currencies that comprise the dollar index.

Australian dollar:

The June Australian dollar gained 88 points on huge volume of 236,816 contracts. Volume was the highest since December 13, 2012 when 251,485 contracts were traded and the June Australian dollar closed at 1.0374. As this report is being compiled on June 7, the Australian dollar is trading 1.21 cents lower on heavy volume. Continue to hold short call positions recommended on April 29 and 30.

Euro:

On June 6, the June euro generated a short-term buy signal, and will generate an intermediate term buy signal on June 7.

The June euro gained 1.60 on extremely heavy volume of 499,487 contracts. Volume traded on June 6 was the highest of 2013. Knowing that managed money is heavily net short the euro, we were surprised to see a massive open interest increase of 12,673 contracts. This represents an average open interest increase relative to volume, but is a large number nonetheless. Depending upon what the COT report reveals, there may be more upside in the euro.

S&P 500 E mini:

The S&P 500 E mini gained 14.75 points on volume of 2,860,210 contracts. Open interest increased by 43,064 contracts, which relative to volume is approximately 40% less than average. As this report is being compiled on June 7, the S&P 500 E mini is rallying on the jobs report released by the Department of Labor. We continue to think the market is headed lower despite the countertrend rally that began at the end of the session on June 6. Maintain long put protection

By. Garry Stern




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