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Commodity Update: Open Interest Analysis for June 27th, 2013

By Open Interest Analyst | Fri, 28 June 2013 18:33 | 0

We will provide an update on the June 28 USDA stocks and acreage numbers in our next report.

Crude oil:

August WTI crude oil gained $1.55 on volume of 577,969 contracts. Interestingly, volume declined approximately 18,000 contracts from June 26 when crude oil advanced 18 cents and open interest declined by 3,994 contracts. Additionally, volume was the lowest since June 18 when 514,609 contracts were traded and WTI advanced 64 cents while open interest increased by 8,797 contracts. Although volume declined as WTI made a new high at 97.41, open interest increased by 12,376 contracts, which relative to volume is approximately 20% below average.
As this report is being compiled on June 28, August WTI is trading 24 cents higher and has made a new high for the move at $97.82. The market continues to exhibit a firm undertone and with some exceptions, open interest action is generally positive relative to price advances/declines. However, relative to volume, the open interest increases on a price advances is generally below average, meaning that market participants are not willing to make strong commitments at the upper end of the trading range. Although WTI remains on a short and intermediate term buy signal, we caution clients about becoming overly bullish at current levels. We recommend a stand aside posture.

Brent crude oil:

August Brent crude advanced $1.16 on light volume of 458,594 contracts. Volume was the lightest since June 18 when 407,342 contracts were traded and August Brent advanced 55 cents while open interest increased by 9,075 contracts. On June 27, open interest increased by 8,808 contracts, which relative to volume is approximately 20% below average. On June 24, August Brent generated a short-term sell signal and has been on an intermediate term sell signal.
June 27 marked the 3rd day that Brent pulled back (rallied) from the point it generated a short-term sell signal. As we indicated in yesterday's report, there are not reasonable exit points for a bearish strategy in the unlikely event that Brent continues to rally. In yesterday's report, we suggested that a more conservative strategy would be to write out of the money calls.

Heating oil:

August heating oil gained 3.29 cents on volume of 115,231 contracts. It should be noted that volume declined approximately 5,000 contracts from June 26 when heating oil declined .0034 cents and open interest declined 900 contracts. Also of note, is the fact that heating oil made a new high for the move at $2.9074, which was the highest price since June 20 when heating oil reached $2.9671, yet volume was the lowest since June 19 when 102,475 contracts were traded. On June 27, open interest declined by 81 contracts and the July contract accounted for loss of 6,730 of open interest. Heating oil remains on a short-term buy signal but an intermediate term sell signal.

Gasoline:

August gasoline gained 1.03 cents on volume of 142,052 contracts. Volume declined approximately 6,000 contracts from June 26 when gasoline lost .0070 and total open interest declined by 5,861 contracts. On June 27, total open interest declined by 2,215 contracts, which relative to volume is approximately 40% below average. The July contract accounted for loss of 8,806 of open interest. On June 24, August gasoline generated a short-term sell signal and remains on an intermediate term sell signal.

Natural gas:

August natural gas lost 15.5 cents on volume of 400,959 contracts. Volume was the highest since June 13 when 468,877 contracts were traded and natural gas advanced 3.7 cents while open interest increased 10,174 contracts. On June 27, open interest increased by 10,101 contracts, which relative to volume is average. However, this is one of the few open interest increases on a price decline that we've seen over the past month. This indicates an increasing amount of bearishness and that new shorts are driving prices lower. On May 31, natural gas generated a short-term sell signal and on June 24 generated in intermediate term sell signal.

Soybeans:

August soybeans gained 7.25 cents on volume of 159,477 contracts. Open interest declined by 11,410 contracts, which relative to volume is approximately 185% above average, meaning that liquidation was extremely heavy. Accounting for the large total open interest decline was the July contract, which lost 16,020 contracts. This contract has entered first notice day on June 28. Soybeans remains on a short and intermediate term buy signal.

Soybean meal:

August soybean meal advanced $4.40 on heavy volume of 110,598 contracts. Volume was the highest since June 13 when 117,388 contracts were traded and open interest increased by 8,351 while soybean meal prices declined by $8.80. On June 27, open interest declined by 4,031 contracts, which relative to volume is approximately 40% above average meaning that liquidation was fairly heavy. Accounting for the total open interest decline was the July contract, which lost 9,618 of open interest. July soybean meal enters first notice day on June 28.

Corn:

September corn lost 1.75 cents on heavier than normal volume of 302,866 contracts. Volume was the highest since June 19 when 445,480 contracts were traded and corn advanced 9 cents while open interest increased only 46 contracts. On June 27, open interest declined by a massive 23,431 contracts, which relative to volume is approximately 210% above average, meaning that liquidation was extremely heavy. Accounting for decline of total open interest was the July contract, which lost 28,106 contracts of open interest. July corn enters first notice day on June 28.

Wheat:

September wheat lost 3.25 cents on volume of 103,343 contracts. Total open interest declined by 4,475 contracts, which relative to volume is approximately 65% above average meaning that liquidation was unusually heavy. The July contract accounted for loss of 10,418 of open interest. July wheat enter first notice day on June 28.

Cotton:

December cotton gained 18 points on light volume of 13,332 contracts. Total open interest declined by 273 contracts, which relative to volume is approximately 20% below average. The July contract lost 707 of open interest and December lost 59. On June 24, December cotton generated a short-term sell signal, and as of June 28 remains on an intermediate term buy signal. There seems to be a lack of interest in cotton, and volume reflects it.

Live cattle:

On June 27, August live cattle generated a short-term buy signal, but remains on an intermediate term sell signal.

August live cattle gained 0.75 cents on volume of 49,904 contracts. Although August cattle reached a new high for the move at 1.23125 cents per pound, volume fell from 50,151 traded on June 26 when cattle advanced 1.05 cents and total open interest declined by a massive 4,911 contracts. On June 27, open interest increased by 252 contracts, which relative to volume is approximately 75% less than average. The June contract lost 1,071 of open interest and August lost 2,836. Open interest increased in all months from October 2013 through June 2014. June 27 was the first day since the rally began on June 17 that total open interest increased. From June 17 through June 27, August cattle has advanced 4.60 cents or 3.89%. We consider it to be a short-term negative that total open interest increased on the move to a new high. As is usually the case after the generation of a buy signal from OIA, cattle should pullback for at least 1-2 and possibly 3 days before resuming its uptrend.

Euro:

The September euro gained 44 points on light volume of 231,869 contracts. Volume was the lightest since June 19 when 224,402 contracts were traded and the euro declined 1.36 cents while open interest declined 69,526 contracts. The massive decline of open interest on June 19 was caused by the loss of 70,328 contracts in the June contract. On June 27, open interest declined by 2,757 contracts, which relative to volume is approximately 45% less than average. It appears increasingly likely the euro will generate a short-term, and possibly an intermediate term sell signal in the next day or two.

S&P 500 E mini:

The S&P 500 E mini gained 11.00 points on volume of 1,607,914 contracts. Although the E mini made a new high for the move at 1614.25, volume declined by 126,932 contracts from June 26 when the S&P 500 E mini gained 14.00 points and open interest declined 56,781 contracts. On June 27, open interest increased by a minuscule 3,129 contracts, which is dramatically below average. During the rally of the past 3 trading sessions beginning on June 25, open interest has declined by 73,257 contracts while the E mini has advanced 40.25 points. This is decidedly bearish open interest action relative to the price advance. In our view, it confirms the E mini is headed lower and that speculators should be initiating bearish positions, if they have not done so already. It is possible we may see a final thrust to the 1621.00 area, but we think this is it on the upside. Speculators can use the high of June 27 (1614.25) and 1614.50, the high on June 28 as exit points for short futures positions.

By. Garry Stern

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